CBA banking on AI and data boom, buys stake in H20ai

Commonwealth Bank is making a foray into artificial intelligence by striking an alliance and buying a minority stake in Silicon Valley-based H2O.ai.

Sri Ambati, founder and CEO of H2O.ai, has ruled off a funding round led by CBA and including participation from Goldman Sachs and Pivot Investment Partners. Picture: Jason Henry

Commonwealth Bank is making a foray into artificial intelligence by striking an alliance and buying a minority stake in Silicon Valley-based H2O.ai, which has seen its valuation increase fourfold in two years.

In a strategic move, CBA led H2O.ai’s latest $US100m ($135.1m) funding round, which gives the artificial intelligence company a pre-money valuation of $US1.6bn ($2.2bn). The Series E raising was also backed by prior investors including Goldman Sachs and new participant and growth equity firm Pivot Investment Partners.

The alliance also means CBA is H2O.ai’s exclusive financial services partner in Australia and New Zealand, and comes as the bank wades into a string of partnerships and technologies including last week moving into the cryptocurrency trading space. CBA’s 5 per cent stake in Swedish payments and buy now pay later firm, Klarna, has ballooned in value in the past two years to be worth about $2.7bn.

CBA chief executive Matt Comyn said he saw “enormous applicability” across the bank for artificial intelligence, which would help it better engage with customers as it conducted real-time analysis of 157 billion data points and made 35 million decisions relating to customers daily.

He added that as technologies and industries converged, data was becoming increasingly important for banks as large technology players moved further into financial services.

“It’s (data) a very important part of competitive advantage,” Mr Comyn said. “Clearly over the medium and long term we see the competitive landscape changing quite significantly … whereas 10 or 15 years ago it was probably much more about what the other major banks were doing.

“It’s also for us about having access to world class talent capability,” he added.

H2O.ai is the employer of the world’s top 20 data scientist and machine learning grandmasters as measured by Kaggle, a community for data scientists.

H2O.ai founder and CEO Sri Ambati said the company was building its “street cred” globally and while CBA was the exclusive banking partner in Australia, that did not limit H2O.ai from working with companies in other sectors here including tele­communications, government and retailers.

H2O.ai says it provides artificial intelligence services to more than 20,000 organisations, millions of data scientists and more than half of the Fortune 500 including AT&T, Citigroup, Capital One, GlaxoSmithKline, Procter & Gamble, PayPal, PwC, Unilever and Goldman Sachs.

Commonwealth Bank CEO Matt Comyn.

CBA is not disclosing the size of its ownership stake in H2O.ai, but Mr Comyn said the holding would ensure alignment.

But the CBA and H2O.ai tie-up comes amid heightened debate about the use and potential pitfalls of artificial intelligence in finance.

An International Monetary Fund research paper, published last month, highlighted new opportunities and benefits stemming from the increased use of artificial intelligence and machine learning (AI/ML) but also warned of potential longer-term risks to financial stability.

“Competitive pressures are fuelling rapid adoption of AI/ML in the financial sector by facilitating gains in efficiency and cost savings, reshaping client interfaces, enhancing forecasting accuracy, and improving risk management and compliance,” the report said.

Titled Powering the Digital Economy report: Opportunities and Risks of Artificial Intelligence in Finance, it also said the accelerating shift would require efforts by regulators and industry to develop minimum standards and guidelines.

“Concerns include a number of issues, such as embedded bias in AI/ML systems, the opaqueness of their outcomes, and their robustness (particularly with respect to cyber threats and privacy),” the report noted. “Furthermore, the technology is bringing new sources and transmission channels of systemic risks, including greater homogeneity in risk assessments and credit decisions and rising interconnectedness that could quickly amplify shocks.”

When asked about potential customer concerns over data security, Mr Comyn said: The “data stays within our ecosystem, so you know we don’t … share or sell or provide data to third parties.”

Dr Andrew McMullan, CBA’s data and analytics chief, is joining the H2O.ai board as part of the alliance. He said the bank had worked with H2O.ai for several years and when it drew on the firm’s technology and licences the outcomes were “significantly better”.

Dr McMullan added that using a H2O.ai platform, CBA could build a sophisticated artificial intelligence model in minutes compared to a process that historically took about 11 weeks for bank data scientists.

CBA is already drawing on data and artificial intelligence in some areas of its business including using custom-built algorithms to monitor, in real time, official emergency and weather data to support customers impacted by natural disasters.

Early this year, CBA used the system to provide same-day support to 80,000 customers impacted by the Perth bushfires.

CBA has also partnered with data firm Quantium to provide data insights to institutional customers.

The bank sees the H2O.ai alliance helping the bank’s customers in areas such as bill and cash flow predictability and tracking carbon emissions. CBA says it will be able to better personalise offers for customers and function as a provider of “highest quality, lowest cost sources of leads” to business customers.

Mr Ambati said given the prevalence of green washing around the world, artificial intelligence could “throw light into that”.

The series E raising follows H2O.ai’s $US72.5m funding round in 2019, which reflected a $US400m valuation.

CBA entered the cryptocurrency trading space via partnerships with regulated crypto exchange and custodian Gemini, and blockchain analysis firm Chainalysis. It was the first such move by a major domestic bank.

CBA has also partnered with fintech CoGo to give customers insights into their carbon footprint and offsetting it.