Skunk Works for Banks and Brokerages: A New Era of Innovation with AI and Cloud
Skunk Works for Banks and Brokerages is not only viable, it’s advisable!
As part of my executive responsibilities for a bank’s investment division and retail brokerage, I built a Skunk Works team for digital products and services. It was a cross-functional team of registered reps, traders, business analysts, digital marketers, and technicians.
For those unfamiliar, Skunk Works was the brainchild of Lockheed Martin engineer Kelly Johnson, conceived in 1943 to develop the P-80 Shooting Star, America’s first jet fighter, in under 150 days. Inspired by a mysterious locale from the comic strip Li’l Abner, Skunk Works thrived on an unconventional, agile organizational approach. Johnson’s “14 rules and practices” broke traditional rules, bypassing bureaucracy to foster rapid innovation.
While my Skunk Works team didn’t bend regulatory rules (banks have little flexibility here), we did challenge conventions like waterfall development and limited-channel marketing. With a budget just north of $2 million—half spent on infrastructure—we delivered groundbreaking solutions, including the first retail fixed-income integration to a retail online brokerage, a securities auction platform, and a wholesale foreign exchange platform.
However, the infrastructure sat idle 60% of the time due to the team’s part-time involvement, wasting valuable capital. Ultimately, the group dissolved during a 2014 consolidation, just as cloud services like AWS began to mature.
The New Frontier: AI and Cloud-Enabled Skunk Works
The concept of Skunk Works in financial services has only gained momentum. A prime example is JPMorgan Chase’s New Products Development initiative, their version of Skunk Works, launched in 2014. While the name might sound pedestrian, the mission was anything but. In a 2015 job listing, JPMorgan described candidates for the team as those who “care about disruption,” have opinions on Bitcoin and other cryptocurrencies, and might feel ambivalent about working for a large institution—an unconventional pitch for a bank.
By 2019, JPMorgan had committed $11 billion to technology, directing a significant portion toward Skunk Works-style initiatives. The results include groundbreaking products such as JPM Coin, a blockchain-based digital currency enabling instant payments, and Onyx, a platform leveraging blockchain to transform wholesale payments and trade finance. Additionally, its Contract Intelligence (COiN) program utilizes AI to review thousands of contracts in seconds, dramatically enhancing efficiency and accuracy.
Building on these successes, JPMorgan has also made significant strides in AI and machine learning. With a dedicated team of over 2,000 specialists, the bank employs advanced algorithms to combat fraud in real time, reducing losses and bolstering trust at the point of sale. These technologies also underpin personalized recommendations and predictive analytics, allowing JPMorgan to deliver a more customer-centric experience at scale. Such innovations highlight the transformative potential of pairing cutting-edge technology with a forward-thinking Skunk Works methodology.
While smaller banks can’t match the IT budgets of giants like JPMorgan, they can still establish their own Skunk Works teams to explore niche innovations or improve critical processes. Cloud platforms have democratized access to sophisticated technologies, enabling even modestly funded teams to leverage modular AI tools once reserved for industry leaders. Collaborative partnerships with fintech companies further empower smaller institutions, offering access to specialized expertise and cutting-edge technology that can drive meaningful advancements.
Cloud Changes Everything
Unlike the capital-intensive infrastructure investments of my Skunk Works team, cloud platforms now eliminate upfront costs. Services like AWS, Microsoft Azure, and Google Cloud allow organizations to “pay as you go” while providing access to cutting-edge AI/ML tools and blockchain frameworks. These platforms come pre-built with essential components, reducing the specialized skillsets and resources traditionally required.
Take AWS, for example. It not only offers AI/ML services but also provides free training and access to Solutions Architects for enterprise projects. This accessibility makes testing high-impact technologies—like AI-driven fraud detection or blockchain-based payment systems—both affordable and scalable.
Integrating AI into Skunk Works for Banks and Brokerages
With cloud-enabled AI/ML services, financial institutions can assemble ad hoc teams—general ledger accountants, business analysts, and information security experts—to experiment with innovative solutions. Here are two practical applications:
AI for Customer Insights
AI platforms like Google’s Vertex AI or Microsoft’s Azure AI can analyze vast datasets to reveal customer behavior patterns. Financial institutions can use this insight to design hyper-personalized products, optimize marketing campaigns, and streamline customer interactions. These advancements were cost-prohibitive a decade ago but are now accessible to even mid-sized banks via the cloud.
Fraud Detection with AI
Pre-cloud, deploying an AI fraud detection system required substantial capital for infrastructure, specialized software, and experts. Today, banks can leverage platforms like AWS SageMaker to build, train, and deploy ML models. These tools allow institutions to test and refine fraud detection systems with minimal overhead. JPMorgan’s machine learning applications reportedly deliver $150 million in annual benefits while improving transaction safety and customer experience.
Skunk Works in the Cloud Era
The cloud has made Skunk Works projects more feasible for banks and brokerages of all sizes. No longer limited by idle infrastructure or steep capital requirements, institutions can now embrace a lean, agile approach to innovation. AI/ML services provide transformative opportunities—not just for competing with fintech but also for improving core banking operations like fraud detection and general ledger processes.
Imagine launching a Skunk Works initiative today with access to cloud-based AI and blockchain services. Within weeks, a small, cross-functional team could test proofs of concept, iterate on solutions, and measure impact—all without massive upfront investments.
The Call to Innovate
Skunk Works thrives on the principle of breaking free from bureaucratic inertia and embracing experimentation. With cloud technology and AI at our fingertips, the barriers to innovation have never been lower. The tools that were once exclusive to tech giants and massive financial institutions are now accessible to all.
Financial institutions must seize this opportunity to reinvent themselves—not just to stay competitive but to redefine how they deliver value in a rapidly evolving digital landscape.
The future of Skunk Works for banks and brokerages is here, and it’s powered by AI and the cloud.
