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
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.