Finnovex Live: Banks will be pushed back to be money custodians, just as they were in 1300
28.01.2019 10:59 am
Says Tariq Alusaimi, Head of Digital Strategy, Central Bank of Kuwait while speaking about the recent trends in the Banking and Financial Services Industry, in a candid conversation with Kanchi Shah, Head of Production, Exibex. Tariq Alusaimi is responsible for driving the digital strategy for Central Bank of Kuwait, the Kuwaiti banking sector, and oversees the development of the Kuwaiti Fintech eco system. He is also a member of the Technical Advisory Committee for Finnovex Middle East 2019.
He is responsible for setting the Central Bank of Kuwait digital strategy by converting traditional analog supervision of the Kuwait banking sector to digital supervision technology (SupTech) using the potential of modern technologies, analytics and big data, and overseas Kuwaiti banking sector regulatory technology (RegTech) in the rapidly changing financial technology sectors like mobile applications, e-payment, Blockchain and Central Bank Digital Currency (CBDC) and related applications.
Kanchi: Digital transformation is perceived differently in every industry and every company. In general, it is the integration of digital technology into all areas of a business. That integration leads to fundamental changes in how the business operates and delivers value to its customers. What is the biggest challenge traditional banks face in their move to become a ‘digital bank’?Tariq: The biggest challenge in transforming the current banks to digital bank is not lack of funds nor lack of knowledge it’s the internal culture of the bank. The current banking sector have not been challenged since the first bank established in the 1300. A testimony to the unchided banking culture is Banca Monte dei Paschi di Siena bank, headquartered in Siena that have been operating since 1472 to date.
Kanchi: Would it be appropriate to say that newer organizations, as opposed to traditional banks, are better positioned for the future?
Tariq: As opposed to traditional banks newer organizations are better positioned for the future only if they stay away from the traditional banking culture and start a new culture. The other advantage that newer organizations has is a new information technology infrastructure and they don’t have to deal with legacy system and legacy data.
Kanchi: Banks and Financial Institutions overall, have shown a positive approach towards the change in how their offering are consumed. What is the biggest change we are going to see in banking in the next 5 years?
Tariq: In the next 5 years the Banks will be pushed back to be custodians of money, just as they started out, in the year 1300, and every other service they provide will be a commodity that any FinTech can provide better cheaper and more relevant to the local culture of the customer.
Banks that want to be positioned for the future should start with their culture and their human capital. As for what technology they need to use or what product they need to sell are the same for all banks today and in the future. The first role of digitalization is catering for the need of the local culture they are trying to serve. If legacy bank or financial institution want to weather the coming digitalization storm, they better cater to the rule number one of digitalization.
Kanchi: And what, according to you, are the key FinTech/InsureTech/InvestTech /Islamic FinTech disruptors that will reshape the financial services industry as we know it today?
Tariq: Islamic financial technology products are going to be the biggest disruptors in near future whether it’s the Islamic InsureTech, Islamic InvestTech, or Islamic FinTech. As the door for innovation is wide open for introducing new product and services for serving the Islamic financial market. On the other hand, there are not many traditional technology companies serving the Islamic Insurance and Islamic financial market. The combination of room of innovation and lack of traditional technology companies serving the Islamic financial market will make it a fertile ground for Islamic FinTech, Islamic InsureTech and InvestTech to grow exponentially.
Kanchi: Big Techs are shifting to financial services. Do you think such a shift would threaten existing banks? If so, what are the risks you foresee?
Tariq: Currently the big tech company are moving in to the payment area of banks such as Apple pay and Google pay. Traditionally, the payment area was dominated by Visa and Mastercard and it was never a core business of banks, the concept of payments was shared, and they used a shared revenue business model as well.
Kanchi: Speaking about Open Banking, what are the key opportunities and challenges you foresee and just how just how transformative do you think API banking will be, and how much will it potentially change how traditional financial services are delivered and consumed, let’s say three years from now?
Tariq: The open banking initiative, as I foresee, will slow down to a stop in the near future. With the rise of data leakages, such as British Airways data breach in August 21 of 2018 where 380,000 card information was leaked and Marriott data breach in December 2018 of 500 million recorded was leaked and it was going on since 2014 undetected. The open banking initiative will make investigating data leakage and securing data almost impassable even if the data was masked and anonymized. The API banking is one of the solutions that the banks must adopt to keep themselves relevant in the future as Fintech are crawling in to the banking space and banks are pushed back to be a custodian of the money only. Over the next three years, we will see an adoption of API in the area of Payment and Remittance. Also, API banking will allow the banks to move the back-office function to front office and generate revenue from the growing Fintech. Some of the function that can be moved to front office are AML as a service and Risk as a service.