By Beth Kowitt
June 4, 2019

At nearly 120 years old, Leumi is the largest and oldest bank in Israel. But thanks to the launch of its mobile-only bank, Pepper, it’s also the country’s youngest bank. Leumi launched Pepper in 2017 to appeal to millennials and to help “adapt incumbent Leumi to the new world,” said Leumi Group President and CEO Rakefet Russak-Aminoach, speaking at Fortune‘s Most Powerful Women International Summit in London on Tuesday.

The move by Leumi is indicative of the type of transformation the banking industry is trying to undergo and the challenges that come with it: a legacy sector with a deep history adapting to a changing consumer. For example, the use of physical bank branches has declined significantly over the last few years.

Leumi decided to build Pepper as a startup, incubating it from within. “It was challenging to convince people that we were not cutting the tree we’re sitting on, rather that we’re reinforcing the tree,” Russak-Aminoach said. She said that people questioned why the company needed Pepper when it had an online version of Leumi. “There’s a huge difference between the two,” she explained. Leumi.com is a “digital skin over a non-digital body.” Pepper, on the other hand, is a new bank started from scratch and built on new systems. She said that using Pepper is even more personalized than going into a bank because, thanks to artificial intelligence, Pepper can offer tips that are very specific to a particular customer.

Karen Frank, CEO of the Private Bank and Overseas Services at Barclays, says the challenge for the sector is taking “something that is old and heavy and established” and doing something nimble and quick. She said one of the challenges for the industry is that it has to use its capital to answer regulatory demands rather than building new services and technology. A “relatively large part of it has to be supporting old infrastructure” and making sure old software still works so they can pull old data up if regulators ask for it.

Both Frank and Russak-Aminoach pointed to changing company culture as one of the biggest hurdles. Frank said convincing people that they don’t have to build everything in house is a “massive cultural change,” especially when it comes to functions like security.

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