We ex­am­ine what re­cent de­vel­op­ments in AI mean for the fi­nan­cial in­dus­try

With AI driv­ing the rapid de­vel­op­ment of Fin­Tech, banks are in­creas­ingly re­ly­ing on col­lab­o­ra­tions to sur­vive in a more cus­tomer-cen­tric en­vi­ron­ment

Gulf Business - - FRONT PAGE - By Neil King

IN RE­CENT YEARS, the bank­ing and fi­nance world has faced dis­rup­tion on an un­prece­dented scale, with banks and other fi­nan­cial ser­vices be­ing forced to ad­dress the im­pact of Fin­Tech as a mat­ter of ur­gency.

A 2017 re­port by PwC re­vealed that more than 80 per cent of fi­nan­cial in­sti­tu­tions be­lieved their busi­ness was at risk of los­ing revenue to Fin­Tech in­no­va­tors, while only 56 per cent had put dis­rup­tion at the heart of their own in­ter­nal strate­gies.

But the sur­vey also pointed to a so­lu­tion for the in­dus­try in the face of fast-chang­ing tech de­vel­op­ments: col­lab­o­ra­tion.

While only 45 per cent of re­spon­dents said they are part­ner­ing with Fin­Tech com­pa­nies, a huge 82 per cent ad­mit­ted that they ex­pect to in­crease Fin­Tech part­ner­ship in the next three to five years.

The ben­e­fits of these part­ner­ships for the banks and other fi­nan­cial groups are clear, help­ing them to not only stave off com­pe­ti­tion from Fin­Techs and other banks, but also help them drive or­gan­i­sa­tional ef­fi­cien­cies.

But there are also ben­e­fits for Fin­Techs, with banks’ reach and cap­i­tal both very ap­peal­ing.

“Both have their strengths, with banks pro­vid­ing a vast cus­tomer base and cap­i­tal, while Fin­Techs can bring in­no­va­tion to the ta­ble,” says Umair Hameed, ad­vi­sory partner of KPMG Lower Gulf.

“Both need to come to­gether for it to be a win-win sit­u­a­tion for all stake­hold­ers in­volved.”

Hameed adds that the odds are stacked more in the Fin­Techs’ favour, but that for the time be­ing at least, col­lab­o­ra­tion is the only way for both groups to move for­ward.

“The growth po­ten­tial of Fin­Techs is tremen­dous as they strive to not just repli­cate bank­ing ser­vices with tech­nol­ogy, but use an­a­lyt­ics, AI and ma­chine learn­ing to bet­ter en­gage with cus­tomers and pro­vide tai­lored solutions,” he says.

“How­ever, in terms of the evo­lu­tion of Fin­Techs, we seem to be in a chicken and egg sit­u­a­tion. Fin­Techs need to see up­take of their prod­ucts and ser­vices in or­der to be con­vinced to in­vest more and cre­ate new in­no­va­tive of­fer­ings. But to scale their of­fer­ings they need the cap­i­tal. That is why adop­tion by stake­holder groups such as cus­tomers and banks is the key.”

AI im­pact

Al­ready a mat­ter high on the agenda for both par­ties, the ur­gency has been in­ten­si­fied by one el­e­ment in par­tic­u­lar – the in­creas­ing sophistication of ar­ti­fi­cial in­tel­li­gence (AI).

Ac­cord­ing to Mor­dor In­tel­li­gence, there are five ma­jor use cases of AI in Fin­Tech: Ac­cu­rate de­ci­sion mak­ing, in­sur­ance man­age­ment, fraud

“The growth po­ten­tial of Fin­Techs is tremen­dous as they strive to not just repli­cate bank­ing ser­vices with tech­nol­ogy, but use tech­nolo­gies such as an­a­lyt­ics, AI and ma­chine learn­ing. UMAIR HAMEED AD­VI­SORY PARTNER OF KPMG LOWER GULF

de­tec­tion, predictive an­a­lyt­ics, and vir­tual fi­nan­cial as­sis­tance.

Mean­while, PwC and Gart­ner iden­ti­fies four key use cases: In­sights and ex­plain­able pre­dic­tions, early de­tec­tion and preven­tion of cy­ber-se­cu­rity threats, vis­ual iden­ti­fi­ca­tion and ver­i­fi­ca­tion, and chat-bots that are more ‘hu­man’.

For Wis­sam Khoury, man­ag­ing di­rec­tor of Fin­Tech firm Fi­nas­tra in the Mid­dle East, Africa and South Asia, the equa­tion is sim­ple.

“The nor­mal chal­lenges of the day for any fi­nan­cial in­sti­tu­tion, I can put them into four cat­e­gories,” he says.

“Ev­ery fi­nan­cial in­sti­tu­tion needs growth of revenue, needs to op­ti­mise cost, needs to man­age risk, and needs to pro­vide bet­ter cus­tomer ex­pe­ri­ence.

“These tech­nolo­gies [AI-driven Fin­Tech solutions] will help you with all of these.”

Fi­nas­tra pro­vides a range of solutions to the fi­nan­cial ser­vices in­dus­try, in­clud­ing re­tail bank­ing, trans­ac­tion bank­ing, lend­ing, and trea­sury and cap­i­tal mar­kets. It counts 90 of the world’s top 100 banks among its clients.

“Our ob­jec­tive is to pro­vide our clients with an open plat­form,” says Khoury.

“We pro­vide them with the core bank­ing, trade, trea­sury or in­vest­ment back-of­fice pro­cess­ing, and then ex­pose our ser­vices for any­body to de­velop on top of it – whether it’s an app or any­thing else they want. Kind of a plug-and-play.

“Any client that has our core bank­ing can grab an ap­pli­ca­tion, whether he de­vel­oped it, I de­vel­oped it, univer­sity de­vel­oped it, or an­other Fin­Tech, and just plug it in to work through our mi­croser­vices. Then if some­thing hap­pens and they want some­thing new, they just re­move that plug and put in an­other.

“We’re en­abling the fi­nan­cial sec­tor to be more ag­ile and ac­com­mo­dat­ing by hav­ing this plat­form, and AI, plus ma­chine learn­ing, ro­bot­ics, blockchain, is a big part of that growth.”

And for Khoury, fi­nan­cial play­ers have no choice over whether or not to team up with Fin­Tech com­pa­nies.

“We be­lieve this col­lab­o­ra­tion is now a ne­ces­sity – it is not op­tional.

“Ini­tially the bank­ing sec­tor was ap­pre­hen­sive or afraid that these new Fin­Techs would come and lure away their main stream of busi­ness. But re­cently they have changed their fear to op­ti­mism be­cause they are look­ing at do­ing some­thing to­gether. So the Fin­Techs and banks are col­lab­o­rat­ing to get the best of both worlds. The banks have a wide va­ri­ety of fi­nan­cial solutions and prod­ucts, and the Fin­Techs are more cus­tomer-cen­tric providers.”

In­vest­ing in the fu­ture

One of the rea­sons Fin­Techs have emerged as AI pi­o­neers in­stead of banks is that they have been more will­ing to put money into its de­vel­op­ment. The PwC re­port men­tioned ear­lier showed that 46 per cent of large Fin­Tech com­pa­nies are in­vest­ing in AI, as op­posed to 30 per cent of large fi­nan­cial in­sti­tu­tions.

So for the re­gion’s banks look­ing to stay at the cut­ting edge of AI tech­nol­ogy, part­ner­ships are of­ten the quick­est and eas­i­est route. “Emi­rates NBD has been among the first to recog­nise and wel­come the learn­ing and col­lab­o­ra­tion op­por­tu­ni­ties,” says Evans Mun­yuki, group chief dig­i­tal of­fi­cer at Emi­rates NBD.

“We have a ded­i­cated team work­ing solely on Fin­Tech col­lab­o­ra­tions within the bank, in ad­di­tion to the or­gan­i­sa­tion gear­ing it­self up to think and work nim­bly like a Fin­Tech.”

Mun­yuki iden­ti­fies fraud preven­tion and risk mit­i­ga­tion as fo­cus ar­eas for the bank’s AI ini­tia­tives, as well as us­ing the tech­nol­ogy to “hy­per-per­son­alise” cus­tomer ex­pe­ri­ence by "sur­fac­ing the right of­fers through the right

chan­nels with the right mes­sage at the right lo­ca­tion and at the right time”.

He adds that the bank has al­ready de­ployed 13 ro­botic solutions, with a fur­ther 12 planned by the end of the year, fo­cussing on ef­fi­cien­cies in­clud­ing turn­around times, re­duc­tion in er­ror rates and in­creased through­put.

And with fu­ture de­vel­op­ments in mind, he adds that the bank is in­volved in var­i­ous projects and part­ner­ships de­signed to keep Emi­rates NBD at the fore­front of Fin­Tech de­vel­op­ments.

“We lend sup­port to the lead­ing Fin­Tech in­cu­ba­tors such as the Fin­Tech Hive at DIFC, and build strong re­la­tion­ships with lo­cal and global start-up com­mu­ni­ties,” he says.

“Our Emi­rates NBD Fu­ture Lab con­nects with start-ups and tech­nol­ogy providers to ideate and build to­mor­row’s bank­ing solutions. We have also part­nered with Mo­tive Labs, an in­no­va­tion and in­vest­ment ac­cel­er­a­tor, to bring the mar­ket Fin­Tech solutions from around the world that will make bank­ing sim­pler for our cus­tomers.

“In ad­di­tion, we re­cently launched our open bank­ing ap­pli­ca­tion pro­gramme in­ter­face sand­box which al­lows us to open up a se­cure de­vel­op­ment en­vi­ron­ment where Fin­Tech and in­ter­nal bank de­vel­op­ers can in­no­vate, col­lab­o­rate, pro­to­type and ac­cel­er­ate speed to mar­ket for in­no­va­tion ideals.”

Fin­tech’s AI fu­ture

With AI such a cen­tral com­po­nent of Fin­Tech, how will it shape the fi­nan­cial in­dus­try in the months and years ahead?

For KPMG’s Hameed, re­cent gov­ern­men­tal ini­tia­tives hint at a more Fin­Tech and AI-heavy fu­ture.

“Gov­ern­ments are in­vest­ing heav­ily to de­velop the Fin­Tech sec­tor,” he says.

“FnTech Abu Dhabi, Fin­tech Saudi, and Bahrain Fin­tech Bay are re­cent ini­tia­tives GCC gov­ern­ments have taken to boost the Fin­Tech and fi­nan­cial ser­vices sec­tor. The UAE is also the first coun­try in the world to have a minister of AI [HE Omar bin Sul­tan Al Olama], which re­in­forces their in­tent to be at the fore­front of tech­no­log­i­cal in­no­va­tion.”

But Fi­nas­tra’s Khoury of­fers a warn­ing that some ex­ist­ing play­ers might not be around to reap the ben­e­fits of this in­vest­ment.

“AI and other tech­nolo­gies are not tech­nolo­gies of to­mor­row any more – they are tech­nolo­gies of to­day. And if you fast-for­ward a lit­tle bit, I do not be­lieve that any fi­nan­cial in­sti­tu­tion will ex­ist in 2030 if they don’t utilise AI now,” he says.

Emi­rates NBD’s Mun­yuki agrees, adding: “Dig­i­tal trans­for­ma­tion and AI has al­ready started to re­shape the fu­ture of bank­ing and fi­nan­cial ser­vices. I ex­pect that some of the banks which don’t em­brace AI lo­cal and glob­ally will sim­ply dis­ap­pear.”

The chief dig­i­tal of­fi­cer also sug­gested that the rise in AI will ne­ces­si­tate a change in mind­set for fi­nan­cial in­sti­tu­tions.

“AI presents an op­por­tu­nity to dis­rupt the cus­tomer ex­pe­ri­ence for the good. But to en­able this re­quires dis­rup­tion in the way or­gan­i­sa­tions think about data an­a­lyt­ics, soft­ware plat­forms, and in­ter­nal tal­ent to man­age the es­tate,” he says.

“To fully har­ness the power of AI, or­gan­i­sa­tions re­quire an or­gan­i­sa­tional mind shift to­wards a busi­ness op­er­at­ing model which em­braces adop­tion of se­curely cu­rated open source soft­ware.”

And as the strength and ca­pa­bil­i­ties of AI con­tin­ues to grow, there is one group that will be the key ben­e­fi­ciary. “The real KPI is the end user,” says Khoury. “AI, ro­bot­ics, big data, blockchain – the real pur­pose of them is to pro­vide bet­ter, faster and cheaper ser­vices to the end user. The end user ex­pe­ri­ence will dra­mat­i­cally change be­cause we will be able to of­fer ded­i­cated ser­vices to the client when they need it and how they need it.”

Mun­yuki agrees, adding that the stakes are high for those banks not keep­ing cus­tomers at the front of their plans.

“As the fu­ture un­folds, the cus­tomers of banks and fi­nan­cial in­sti­tu­tions will be the dig­i­tal na­tives,” he says.

“Their ex­pec­ta­tions and ex­pe­ri­ences will be fully shaped by other dig­i­tal na­tive places of com­merce, and banks that don’t re­spond to these cus­tomer ex­pec­ta­tions will be in­creas­ingly less rel­e­vant and will even­tu­ally be dis­in­ter­me­di­ated.”

It is sure to be a busy time ahead for fi­nan­cial play­ers in the re­gion, who will not only have to adopt AI-driven Fin­Tech solutions to re­tain mar­ket share, but im­ple­ment it in a way that en­sures their sur­vival in a rapidly chang­ing land­scape.

Wis­sam Khoury

Evans Mun­yuki

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