How are FinTech innovation and AI disrupting traditional banking models in the ME?

  • Abdullah Alothman, Founder and Co-Chairman at Geidea Financial Tech and AO Holdings and Co-Founder of United Lemar Company Ltd.

  • 28.05.2020 08:45 pm
  • FinTech and AI in the Middle East

With most of the banks in the region using outdated technology and struggling to meet the increasing demand for online banking during the pandemic, fintech innovation is key to ensuring the Middle East stays ahead in this digital age. Innovations in the sector, including cloud-based platforms, AI and facial recognition, are disrupting traditional banking models, with innovative fintech startups in the ME and North Africa region (MENA) expected to reach 1,845 by 2022.

If there was any doubt prior to the Coronavirus about whether the Middle East was heading towards an increasingly digital society, it is now unquestionable. The pandemic has made glaringly apparent that regions across the globe greatly rely on the most up-to-date banking technology and digital services in both times of need and normal day-to-day life.

The surge in demand for online banking services during the pandemic has spiked the need for fintech firms to incorporate fresh, innovative technology to meet the changing needs of customers. To meet this demand, the key sources of fintech innovation in the coming months and years is likely to be blockchain, open banking, cloud-based systems and, most importantly, AI. With increased government support in the form of stimulus packages due to COVID-19 and start-up funding, alongside customer demand, these technological innovations are set to disrupt traditional banking models - completely transforming the way we manage our finances both during and after the pandemic.

At the heart of fintech innovation lie consumers. The increasingly tech-savvy, digitally minded population in the gulf region has pushed fintech firms to provide consumers with a personalised and seamless online banking experience. To achieve this, fintech firms have focused on implementing technological innovations that promise faster, cheaper, customer-centric banking services. Economising and simplifying banking services is beneficial to both customers and banking providers, helping improve banking accessibility to the entire population rather than solely the privileged sectors of society who already hold bank accounts.

AI has long been on the technological radar for countries worldwide, recognised for its capacity to push the boundaries on fintech innovation. AI has radically transformed traditional banking models - automating costly, time-consuming processes, strengthening cybersecurity standards and analysing data to provide a more customer-centric banking experience. Banks have not failed to recognise the importance of AI to future banking, competing with fintech firms by integrating algorithmic trading, AI chatbots and data reporting.

Algorithmic trading and data reporting enables fintech firms and banks to compile reports for bankers and use machine learning to draw on data patterns to predict investment performance. What’s more, AI chatbots are a cheaper form of customer service, catering to the lifestyle needs of the Middle East’s increasingly tech-savvy population by providing them with a novel digital experience. AI also holds the promise of automating other banking processes such as payment models and fast-tracking traditionally lengthy and laborious lending processes through the AI acceleration of loan approvals.

These AI innovations are proving highly beneficial for engaging and retaining customers, while at the same time streamlining banking operations to ensure a fast and cost-effective service. Through the integration of data analysis and AI, fintech firms are in a unique position to base their business models fundamentally on changing customer behaviour. As the Middle East continues to see a dramatic rise in the use of digital banking services, with the McKinsey survey revealing that 80 to 90% of respondents in the UAE and Saudi Arabia use digital banking, it is likely that AI will play a crucial role in helping cement the region’s public favour for digital banking.

Another fertile area for fintech innovation is blockchain technology, modifying traditional financial transactions by allowing them to take place securely and cheaply without bank management. Blockchain is not only financially beneficial - its growth in the Middle East is key to establishing a smart economy in the region, ultimately opening up a wealth of business opportunities for budding entrepreneurs. By 2021 it is expected that half of the UAE’s federal transactions will use blockchain technology - testimony to the increasing traction of fintech innovation in the region.

The technological disruption of traditional banking models is being further accelerated by the rise of cloud marketplaces. In recent years it has become clear that fintech firms and banks can greatly benefit from each other’s services, and cloud marketplaces cater to precisely that - helping banks purchase third-party fintech products and services. As a third-party provider, cloud platforms are better equipped to negotiate with fintech firms than banks, securing the best partnership for both parties involved.

Across the globe open banking is also at the forefront of fintech innovation, catering to customers increasingly on the move and wanting to personally manage their finances. As 5G kicks off in the Middle East, the need for on-the-move financial services is only set to rise. By allowing third-party systems to develop APIs that have access to a customer’s financial accounts, individuals can securely view all their accounts in one app, attributing greater financial autonomy and personalisation to consumers across the region. 

Despite the financial setbacks the Coronavirus has inflicted on countries across the globe, there is a silver-lining for fintech operators seeking new opportunities to advance and innovate during these challenging times. Banking models will never be quite the same post-lockdown, and fintech firms worldwide now have the power to bring about their full-scale disruption by providing customers with the most personalised, efficient and accessible banking solutions seen yet. Drawing on AI, cloud marketplaces, blockchain and open banking in line with other fintech players worldwide, the Middle East is set to transform its status from a growing regional fintech hub into a global financial powerhouse.

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