How The AI And Data Combination Accelerates Smart Finance

Two disruptive forces are sweeping the finance sector in the region. The first is the wave of consolidation and rightsizing as major players seek synergies to optimise operational costs and boost profitability.

This is perhaps a response by the banking industry to the second epochal change—the digitisation of financial services that gains momentum from the GCC’s high levels of smartphone penetration and a blossoming e-commerce ecosystem. Financial institutions in the region have shown a general recognition of these two trends, yet many organisations are now playing catch up to the international headwinds.

One report by McKinsey notes that the Middle East has achieved 8.4 per cent of its digital potential, which while commendable, compares to 18 per cent in the US and 15 per cent in Western Europe. Countries in the GCC are raising the bar, specifically the UAE (at 16.4 per cent), Bahrain (13.6 per cent) and Saudi Arabia (11.5 per cent).

With governments in the Gulf now focusing on investments in digital transformation—and the propagation of Artificial Intelligence (AI) in particular—a new era of smart finance may help regional institutions to leapfrog their global counterparts.

Early adaptors

Not surprisingly, the most significant growth in the region’s digital start-up scene is accounted by fintech, which according to entrepreneurial network MAGNiTT, accounted for 12 per cent of all deals in 2018 and is now estimated to be a $2 billion market.

These digital enterprises are chalking out innovative approaches that can bring unprecedented changes in the way the industry functions by leveraging the power of big data together with AI; what we refer to as a combined “AI + DATA” model. Wealth management and equity trading were among the first-movers in adopting AI commercially, but the scope is widening.

Even more so as the banking sector seeks AI-led innovation to become more customer-centric, to automate their processes, to meet the lifestyle aspirations of an increasingly digital-savvy population, as well as to strengthen cybersecurity standards.  

From a purely customer perspective, one McKinsey survey reports that 80 to 90 per cent of respondents in the UAE and Saudi Arabia now use digital banking channels. Three out of four of them do so frequently, and some 50 per cent said they would open an account with a purely digital bank. AI + DATA is central to accelerating this digital shift that customers seek.

The relationship between AI + DATA

In today’s 4.0 era of the financial services sector, AI + DATA is invaluable to driving innovation across all customer touchpoints by helping financial service providers to remodel their closed ICT systems into open cloud platforms. This enables them to extract meaningful information from enormous amounts of raw, unstructured financial data faster and easier.

That information, in turn, provides real-time insights into customer behaviour that can be used to make business decisions.  However, these big data insights alone are not new. The real value-add today is the combination of data plus AI.

This allows for a true omnichannel business culture to be adopted within the region’s banking sector; one that is perfectly in sync with the digital-first mindset of today’s customers. In other words, the 4.0 era is about a finance system that seamlessly integrates financial services— banking, insurance, equity, wealth management—through AI, placing the customer at the core of all functions.

In addition to customers, financial institutions also benefit from the AI + DATA combination. For example, a fintech research firm, Autonomous Next, estimates the cost-saving efficiency in the finance sector can be achieved through the adoption of AI at $1 trillion is a reduction in costs by 22 per cent. We believe AI + DATA delivers this through “pervasive intelligence”—one where robo-advisors and algorithm-driven tools will lead the smart finance ecosystem.

Automated payment models will emerge; lending decisions will become near real-time with AI accelerating loan approvals; and customer claims will be even more swiftly redressed with less human bottlenecks.

So, what’s standing in the way? The good news is that the core technology is already there to bring all of these scenarios to life.

The real work is now being done between technology players and financial institutions to deepen data governance, create data ecosystems tailored for the securities industry, revisit the user experience design of AI-powered mobile products in a 5G environment, and support the right local talent to lead these initiatives into the future. By doing that, we can ultimately make smart finance more accessible to more people—a win-win situation for all.