Morgan Stanley reveals why Budapest is an ideal location

Morgan Stanley is a huge American financial institution, yet in 2006, it chose a small European country, and its capital, Budapest, to establish an important IT center. What exactly is this center doing, and why has it been established in Budapest of all places?

Stephen Mavin: The whole spectrum of our technology solutions can be found in the Budapest office. Enterprise infrastructure development, network engineering, information security and more. We have application development teams supporting trading, risk management, and various corporate functions such as finance. There are also quality assurance and product management functions performed in Budapest. Therefore, this is an important location for technology.

If the decision had to be made once again to open this center somewhere, would you choose Hungary once again?

I was on the team that made the decision of bringing the new center to Budapest at the time. Apart from looking at geographical criteria, we were taking into consideration such aspects as demographics, skill levels and the quality of higher education. 12 years ago the decision we made was quite straightforward. Universities in Hungary focus quite strongly on STEM fields - science, technology, engineering and mathematics.

In the past 12 years, nothing that happened that would indicate that we made the wrong decision by bringing this center to Budapest.

So, establishing the Budapest office was unquestionably a good and robust decision.

What are the main advantages of the Hungarian labor market compared to the US?

The necessary fundamental skills are present in both markets, and while the labor market is smaller in Hungary, there is no doubt the focus on STEM disciplines is very strong here. We aim to have diverse talent pools and attract appropriate talent from multiple markets. Therefore, the company’s successful operation does not depend on individual locations, the important thing is rather to develop the right network of offices.

Being in a time zone close to the rest of Europe is also important, this way Budapest can easily connect to the finance center in London.

What about salaries? Isn’t one of the advantages of Budapest from the company’s point of view that skilled workforce is available cost-effectively?

Of course, but apart from cost of labor you have the real estate prices and other factors. If we are able to deliver the same productivity and quality more cost effectively, that is without question an important value-creating aspect.

That said, it would be naïve to say that unit costs are the only significant measure when looking at efficiency. Getting lower quality work for lower salaries would not be a good tradeoff.

Fortunately, our experience in Hungary is that very high quality work is delivered while realizing cost efficiencies.

Is Morgan Stanley planning further expansion or investments in Hungary?

Hungary will certainly continue to be an important location in the future. We are continuously hiring fresh graduates, and this is a real success story for us which we will keep developing. We are constantly training new teams in Budapest to maintain our footprint.

Recently, Morgan Stanley augmented 16,000 financial advisors with machine learning algorithms. What does this mean exactly?

Machine learning and data analytics are important for us, these are techniques that can help protect and generate revenue, drive efficiency and reduce cost through automation and also help protect the firm by helping manage operational risks.

What are the main risks of artificial intelligence, and how can these be managed?

Accountability needs to be carefully considered. If an individual is making a decision, it is very clear who is accountable for the decision and its consequences. In the case of artificial intelligence, however, the situation is different, this is one of the questions in the case of self-driving cars. Of course, we are using AI a deterministic way, recognizing that this technology has a lot of potential.

A key area will be that of the explainable AI. If we take the field of image recognition as an example, it may not be enough for a machine to identify the image of a cat in a picture, but we may need to understand precisely how it came to that determination. Therefore explainable AI could be an important research area.

There are a number of fintech firms threatening the retail banking sector. Are there similar players in the Institutional banking sector as well? Are there ones Morgan Stanley would perceive as a threat?

We see the disruptive power of the fintech industry as a great opportunity to partner, not a threat. In light of that, we keep a very close eye on emerging technologies that can help improve our existing processes and help us create new products. To that end, we work with fintech incubators, we mentor fintech organizations, we run fintech events - such as the one recently in New York where we bring organizations in to engage with our own experts.

We have a separate function that scouts for new and interesting technologies and fintech startups appearing on the market.

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