How The IOWN Global Forum Is Reinventing Financial Infrastructure With Photonics

[00:00:04] What does resilience really mean when financial systems are expected to run without pause, even during disruption? Today's conversation will take us into the foundations of next generation infrastructure and how speed, energy efficiency and trust are designed right from the outset, rather than just patched on later as an afterthought.

[00:00:28] So today I have not one, but two guests are going to be joining me from the IOWN Global Forum. And we're going to get our geek on today and talk about everything from photonics-based networks to distributed computing and a discussion that will look at how the future of financial services might operate when infrastructure is built for constant change rather than rare failure.

[00:00:55] And my guests are also taking this call late in their day all the way in Kyoto, Japan. So if you want to know what happens when resilience stops being a theory and becomes a design principle, buckle up and hold on tight as I beam your ears all the way to Japan now, where you can join me and my guests today. So first of all, Haito-san, can you tell everyone listening a little about who you are and what you do?

[00:01:21] I'm currently serving as the chair of the use case working group at the IOWN Global Forum. In our group, the use case working group that is, we focus on understanding what applications actually need and then translating those needs into clear requirements for the technology side, which is something many forum and the standard organization do. What is a bit different about IOWN though is that we don't stop at the proof of concept.

[00:01:48] We really push into proof of value and proof of the business. And to do that, we design our use cases around specific stakeholders so that the value is concrete and relevant, not just the theoretical one. So today we're going to talk about the distributed service infrastructure for the financial service industry. The technologies behind it are quite general and can be applied across the many industries.

[00:02:12] However, we've made this use case very finance specific so we can clearly explain where the value comes from and why it matters in the real world. And Koroshima-san, can you tell everyone listening a little about who you are too? We are running an organization called IOWN Global Forum. And IOWN stands for Innovative Optical and Wireless Network.

[00:02:35] And our activity is about developing innovation practice to leverage the emerging optical device and optical communication technologies. And we believe that we need our activity to address the need for a new infrastructure to support AI-driven societies.

[00:03:02] Well, it's a pleasure to have you both join me today, all the way from Japan. And financial services institutions, they're currently under constant pressure to deliver uninterrupted services, while also meeting strict regulatory demands. We're seeing this all around the world at the moment. So from your perspective, where do today's infrastructure models fall short when real-world disruption hits? Because again, something we're seeing more and more. But where are the current models falling short?

[00:03:33] One of the issues is the agility. As you say, today's infrastructure are designed to comply with strict regulatory standards. But on the other hand, we are expecting the new era of digital banking.

[00:03:53] So financial services institutes should consider how to build the new service platform that supports agile digital service development. And today's financial services institutes' infrastructure are not ready for such agile service development. And one example is that when they would like to deploy new application platform, they often face the shortage of data center spaces or powers.

[00:04:23] So we would like to create a new infrastructure that enables financial services institutes to deploy new applications, new digital applications without struggling with data center power or data center space issues. Just adding a few on top of that. I guess when everything is running normally, today's infrastructure looks fine on the paper. The problem really shows up when something goes wrong.

[00:04:49] At the same time, as you said, the regulatory pressure keeps increasing. Requirements like Europe's DORA expect system to stay operational and secure and auditable, even during these disruptions. So with today's architecture, institutions often end up adding layers of redundancy and controls after the fact.

[00:05:15] That drives up the cost and complexity, but it doesn't fundamentally eliminate the task. And this is where we are addressing the ion technology to be adapted. You make such a great point there about it's not until something goes wrong that people start to pay attention. And things like resilience, they're often discussed in theory, but it's only when there's those big large scale outages that exposes those gaps so quickly.

[00:05:43] So how does the FSI use case within ION Global Forum, how does it rethink resiliency at a structural level rather than as a bolt on after fix? What do you do here? Today's Financial Services Institute infrastructure rely on asynchronous replication, meaning that the backup data should be sent to the backup place as a second process.

[00:06:12] Typically, when the database is updated, the update takes place only in the main place, and the update data will be sent afterwards. That's what we call asynchronous replication. So there is some risk of losing some fresh updated data.

[00:06:31] But with ION APN, with our new high bandwidth low latency network that takes advantage of the latest optical transport technology, we can connect the bank's main data centers and backup data centers with high bandwidth low latency connections. And we can have two databases synchronously perform synchronously replication.

[00:06:59] So with this approach, we don't have to deploy backup services. And we can guarantee that all the updated data remains in the backup sites. So that would reduce the total operation cost and also reduce the very complex work after the incident,

[00:07:28] or after the earthquake, for example. I mean, this is where I believe distributed computing makes a fundamental difference. With this low latency, ultra wide band, also the deterministic latency feature of the ION allows the implementation of distributed computing. We don't treat resiliency as something you add later.

[00:07:55] We design directly into the system by assuming that compute data and application were distributed by default is where I believe the value of the ION comes from. Looking at the tech behind what we're talking about today, open all photonic networks is something that sits right at the center of this initiative.

[00:08:15] So what practical advantages do photonic networks offer over traditional electronic networks when it comes to latency, recovery speed and energy use? So basically with ION open APN, we can reduce the latency of data transfer because we can reduce the packet forwarding points.

[00:08:41] So today's infrastructure is also built with optical transport system. But basically today's infrastructures are with optical silos, meaning that the, of course we have optical transport systems, but each network domain has its own optical transport system. And when the two domains are interconnected, we should deploy packet system back to back.

[00:09:08] So the optical transport paths are terminated within each domain. That's why I say that today's infrastructure are with optical silos. On the other hand, with ION APN, the infrastructures will be with optical agility, meaning that we can create a connection that spans across multiple domains just by reconfiguring the optical transport nodes.

[00:09:36] And with this, basically we can create a connection across multiple network providers domain. And that would help us to create two data centers with very low latency connections. And that would help us, that would help database perform synchronous database replication. So that's the main advantage of OpenAPN with regard to the latency.

[00:10:02] And also another benefit of OpenAPN is economics. With today's infrastructure, with electronic packet switches in many points, when we try to upgrade the infrastructure, we have to replace all the packet nodes, packet switching nodes. And that would lead to large capex, large financial burden.

[00:10:29] But with ION APN, basically we can reduce the number of packet forwarding nodes. And that would result in the significant reduction of infrastructure capex. And I think many institutions struggle to balance operational agility with cost controls. So how does photonics-based infrastructure, how does that help organizations scale resources dynamically without driving costs higher? Because I would imagine that would be an immediate concern.

[00:11:00] So how do you do that? That's the question. That's the benefit of replacing packet nodes with optical transport, optical switching systems. Because the reason why today's these connections are expensive is because we need to deploy many packet switches.

[00:11:20] And if we were to achieve high quality, we should avoid having many connections share one packet forwarding node. So that would result in high price of these connections. But with optical circuit switches, we can have multiple connections share one optical transport system by means of wavelength division multiplexing.

[00:11:49] And the cost of wavelength division multiplexing is much lower than the packet forwarding system because the optical circuit switches can be used across multiple transceiver generations. So if we divide the equipment cost over the product lifetime, the cost of optical transport system is much lower than the cost of packet system.

[00:12:15] So that's the reason we believe that IonAPN can achieve both resiliency and cost advantage. I mean, this is a challenge almost every financial institution faces. And you have to stay agile without letting the cost spiral out of control. So the big advantage of photonic space infrastructure is that gives organizations much more freedom in where and how they deploy the resources.

[00:12:45] Because latency remains low and the latency is predictable over longer distances, compute and the storage don't have to sit in expensive, tiny, packed urban data centers. Because institutions can spread resources across sites that offer lower cost space and power, sometimes tens, hundreds of kilometers away, and still have them behave like part of the same system.

[00:13:13] When demand increases, workload can be scaled out dynamically across these locations instead of requiring massive over-provisioning in single site. So the result is a better utilization of infrastructure, fewer idle resources. Fewer idle resources may be the most important part and lower, and leading to the lower total cost of ownership, as Kashima-san just mentioned.

[00:13:38] Also, I'd like to add that such cost advantage would come from a new business model or a new organization model. For example, today we have smartphones, which have very cutting-edge CPUs inside the phone.

[00:14:01] And it would be very costly if the carriers had to own, had to pay for the smartphones for their services. But the reason why the smartphones are, we can buy smartphones by ourselves is because we change the business models. We let the smartphones, we let customers buy, pay for smartphones.

[00:14:25] And there would be many business models that would persuade customers into buying new smartphones. Like that, today, optical transport systems, optical transceivers are owned by carriers. So today, the cost of optical transceivers, the carriers, infrastructure, capital expenditure. But if we let customers pay for the optical transceivers,

[00:14:52] then the cost of optical transceivers would be translated into carrier equipment sales. And that would change the whole business model. And that would result in the increased production of optical transceivers and result in the low transceiver cost. So that kind of business model consideration is a part of a study. So we are not just a technical standardization organization.

[00:15:20] We are a community that pursue innovation practice. And although many in the industry will want to innovate, they'll be hungry for change and wanting to improve things. Regulatory compliance often limits just how flexible financial infrastructure can be. So how does the FSI framework support compliance while also allowing institutions to modernize and adapt so quickly? That's a good question.

[00:15:48] Of course, eventually we need to persuade the stakeholders to change the regulatories. So basically what we do is we demonstrate the benefit of a solution in terms of economics and so on. And we will share our insights with such stakeholders. So we produce a report called techno business insights.

[00:16:17] And through these reports, our stakeholders will also understand why we should change the today's regulatory rules, reflecting the opportunities with the new technologies. So that's our approach. So of course, we should be very clear about the economic gains from our solutions. So we are not just about talking about technology, but we are also talking about the economic benefits.

[00:16:47] And that means we are talking about the benefits for societies. And you mentioned the benefits for societies there. Another big topic we must bring up is sustainability, because that's becoming a board level concern alongside resilience and performance. So what role does energy efficiency play in your Global Forum's vision for the future of digital finance? Is that something that's important to you too?

[00:17:15] I mean, sustainability isn't treated as a trade-off against the performance or resiliency. With ion, it becomes something you can improve at the same time as you strengthen operational resilience and meet the regulatory expectation. The nature of all photonics networks itself, they are leading to the lower power consumption.

[00:17:40] At the same time, because this distributed computing nature, we can have better utilization of each of the data centers, thus leading toward the efficient use of each site that leads to the use of better, more efficient use of the energy resource available.

[00:18:01] And speaking about sustainability, I think many technology folks are talking about how to create energy efficient computers. For example, if we develop new accelerators, of course, we can reduce the power consumption of power flops. But we believe that another important point is to reduce the density of power consumption, geographical density of power consumption.

[00:18:29] If we concentrate power demand on a small area, then it would be hard to take advantage of renewable energy. But with ion APN, we can distribute the power consumption demand over a wide, large geographical area. And that would help us leverage the locally available renewable energy.

[00:18:55] So in ion global forum, we are not just talking about reducing the total power consumption, but also we are talking about how to distribute power consumption demand geographical area. And if we were to look ahead, how do you think widespread adoption of photonics based financial infrastructure could

[00:19:17] eventually reshape innovation, risk management and competitiveness across the global financial services? What's the grand vision here? How do you see all this taking shape? So it's not our vision, but I expect that in future, the financial service business is about the competition of a digital platform for financial financial service or digital banking.

[00:19:44] And we believe that our infrastructure would be the foundation of such digital platformers. So that is our vision. So all the industries would be competing with digital platforms and our infrastructures would be the foundational layer of their digital platform.

[00:20:09] Yeah, I think it fundamentally changes how financial institutions think about both innovation and risk. Yeah. With deterministic low latency connectivity and distributed compute as a foundation, things like real-time analytics, AI-driven risk management and cross-border services become much easier to deploy at scale.

[00:20:34] So you're no longer constrained by where data lives or how fast it can move. You can design services around the business needs, not the infrastructure limits. From risk perspective, this kind of architecture makes resilience proactive rather than reactive. Instead of planning for a recovery after something breaks, institution can operate continuously across regions,

[00:21:04] which is exactly what the regulators and the customer are starting to expect. Competitively, the firms that invest in this early will have a real advantage. They will be able to move faster, meet tougher compliance and sustainability goals, and launch new services. I think this is really summarized as digitalization thing, not just the mission-critical services,

[00:21:31] but more than that on new service with the confidence. In that sense, Photonics is just a technology upgrade, and it's really a way to future-proof financial services in the very rapidly changing global market. Well, I've loved chatting with you both today, learning more about how you're delivering this ultra-fast, energy-efficient data transmission and how the infrastructure supports seamless migration

[00:22:01] and backup applications across regional and inter-regional data centers. So many big talking points. And for people that would love to continue this conversation, maybe connect with you both or your team or just find out more information, where would you like to send everyone? I would like people to check the website of our forum, ION Global Forum website, and see that there will be many reports and documents that introduces our technology concept

[00:22:30] and also the result of our technical experiment that shows the economic advantage of our solution. So we would be very happy if we could look into our website. Awesome. Well, I will add a link to the website. I'd urge anyone to check that out, especially at a time where any tech project is under extreme focus for ROI. What value is it going to offer to the business?

[00:22:57] And what you're doing here is you're offering flexible, high-bandwidth connections, but with minimal latency, which essentially enables real-time data replication and robust disaster recovery. There's the ROI there. So I would urge anyone listening to check that out. But more than anything, just thank you for joining me today. Thank you very much. Thank you very much. I think we covered a lot there, didn't we? From how photonic networks change the economics of resilience

[00:23:23] to why sustainability, compliance and performance no longer need to pull in different directions. And that idea that infrastructure can be more reliable and more energy efficient, I think challenges some long-held assumptions in financial services. And it also raises bigger questions about how innovation, risk and regulation might evolve together rather than in conflict.

[00:23:51] So if this conversation made you rethink what modern financial infrastructure could look like, should look like, that curiosity is worth following. So please check out the links in the show notes. And as demands on digital finance will inevitably continue to rise, how prepared do you think your systems today are for the conditions of tomorrow? Let me know your thoughts as always.

[00:24:17] Go to techtalksnetwork.com and we'll continue this conversation. And I will also return again tomorrow for a completely different one. But that is it for today. Thanks for listening. Bye for now.