In an exclusive interview for 7th Edition of New Age Banking Summit Qatar, Hani Khalil, Head of E-Channels of Qatar National Bank, shares insights on key fintech disruptors, future of payments industry, emerging financial technologies and more.
Digital transformation is on the rise, what are the key elements of a successful transformation that is required for a legacy bank?
First and foremost traditional banks especially universal and larger size has to think of the cultural changes and make sure that the transformation is committed across all parts of the organizations and stem from top leadership down and not to be treated as creating a new product or new major program only. It should be part of the DNA of the organization even gradually.
Secondly to resist jump into the hypes and fads specially in the massive technological disruptions, instead is to have a flexible mechanism to quickly assess all the opportunities from customer, commercial and impact of change on the organization through an agile supported team formed from across the organization and directly sponsored by top management if not the CEOs. Thirdly to change rapidly how these banks operate in their new environment, from operational models, technology development, staffing and communication to customers. All this requires continuous commitment and determination to embrace the change from inside out and understand that it is time to elevate to a new level of serving customers and to protect their industry or transform into a commodity industry at the back end of the ecosystem or worse to die or being acquired or consolidated for more competitive banks.
What are the key fintech disruptors that you think will reshape the banking industry as we know it in 2018?
Fintechs are creating disruption to the stable banking industry in multiple fronts. There are far too many Fintech who claim that they have the right model to disrupt and make a permanent change in banking. However, I think there are far too few Fintech who will be able to make this disruption but with the right funding or acquisition by other traditional companies including traditional banks such as the example in UK, US and Southeast Asia. Having said this, Fintech that I think will be able to end up as winners will be in the area of payment innovation, customer centricity, AI and integrating customer ecosystem to create a meaningful customer journey. Moreover, some traditional banking industry players have also come up as Fintech and start acting like fintech with the solid backing of their strong traditional position, might be the biggest winners as they will not be under same pressure of investors or VCs to generate revenue in short-term and spin off their creation in profitable commercial models prematurely.
As examples of these two different types, are:
2) Traditional companies creating fintech models
We also need not to forget about Technology giants who are in my opinion are in a stronger position to compete with banks and other industries as they have the best of the two worlds and have corporate philosophy and strategies which make them in a better position to act strongly against both the Fintech and banks at the same time.
Cooperation with Fintech and Tech companies should provide an edge to Banks who wish to provide a Lifecycle engagement as they place the customers in the centre place.
Can banks embrace digital transformation and innovative technologies while ensuring minimal risks?
The answer to this is possible if planned well ahead and to embark on strategic way to do transformation and innovation in a meaningful way to the bank business. The most important thing is to plan incremental solid changes that can deliver positive change to customers (customer experience) directly and enhance operational efficiency internally while showing sustainable growth in the business. However nothing comes without additional risks, but managed risk is the best chance to accept this change. As they say “no pain no gain” and “one size does not fit all”, where risk is part of the business anyway and with proper controls and support of management things will be under control during the change. Talented and skilful Staff relevant to today’s environment need to be re-trained and further develop new skills which is one of the hardest factors, increase in investment needs to be acceptable, getting quick wins in short term is also important to sustain this journey and engage customers in the change process would work very well to know the priorities of change. Security and regulatory has to be managed well by a specialized team to protect the change process from derailing at wrong time and lead to loss of investment which could be the greatest risk.
According to you, what threats/challenges would traditional banks face with the emergence of innovative financial technologies?
Mainly knowing what the customer would adopt in relatively acceptable period and not to jump into hypes and just wow factors. Trained staff to support this change and embrace the change and not to resist it. Financial regulation changes and restrictions is another major risk factor to banks as speed of change is much faster than speed of regulator adoption and apatite. IT change to be more agile and faster time to market in a more iterative approach than all or nothing as well as making delivery partnership with specific technology providers and avoid building in house except for core services as well as collaboration with non-traditional partners and other industries to help delivery the other part of the ecosystem needed for this change.
Do you see AR/VR as the future of payments?
No one can predict the future clearly, but in general AR/VR are two important technologies for future and payment can be part of it, now banks want to protect this business and hence, they might need to jump into integrating their payment systems to it in a meaningful way to customers. If AR/VR becomes part of useful customer journey, then it will make sense to integrate payments into it to complete the journey. However, I see AR/VR will create more value into core services of Retail business which will always need payment to complete the cycle.
What do you see as the future of payments industry?
The future of payment industry will still be shaped with the advancement of technology and integration of industries. But mainly it will always be an important part of creating the relationship with customers. Physical payment will continue to diminish away from cash and plastic cards to digital (with the help of Mobile technologies?) It is also expected to have transformation to digital currency be it non-regulated cryptocurrency or government regulated cryptocurrency. Virtualization of credit card on mobile wallets will dominate the payment market to be used in store with contactless technologies or e/m Commerce online. P2P, P2B, P2G, B2B payments will be shaped in future and consolidated across the world. Instant international payment cross borders will be the norm be it through GPI Swift network or cryptocurrency network such as Ripple. FX rates will be more transparent and more competitive. Seamless payments during checkout process will allow customers to choose from all available best options for customer choosing currency or best fee seamlessly. Automatic and intelligent schedule payments and integrated with personal furthermore business cash management will be a standard model for payment providers. Collaboration and cross payment networking will create a transparent ecosystem similar to the code-share in airline industry.
So basically what we see today as changes in payment is just the tip of the iceberg and lots of intelligence and integration will be happening in the coming years.
Banks’ payments is under serious risk and disintermediation for the last few years and technology giants are innovating every day to hit this area where the value is for them and their customers, where banks are under risk to lose this value if they don’t response to these challenges. Blockchain distributed ledger if used for areas like identity management, contract and document management as well as payments will make significant changes to these areas in banking. Maturity and more clarity on the issues mentioned will help advance these areas.
Banks are reluctant to use Blockchain? Do you Agree or Disagree? Why?
I don’t think it is an issue of reluctance, it is more of uncertainty and lack of regulations around this area specially that banking is highly regulated and under stringent supervision. Blockchain has already took off as technology whereas still lots of scepticism when it comes to cryptocurrency using Blockchain. Many banks have experimented Blockchain for as distributed ledger for trade finance, money transfer and other niche areas.
There are still lots of uncertainty on ownership, usage, source of fund and top of all security but interesting to see the transformation as well
Blockchain/IOT/AI/Big Data/Cloud, which of these can change the banking landscape? And Why?
I think that AI will have the biggest profound impact not just on banking landscape industry but almost all other industries such as automobile, home appliances, travel, entertainment, etc. the reason why is because AI is actually using all other areas such as Blockchain, IoT, Big Data, cloud. Moreover, it has the most appealing and fascinating technology that can be easily understood and interact with. However AI today is still in early stages and has many areas that are maturing faster than each other such as deep learning, robotics, machine learning, etc. moreover, there are lots of ethical factors around AI that are not addressed well till today.
In your opinion, how should banks address the changing regulatory landscape with emerging financial technologies?
This is a tricky question and has an element of catch 22 where banking has been on receiving end of certain regulatory areas and on the other hand it is on the initiator end for other areas. Of course this is different from one region or country to another. However, in general the regulator and banks need to work together to avoid the situation where one side send the other their demands and to collaborate for the best of outcomes to benefit the industry and ensure regulations is transform to continue it objectives be it to protect the consumers, protect the economy, prevent fraud and financial crimes and balance the economy for all stakeholders.
Having said this, banks lately has faced rapid changes that enforce them to either deal with the new regulation or take the opportunities come from the new regulations. For example, open banking in Europe and UK and to lesser governed in Asia and Australia. Also the new GDPR and confidentiality/ transparency regulations as well as more stringent rules of AML and ATF being imposed. Not to mention the regulations for controls on Blockchain and payments as well as Basel III.
What do you think the future holds for security in IoT devices?
Generally speaking, IOT devices will have to have standards that govern certain areas of security and confidentiality such privacy, confidentiality, identity security and safety as well as the softer parts of ethical aspects. Hence, the IOT devices security should be transparent and have industry standards to be trusted by consumers. Also to allow consumers to configure easily and smoothly the level of privacy and confidentiality when it comes to sharing data and taking actions on behave of the consumer. Biometric usage will be a critical aspect to be used as one of the security controlled by the consumer, transparency of sharing information and locations should be made clear to consumers. Protection from fraud and misuse by unauthorized person or entities must be a priority to any deployments as these devices will become integral part of our daily lives very soon even as dormant devices. IoT devices in public use should also have governance to protect the innocent and ensure ethical part is taken care of.
Big Techs are shifting to financial services. Do you think such a shift would threaten existing banks? If so, what are the risks that you foresee?
It is expected to have more fierce silent competition with banks from the Big Techs such as Amazons, Apple, Ali Pay, Tencents, etc. where they are positioned in very well for competing banks where they have strong affinity to their customers and they have stronger relationship with them in their daily lives and they have a huge customer base for scaling. Also, they have deep investment and cash rich they are self-funded. They also creating the innovation independently, and they almost not regulated by any government authority so they have the freedom to be fast to market and more competitive. And finally they are global by operations where their brands are well known and trusted. Hence with all these factors, they definitely pose a risk to banking business as they are actually targeting the value in the customer cycle and only disintermediate the cycle where the customer feels their value and presence.
In your opinion, how can an organization boost its fraud detection capabilities?
This is a very important question and area that is usually neglected or at least left in the back burner while it is a crucial factor for sustaining the transformation in digital. Fraud detection must be proactive and smart. In a way to protect the users from potential hazards or automated electronic fraud or even socially re-engineered attacks to victims. The AI is also playing a good role in this area and start adding context to all customer activities and behaviour and trends and intelligently raising alerts and challenges that only customers can allow certain transactions or information to be permitted. There are a lot of tools coming in the market some are from fintech and others are from existing well-known vendors and each are innovating in this area heavily to ensure that all legitimate parties are winners be it the customers, financial institutions or for the good of the community as a whole ecosystem.
What are the key benefits and challenges that you foresee with open banking?
Open banking was firstly seen as a challenge to all banks, however when banks looked deeper, they understood that there is an opportunity for them to get closer to their customers and the more they become more open in voluntary way, the more they become more competitive in their own industry and in the Fintech industry. Banks started to realized that becoming more open and transparent while protecting the customer privacy and confidentiality, they will gain more business in have a long trust relationship which eventually will lead to a sustainable relationship that is passed across generations and create a win-win situation.
Open banking has enabled new opportunities to create a more engaged customer with their financial institutions where they can aggregate their positions across many financial institutions. Moreover, this consolidated view will benefit customers to manage their financials and cash flow positions more efficiently and subsequently can create cross-sell and up-sell opportunities for customers while being intelligently advice on setting their own targets and financial adequacy.
Hani Khalil, Head of E-Channels – Qatar National Bank will be speaking at the 2018 edition of New Age Banking Summit, Qatar.
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