6 minute read
FUTURE OF BANKING
from XDR
by cxoinsightme
HOW DIGITAL TECHNOLOGIES ARE TRANSFORMING BANKING IN THE MIDDLE EAST
Banks in the Middle East are leading the pack in IT infrastructure modernisation as they focus on delivering services through digital channels.
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Faced with increased competition from fintechs and big tech firms, traditional banks are now turning to digital innovations to gain a competitive edge.
The pandemic has accelerated the adoption of digital banking, and evolving customer expectations further provide the impetus for change.
For traditional banks, the stakes are really high now. According to a
McKinsey survey, about 80 percent of consumers are willing to consider shifting at least a portion of their holdings to a bank that offers a compelling digital-only proposition.
So what are the trends shaping innovation in digital banking?
“Firstly, the competitive landscape is changing as new entrants and fintech enter the market, and in parallel, many players from nonbanking industries start expanding into financial services – we see this mainly with e-commerce, retail, and telco players. This is partially allowed by Open Banking which makes it easier to expand the customer base and access relevant customer-level data,” says Bhavya Kumar, Managing Director & Partner, Boston Consulting Group.
He adds that many new players are positioned as product specialists rather than traditional universal banks. As a result, the landscape is becoming much more fragmented, with monoliner players specialising and disrupting single-product areas, especially in payments, investments, and personal finance management, among others.
“Thirdly, recently, we see a shift in strategic priorities of new players within digital financial services. After years of generous venture capital investments prioritising growth over profitability, the focus is now shifting toward bottom-line improvement rather than pushing acquisitions at all costs. This has a direct impact
Bhavya Kumar
on product portfolio choices as well as go-to-market strategies. Finally, all of the above is enabled by rapid technology landscape innovation – led by cloud transformation and Banking As a Service (BaaS) offerings that allow lower setup costs and faster time-to-market,” says Kumar.
Helal Lootah, Co-founder of Lune, points out consumers have become a lot more aware of how they interact with banks and expect their banks to not only provide them with basic services but also to take a key role in helping them shape their financial lives.
“Consumers expect their financial institutions to provide them with a seamless experience that goes beyond the basic functionalities (viewing raw transaction data and transfers) and provides them with insights on how, where and what they’re spending on. This can be easily done through personal finance and budgeting features that help customers actually take control of their finances. He adds banks are becoming platforms rather than sole applications. Banks have previously taken an approach where they’ve centralised as much as possible and have focused on creating solutions in-house. However, given the speed of innovation in financial services, along with the complexity of operating in banking environments, banks have started branching out.
“By leveraging SaaS solutions, APIs and other solutions provided by fintechs, banks are able to streamline their operations and focus on their core business. These have shown multipliers that reduce costs and increase revenues, delivering benefits to team members, clients and shareholders,” adds Lootah.
Are digital-only banks a threat to brick-and-mortar?
The answer is yes, according to Jane Harvey, CEO, and co-founder at Savii. “There is no denying that FinTech startups and digital-only banks have put pressure on traditional brick and mortar banks, but there are still segments of the population who don’t yet trust the security of digital banking. For example, seniors and arguably a significant percentage of baby boomers still like ‘high-touch’ services and want to sit down with a banker or relationship manager to discuss their options.
“In contrast, millennials, Gen-X and Gen-Zers turn to Google (or their friends) when they have a question and they prioritise a simple, fast (digital) customer experience over a hundredyear-old legacy. The real opportunity for brick and mortar banks is to invest heavily in, and partner with, fintechs to develop digital propositions that appeal to the younger demographics.”
The challenge that digital banks bring to the banking industry is real, as investments in this new sector are booming, says Talal Sabih, Director - GBM Abu Dhabi. However, this can also be seen as an opportunity for banks to explore, at a faster pace, the benefits of offering digital financial services supported by the banks’ solid foundations in financial reliability and long history of services.
“Consumers today expect fast, contextually aware, 24x7 services
Helal Lootah
Jane Harvey
Talal Sabih Martin Blechta Sid Bhatia
from their banks, so banks are addressing this by focusing on enhancing their customer experience and engagement through shifting to digitally smart banking. Those financial institutions that innovate rapidly, while retaining their customers trust, will gain a significant competitive advantage, and thrive in the digital future,” he says.
Benefits of AI for the finance sector
Artificial intelligence is one of the clearest examples of how tech innovation offers a number of opportunities for the financial services sector.
Martin Blechta, Principal, Boston Consulting Group, says AI will further drive innovation in the banking sector mainly in two areas. Firstly, AI allows personalisation at scale for retail clients to fully customise and personalise their offerings and customer journeys. This includes highly personalised customer service channels (e.g. Intelligent Chatbots can effectively tackle most commonly accessed tasks, such as balance inquiry, accessing mini statements, fund transfers, etc). Secondly, several internal bank processes are also being improved by leveraging AI - a self-learning credit risk engine can be an example.
“FSI has always needed one of the most precise forms of computing systems in place for myriad purposes.
As far as AI and ML are concerned, the FSI sector relies heavily on the systems powered by these technologies to detect fraudulent transactions and pave the way for a safer and more secure online transactions. For the last few years, the focus of players in the banking industry has been on client life-cycle management. When it comes to gaining comprehensive insights into their customers, banks are ahead of the curve as compared with any other industry. Customer analytics in banking helps banks gain granular insights on current and upcoming requirements of their customer base,” says Sid Bhatia, Regional Vice President & General Manager for Middle East & Turkey at Dataiku.
Sabih from GBM agrees that AI and ML applications will transform future banking by offering more personalised banking experiences to customers, through analysing behaviours, trends, and patterns and by customising online and mobile banking. Moreover, with the introduction of voice recognition, facial recognition and other similar biometric data, AI can allow for more finetuned personalised and secure offerings.
Lootah from Lune sums up: “Artificial Intelligence is a term that gets thrown around a lot these days and I don’t believe we are fully there yet in terms of using full-blown AI to automate every interaction or analysis in an application. However, I do believe that AI is playing, and will continue to play, a major role in areas such as fraud detection, AML, transaction enrichment, credit scoring and customer recommendations. I see these as the main use-cases of AI to help automate experiences, drive customer engagement and serve as a catalyst for internal teams to speed up processes.”
