I traveled by bus from Tel Aviv to Herzliya on my way to the tech center of US banking corporation JP Morgan & Chase. On the way, I thought about an article written by Dr. Yoav Intrator, managing director of the center, in which he explains how the global economy, which is now becoming "smarter and smarter," will be conducted autonomously in the future. "What will we have in Israel," I asked myself, "an autonomous bus with no driver, or an autonomous bank without bankers?"
"I think that in the coming decade, we'll see a lot of changes in these two sectors, vehicles and banking," says Intrator, when I ask him this question in his first Israeli media interview. "The processes of change will make rapid progress in every country. In many cases, the changes depend on a political decision, not on whether the technological capability exists. Installing autonomous vehicle technology requires the trust of both the state and the end users. In the auto sector, there are a lot of regulatory issues that must be solved, and decisions with fateful consequences for human life are involved, so the problem is more acute than it is in banking.
"If the state wants to switch to using a digital currency, it depends to a large extent on whether it is willing to deal in this matter with the many concerns still using fiat currency (a sovereign currency like the shekel or dollar). In many markets, there's a lot of non-transparency, and the state loses a lot of money as a result. Every country with a black market or markets that use cash is facing such a problem."
"Globes": How much does the public trust the idea of an autonomous bank in today's world?
Intrator: "It differs from country to country. There are countries where people have a lot of trust, while in others, there is little trust. In general, the main value that banks have is trust. Trust can be lost very quickly, and this happened to banks around the world in the past. Acquiring trust is not something to be taken for granted; it involves a lot of investment and avoidance of pitfalls and crises by the bank. It requires investment in a great many elements, such as security, for example, and creating added value for the customer.
"In the realm of digital currencies, such as bitcoin, there has been a great deal of fraud in the world over the years. Had the banks revealed even one hundredth of this fraud, they would have had a serious problem. A bank can't afford to enter activity that isn't under regulatory supervision. For a bank, if it isn't regulated, it won't happen. It's taking a lot of time for new banks being founded around the world from time to time to obtain the public's trust. Building trust takes time, and you have to constantly maintain it."
If an autonomous bank does win the public's trust, which technology will it use?
"It's not just one technology; it's synergy between many technologies. There are technologies that create new problems, but also bring new advantages. For example, an artificial intelligence (AI) system has a problem of prejudices that can affect the system on the one hand, while on the other hand, it is also possible to improve the technology so that it can expose prejudices and deal with them. Blockchain is a technology that facilitates transparency and security, and there are many more technologies that need to be used in order to provide more security and get more trust."
In a conference you recently held in cooperation with "Globes," you said that JP Morgan was the largest investment bank in Israel in technology. How do you explain your investment in this sector in Israel?
"Most of the startups in Israel in essence aim their technologies at the world in general, not at the domestic market, and a large proportion of the investments in these startups comes from the rest of the world. It's therefore no surprise that the JP Morgan bank, which represents so many companies in the world, uses its know-how and capabilities to help companies make investments in Israel. In this sphere, some of the world's major technology companies are among our customers and decide to acquire startups in Israel, and there are also companies and private investors who participate in offerings by Israeli companies via our systems."
A bank with over 200 years of history
JP Morgan, one of the world's largest investment banks, currently manages $2.6 trillion in assets, is active in over 100 countries, and has over 250,000 employees, according to the company's figures. This huge banking corporation provides services to millions of customers ranging from private investors and small businesses to large companies, investment institutions, and governments. JP Morgan's share is listed on the New York Stock Exchange (ticker symbol: JPM) and is included in the Dow Jones Industrial Average. Its current market cap is $420 billion.
The bank was incorporated in its current structure as JP Morgan & Chase in late 2000, after veteran US bank Chase Manhattan merged with JP Morgan & Co. Chase Manhattan's roots go back to the 18th century with the founding of Manhattan Bank in New York, which merged with Chase National Bank in 1955.
JP Morgan's investment banking activity in Israel is managed by Senior Country Office Roy Navon from the company's offices in Tel Aviv. At the same time, under the management of Gilad Pais in London, the company conducts financial and commercial activity with banks, investment institutions, and investment houses in Israel. The tech center managed by Intrator in Herzliya is managed separately from JP Morgan's local business activities.
What can you tell me about the activity at the center in Herzliya that you manage?
"The center here has been active for three years already, and has tripled the number of its employees, which is nearing 110, during this time. Over 90% of the center's employees are software development personnel, and a large proportion of them work on the development team for Athena, a trading platform for institutions used by JP Morgan throughout the world. Of all of the development activity on the Athena platform, one third takes place in the center in Israel, one third in the UK, and one third in the US. A considerable part of the center's team works in areas like fraud detection, authentication, cybersecurity, blockchain, machine learning, and cloud computing. A laboratory also operates here, focusing on local fintech activity."
JP Morgan's technological development activity in Israel began in 2014, and has been on a large scale since 2017, after the tech center in Herzliya Pituah was opened. The vast majority of the center's employees focus on the development of key components of JP Morgan's core systems, such as the Athena platform. In time, development activity also expanded to fraud detection, user authentication, and from there also to cybersecurity.
In 2018, teams began operating at the center in digital and fintech strategy, data analysis and AI, and a team in development of blockchain use scenarios, based on the Quorum open code platform. An innovation laboratory was founded in the center in 2019 that focuses on proof of concept for third party solutions and internal organizational ideas. This includes cooperative ventures with higher education institutions for research purposes.
"Athena is a system that grows and changes with time, so its development is ongoing," Intrator says. "This is a platform on a global scale that works with other 100 countries with over 100 different currencies and over 100 different regulations. It continues to grow at a pace that is difficult to describe. $6 trillion passes through our systems every day, and this number is hard to imagine. The system's technological needs and the challenges behind them are enormous. We are therefore also considering new fintech technologies. We ask, among other things, whether they have scalability capabilities suitable for systems like those of JP Morgan."
JP Morgan Israel executive director and head of digital strategy and fintech Ziv Gafni says that the local center is becoming "very active with the ecosystem, not just with a startup having fintech activity and dealing with solutions for financial trading, investments or credit, but also with startups offering solutions that can bring value to JP Morgan in areas like cybersecurity, authentication, fraud detection, AI, big data, and even human resources marketing and management. We also want to invest in technologies, but we'll do it as a strategic investor, not a financial one, meaning that we'll invest in technologies after we examine them and decide that they are suitable to our needs in both the business and technological aspects."
How is JP Morgan's global technological organization managed?
Intrator: "The organization has a total of 18 technology centers spread around the world, and the center in Herzliya is one of them. There are other technological center much bigger than our local center, with thousands of employees, such as the ones in New York, Bournemouth and Glasgow."
The global strategy of all of JP Morgan's technology units is managed by Lori Beer, Global Chief Information Officer. David Hudson and Guy Halamish run the Digital Strategy for the investment bank. JP Morgan's annual technology budget is $11.5 billion, $800 million of which is earmarked for new investments.
Intrator has an extensive career in technology, during which he spent 32 years in the US. He completed his MSc and PhD in computer science at George Washington University and served in senior consultation and financial positions on Wall Street and in large technology companies, such as Microsoft and AT&T. He returned to Israel in 2015, and was appointed chief technology officer at Bank Hapoalim. He joined JP Morgan two years later as manager of the technology center in Herzliya.
How much does your center deal in technological research?
"We're more focused on development, but we also have cooperative research ventures. JP Morgan has an AI excellence center in the US that operates like an academic research and development center, and we're the only financial institution in the world to found such an entity. Furthermore, we at the technology center in Israel make connections between researchers at universities in Israel and researchers from the rest of the world in AI."
What does your blockchain excellence center do?
"As part of JP Morgan's global strategy, we are making a concentrated effort in blockchain that is having a global effect. Dr. Jacob Mendel is responsible for this team in our center," Intrator says. As revealed last year by "Globes," Mendel joined JP Morgan's blockchain excellence center after finishing his job as manager of the blockchain research institute at Tel Aviv University.
"Our blockchain network continues to grow"
In February 2019, JP Morgan's announcement that it was preparing to launch its own digital currency, JPM Coin, drew extensive media coverage. Many looked askance at the bank's announcement, especially because the CEO behind the move, Jamie Dimon, was on record previously as a severe critic of bitcoin and cryptocurrencies. At the same time, it appears that Dimon also believes that the bank is likely to find blockchain technologies useful.
Last June the Bloomberg news agency reported that business customers of the bank had begun taking part in a trial using JPM Coin. In recent years, JP Morgan has been developing the Quorum platform, based on the Ethereum blockchain technology, in cooperation with Microsoft. Another of the bank's project in this sphere is Interbank Information network (IIN).
"Our technological center in Israel is playing an important role in these projects. The Quorum project is currently in the spin out process," Intrator says. "Nevertheless, JP Morgan will continue to support the platform."
IIN, launched by JP Morgan in 2017, now contains 380 banks worldwide, and is still growing. Last September, it was reported that Deutsche Bank, the largest bank in Germany, was joining the network. "This network enables the banks' computers to connect with each other without a central server. At JP Morgan, we can't see what information passes between companies on the network, so there is a high level of privacy here for users. In my opinion, this network will grow to include not only banks, but also companies from other sectors," Intrator says.
"We're considering all sorts of usage scenarios that IIN could support, beyond exchanges of information between users. In money transfers between banks around the world, a lot of valuable time is wasted now on anti-money laundering (AML) and know your customer (KYC) processes. These processes sometimes stop the transfers for days, or even weeks. Today, when money is transferred between banks in the world, for example, between a bank in Israel and a bank in Brazil, it passes through many other banks. Each of these banks has different regulations, depending on the country in which it operates. In many cases, this is likely to slow the processes. The added value of this network lies in its ability to shorten these processes to a few minutes by directly connecting the banks from point to point," Intrator explains.
"The Internet gave us the ability to connect from point to point without intermediaries. Similarly, the blockchain network we developed enables every financial concern to connect directly and quickly with any other concern in the world, and that of course is beneficial to JP Morgan's customers," he says.
When JP Morgan announced its JPM Coin digital currency project in 2018, there was extensive media coverage. How has the project developed since then?
"All of the JPM Coin processes are currently still in the pilot stage. Until we obtain the necessary regulatory approvals, use of the digital coin will not shift to the production stage. Our technological center in Israel is also involved in this project," Intrator says.
"JPM Coin is currently linked to the dollar, and in the future may also be linked to other fiat currencies. The purpose of the digital currency is mainly to facilitate payments between companies. In ordinary payment systems currently used by the banks, transactions must be "closed" at the end of each day (for clearance purposes). In a network like JPM Coin, on the other hand, you can say that all of the transactions are closed at any given moment. This enables authorized users of the network to know the exact state of the transactions in real time, and while simultaneously facilitating regulatory and accounting supervision of all payment transfers."
Last November, the Monetary Authority of Singapore (MAS, Singapore's central bank), announced a cooperative venture with JP Morgan, in which they would jointly develop a system for international payment transfers using IIN and the technology of JPM Coin currency. In this context, Intrator says, "JP Morgan has begun talks with the Bank of Israel about the possibility of the Bank of Israel using this system for international currency transfers."
You have a perspective from over 30 years of management experience in technology and computer science. In your opinion, is blockchain a technological revolution?
"In my opinion, blockchain isn't revolution; it's evolution. There has been talk about decentralized systems for many years, and in recent years, we have attained the ability to apply these technologies in an optimal way. The development of cloud computing, on the other hand, is a real revolution, and we're now applying technologies like blockchain to cloud systems."
What is the main challenge for your technological center in the coming year?
"First of all, we have set a target of increasing the diversity of the human element in the center's work teams. We have already begun taking steps to achieve this target, both by including women in our teams and by including Arab staff, mainly Israeli Arabs. I think that the lack of diversity in this area is one of the main problems in the Israeli economy, and there is potential for redressing the situation. For example, there is currently a high proportion of Arab women among engineering and computer science students at universities in Israel. On the other hand, of all the employees in the technology industry, the proportion of Arab women is less than 1%. JP Morgan has an opportunity here, beyond our specific personnel needs, to contribute to Israeli society. We plan to hire more employees this year and diversify our human mix as much as possible."
Published by Globes, Israel business news - en.globes.co.il - on February 2, 2020
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