Abdulaziz Al Ghurair, chairman of the UAE Banks Federation and chairman of Mashreq, has urged banks in the UAE to “be bold” and continue to invest in technology, as fintechs are posing a huge challenge to traditional banks.

Speaking at the Future of Finance conference at Expo 2020 Dubai on Wednesday, the Emirati businessman noted that the banks’ traditional control in the field of payments, which provides them a valuable stream of revenue of $2 trillion globally, is now “under threat”, thanks to the entry of fintech firms and other non-bank players.

“Fintech and [other] players are increasingly capturing a greater share of this profit. And the fact is that the payment segment is performing well, but not for banks,” he noted.

In a customer-centric age, where people are becoming more accustomed to the ease, speed and personalisation of service offered by the disruptors in the industry, Al Ghurair said banks must develop a new operational model that is “better suited to the changing times”.

“Those who don’t will not succeed,” he said.

“The largest platform… the technology company are the ones that stand to benefit the most. They own the customer and they address the customer needs beyond banking. We must consider, how long before Amazon launches Amazon bank? Imagine the scale of opportunity for company like that entering financial service.”

An increasing number of consumers are turning to fintech firms for services and products traditionally offered by banks, such as payments and consumer loans. According to TransUnion data released in 2019, the unsecured personal loan market in the US reached $138 billion in 2018, up by 17 percent compared to a year earlier.

Loans provided by fintech companies in the same year represented 38 percent of all unsecured personal loan balances, the largest market share compared to banks, credit unions and traditional finance companies. Five years earlier, fintechs accounted for just 5 percent of outstanding balances.

How banks can sustain

With the existential threat that the banks are facing, Al Ghurair said it is important to acknowledge the value of investing in technology. 

Banks must also keep in mind that data and artificial intelligence will be the “core differentiator” in the rapidly changing industry.

“I believe that banks must invest in technology in partnership and in relationship with the developer to survive. And we must not forget that the heart of the future of finance is data. Data and AI will be the core differentiator,” he said.

Al Ghurair cited a McKinsey report that said artificial intelligence could unlock $1 trillion of additional value for banks around the world.

“Data and AI will sort out the leaders from the followers.”

Stressing the urgency for financial institutions to invest in data and AI, and respond to change now, Al Ghurair said: "The financial industry has proven to be agile and innovative in the past. Now is the time to truly embrace the future and be bold in doing so, because banking tomorrow will not look like banking today."

Environmental, social, governance

Also, with the “democratisation” of the consumers served by banks, players in the industry must consider how their business will help advance environmental, social and governance (ESG) causes.

“As consumers increasingly embrace social and environmental causes, they seek products and brands that align with their values. There is no getting around this. This is the democratisation of consumer.”

“They now expect the brands to act responsibly… ESG needs to be embedded into the overall strategy of the organisation.”

(Reporting by Cleofe Maceda; editing by Seban Scaria)


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