Exclusive Interview with Zeeshan Pervez for NAB Confex 2019
For the last few years we have seen technology disrupt various industries and it has become imperative for businesses to evolve with this rapidly changing technology landscape, Do you agree that legacy systems are ready for further disruption in the Banking Industry?
Disruption in banking industry is already being witnessed across the board. We have seen substantial increase in digitization in banks to cope up with this change. One such example is that big banks have started launching separate digital only platforms for their customers, while others are launching full-fledged online banks. In my opinion, legacy systems will have to accept this change sooner or later, sooner the better and expect further disruption as we move forward.
Financial Technology, nowadays better known under the term ‘fintech’ are on a rise globally, in your opinion will FinTech’s have an edge over banks in the near future or will partnering with FinTech’s benefit the banks?
Fintech companies, which are majorly startups, need to have the support and alliance of banks to survive. On their own, survival is very difficult as they do not have the capacity to go full-fledged in the market on a standalone basis. Banks, on the other hand, have huge customer base, which may be diverted to digital channels, once partnered with a Fintech company. For banks as well, it is more economically viable to partner with a fintech company which has unique offering in order to save its own time, resources and cost. Thus, partnerships between banks and fintech companies is a mutually beneficial solution and win win for both.
Open Banking or Open APIs are gaining traction, how do you see open banking affect a bank and how will open banking benefit a customer?
Open banking is definitely gaining traction and it is here to stay…This certainly has effects on the bank such as increase in competition, more focus on innovation, retention strategies etc. On the other hand, the benefits for customers are endless. It creates options for customers to maximize the value they get from their bank. With open banking, customers can benefit from saving and managing their money through third parties, borrow with more ease and pay instantly painlessly. However, data confidentiality and privacy issues do remain in the mind of customers when using third party systems and applications.
What do you see as the most critical security concerns with Open API’s?
The most critical security concern is compromise of Personal Identifiable Information (PII). This may lead to legal and compliance liability, reputational risk, loss of trust from business partners etc.
On a global perspective, do you see a bright future for open banking security?
Definitely yes! As I said earlier, open banking is here to stay. Thus, it is imperative to put together an effective, comprehensive API security program that mitigates the most serious risks to backend systems. At a high level, it is necessary to control access to APIs, monitor API usage and limit API usage both in terms of absolute number of APIs calls and the rate of API calls.
What do you see as the long-term impact of AI in the banking industry?
AI has already started showing its impact on the banking industry, primarily in the areas of front office (chatbots, reduction in branch network, tellers, cashiers and other distribution staff), middle office (Compliance – monitoring, KYC/AML, authentication etc.) and back office (credit underwriting, risk analysis and underwriting etc.). According to analysts, financial institutions should expect a 22% cost reduction in operating expenses due to AI by 2030, translating into more than $1 trillion, with most of the savings coming from the front office. Thus, AI has a major and long term impact on the banking industry.
Do you feel that the Blockchain environment is improving for banking and fintech players?
Blockchain environment has improved drastically, with a number of banks and fintechs exploring and investing in the technology for managing payments, risk and security. With Blockchain offering real-time payments that are verifiable, auditable and secure, this will change the banking landscape. Moreover, it is expected that this technology may reduce banks’ infrastructure costs of cross-border payments, securities trading and regulatory compliance by $15-20 billion per year by the year 2022, by eliminating intermediaries and scale. Therefore, banks and fintech are most likely to adapt the technology in near future for their own benefit.
What are the main areas of synergy or collaboration between Banks and FinTechs?
In order for both banks and fintech to prosper, collaboration offers a win-win situation for both. The main areas of collaboration are business and technology, to deliver the level of personalization, speed and seamless delivery to customers. This collaboration and mutually beneficial relationship between the two will definitely give rise to innovation, cost reduction, customer experience and new products, which form the aim and rational for successful partnership between the Bank and fintech.
Do you think that the environment in the region is conducive for FinTechs and is the region prepared for open banking?
Middle East is following suit and digitalization is spreading fast! With the launch of regulatory sandbox and Fintech Saudi by SAMA in KSA to test and launch new digital products and then API sandbox by ENBD for open banking, these initiatives will enable, simplify, and accelerate innovation in the region at a high pace. As per McKinsey’s research on urban consumers in UAE and KSA, at least 80 percent of these consumers now prefer to do a portion of their banking on computers, smartphones, and tablets, while they visit branches and call customer support service hotlines only to meet specific and more complex needs. This clearly shows the future trend of banking in the Middle East.
The major technology players, Google, Apple, Facebook and Amazon also known as GAFA are transforming the digital banking landscape. What are your thoughts on GAFA in banking?
In the emerging consumer-to-business (C2B) era, young consumers are becoming increasingly receptive to having their banking services provided by a non-traditional financial services company. As per Accenture, more people are enrolling at online-only digital banks, which stand at 19% globally today. Furthermore, 31% of all consumers and 41% of Gen Z said they would consider buying banking services from a “GAFA” company — Google, Apple, Facebook, and Amazon. Thus, ultimately this represents a serious competitive threat to traditional banking providers. In order to counter this threat, banks need to deploy a bank-wide digital culture within the organization, promote customer engagement and relationship management that is flexible and agile, implement digital IT architecture which is connected, embedded with robotics and cognitive computing and smart contracts, have end to end digital processes, including back-office tasks. My personal thoughts are that GAFA will make some disruption in the banking world by offering tailored services based on their users, but unlikely to have a head-on with financial institutions.
What are your parting thoughts on the future of banking in the region?
Like everywhere in the world, banking will undergo a major transformation in the region as well. Banks here are already gearing up for that and so are the central banks in terms of the regulatory framework. This is an inevitable change that has to be undertaken. I think both models will continue in the region, first, where banks will go for digitization on their own and second, where they partner with fintech companies. In both cases, the end consumer will benefit from the change and experience next level banking which will be customer-centric, digital, fast and secure.
Zeeshan Pervez, Head of Assets & Liabilities Products at the Saudi Investment Bank will be speaking at #NABConfex New Age Banking Confex, 2019.
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