By David Linthicum
European banking executives are increasingly concerned about the growing dependence of big U.S. tech firms on integrated artificial intelligence (AI) in financial services. Substantial computing power is needed for AI, and many banks believe they will struggle to operate AI independently. They fear a shift towards “Big Tech” and “Big Cloud” due to AI adoption requirements.
These concerns were widely discussed at a recent fintech conference in Amsterdam. I wish I had been there to remind them that they have direct control of the technology they deploy, and large companies and cloud providers don’t have a monopoly on AI. My best advice would be to calm down and remain objective enough to recognize there’s a reasonable path forward.
AI is driving a lot of paranoia
Interest in AI, especially generative AI, has increased since the release of notable AI chatbots in late 2022, which highlighted the excitement and potential for these technologies. However, this enthusiasm is tempered by the realization that banks might become too reliant on a few dominant tech providers. At least, that seems to be what happened to the fintech crew in Amsterdam.
The assumption is that banks would find it impractical to independently develop the extensive computing power required for AI technologies. Heavy reliance on a small number of tech providers, would pose a significant risk, particularly for European banks. It is further assumed that these banks need to retain the flexibility to switch between different technology vendors to prevent excessive dependence on any one provider, a situation also known as vendor lock-in.
And now they want to get the governments involved. The U.K. has proposed new regulations to moderate financial firms’ reliance on external technology companies such as Microsoft, Google, IBM, Amazon, and others. Regulators are specifically concerned that issues at any single cloud computing company could disrupt services across numerous financial institutions. The proposed rules are part of larger efforts to protect the financial sector from systemic risks posed by such concentrated dependence on a few tech giants.
In its first statement on AI, the European Union’s securities watchdog emphasized that banks and investment firms must not shirk boardroom responsibility when deploying AI technologies. Firms have a legal duty to protect their customers, and this obligation extends to the ethical and secure use of AI. The watchdog warned that AI is likely to significantly impact retail investor protections, highlighting the increasing regulatory scrutiny surrounding its adoption in the financial sector.
Fears, uncertainties, and doubts
I’ve heard this type of fear-mongering before. During the initial adoption of cloud computing around 2010, enterprises cited lock-in and dependency on systems and companies they did not own or control as reasons to avoid cloud computing. Article after article (now scrubbed from the Internet) predicted a calamity that never materialized.
Although some outages did occur, public cloud providers offered an uptime record that far exceeded any reliability metrics from internal enterprise systems. They even set the best practices for operating these systems, including geographical redundancy. The fear that these cloud providers will somehow blow up and everyone will be left holding the bag is just a theory unbound to facts. On the other hand, many enterprises maintain data centers with single failure points. Some data centers are in flood, tornado, or hurricane zones, and all are vulnerable to other types of natural disasters such as fires. However, most executives who oversee these data centers insist that everything is under control. Nothing to see here, folks.
What about the assumption that AI requires a dependency on Big Tech or Big Cloud? “Nothing to see here, folks,” actually does apply to this case. It’s no different than other cloud-tethered systems we built in the past 20 years. The same components that run AI systems also are used for other enterprise systems. The idea that all these components will need clusters of GPUs in the cloud or enterprise data centers for AI to work is just not based on reality.
Most use cases for AI, including those leveraged by banks, will be more tactical and won’t need specialized processors like GPUs. No one is being forced into the grips of big technology companies. I suspect this assumption from Amsterdam was driven primarily by the tech press and the hype around AI-based companies producing and selling GPUs, either as a chip or a service.
I’m not defending cloud providers. They have their downsides, including cost. However, you must consider the architectural realities of cloud technology to understand any risks you’ll be adopting. We use them for some things and not for others. It’s an option and will continue to be an option. You control your own destiny.
Don’t worry about too much change
At the heart of this issue is something we’ve seen repeatedly in the enterprise technology space: the assumption that significant change is about to occur at a pace we’ve never before seen. Consider the first appearance of AI in the 1980s, the rise of the PC, the Internet, cloud computing, and now the resurgence of AI in a new generative form. We’re talking about a quarter of a century. Things move a lot slower than we think they will. AI won’t be an exception.
Here’s another common assumption that is a gross overestimation of what is about to occur: AI will make us leverage the tools and technology from Big Tech or even require massive changes to our infrastructure, far beyond a few tweaks and upgrades. As far as I’m concerned, the idea of mandating banks or any type of business to adopt technology that will lead to a reliance on that technology is just ridiculous. Why? We already rely on an infinite number of technologies that make our businesses more competitive and better able to improve their bottom lines.
Perhaps Mark Twain said it best: “Fear keeps us focused on the past or worried about the future.”
It’s time to take a clear-eyed look at the present. It’s not as scary as it’s sometimes made out to be. Don’t let fear turn you away from the road that leads to opportunities. The well-worn path that everyone else is on rarely leads to glory.
