Will banks become technology companies? As financial institutions continue to embrace technological solutions, banking leaders are faced with the challenge of embracing core banking transformation to provide personalised solutions to their customers.
In an exclusive podcast interview with Cheque Point by Finance Middle East, Rudy Kawmi, Managing Director of Universal Banking MEA at Finastra, delves into how banks can leverage open finance principles and innovative technologies to support environmental and social initiatives while also delivering value to shareholders and customers.
The following transcript has been edited for length and clarity. Listen to the full interview here.
How are technological innovations helping banks offer more personalised services and meet customer demand?
Rudy: What’s really driving it is how much technology has changed our everyday lives. We can all relate to it. Whether it’s how we consume our media through streaming services like Netflix or listening to music or podcasts on Spotify, everything has become digitally delivered and tailored. These services are learning what we like and what we dislike, to recommend the content that they think is going to resonate the most with us.
“We all expect the same kind of seamless interaction when we’re working with a bank as when we’re using Netflix.”
We have two factors here in the region. The Middle East has a very young population and high smartphone penetration rates. If you look at the UAE in 2023 non-cash payments were, I think, 73% of total transactions, and that was up from 39% back in 2018. This adoption of digital services has gone sky-high and that’s driving a change in the needs of the consumer, especially when it comes to finance. We all expect the same kind of seamless interaction when we’re working with a bank as when we’re using Netflix or we’re ordering some food from Deliveroo.
Technology, when it comes to banking, is trying to bridge the gap between what has traditionally been not such a digital-first industry to meet customer expectations, and that’s involved a lot of transformation to improve the user experience and figure out how the technology and the tools can deliver personalised service so that we’re not treating our customers all the same.
It seems like every company has to become a technological company.
Rudy: It’s amazing. I found that, more and more, especially when you go to conferences and events, it’s the same topics, even if it’s a different industry. Everyone is talking about digitalisation, transformations and user experience. Everyone is now a technology company.
What are some of the main challenges that you see banks facing when trying to implement these innovations?
Rudy: I think one part is the technology itself. Many banks have been around for a long time. Obviously, we have new banks that are entering the market that don’t have these challenges. But, for those that have been here for 10, 20, 30 years; there’s a legacy there in the technology, right? And the pace of change is so fast now that systems and platforms that were put in 20, 30, years ago are not fit for purpose to deal with all the stuff that we’re just talking about. Change becomes hard and doing things quickly on older technology platforms becomes more difficult.
I think, for those types of institutions, a big part of it is moving on to more modern and open technology platforms so that they can take advantage of some of the opportunities presented by this change. That’s not always an easy process, depending on the level of complexity, the number of systems, the history and the different technologies that have been meshed together over 20 or 30, years. Untangling that can be a challenge.
What are some of the some of the technologies that you think are more exciting for financial institutions?
Rudy: There’s quite a few going on, and there are quite a few buzzwords. At Finastra, we focus a lot on the core banking space and I think that’s important because that’s the platform that a lot of these technologies and use cases hang off. When we’re working with our customers, we talk about being cloud-ready, having the APIs and the openness so that you can integrate with a lot of innovation that’s happening now.
Data analytics is a huge area. Banks have so much information about their customers, but they don’t always show that they know they have this data. I’ve had my bank offering me a product I already had. I think data analytics has a huge promise in understanding customers so that you can really position the right products, the right services, in front of them.
“Banks have so much information about their customers, but they don’t always show that they know they have this data.”
I think it’d be difficult to do a podcast now without talking about AI. I think there’s a bit of hype, but there’s also a lot of truth to it. We used to talk about machine learning before AI, which is kind of part of the same theme, and I do see the impact of that from a machine learning perspective.
If you think about the data, you can start doing predictive analytics, where we say how likely a customer is to leave us. Because we can start analysing their transactions. Have they stopped using their accounts and their cards? Have they not opened a new product in so long? I’d also love to see an AI assistant who really understands your financial world and can offer you advice on a one-to-one basis.
What are the benefits of implementing these new products alongside the existing infrastructure, rather than relying on a rip-and-replace strategy?
Rudy: If anyone comes and says there’s only one way to implement core banking software, you should probably go in a different direction, because there’s not one perfect approach. I think it just always comes down to the circumstances of that bank.
The traditional approach, rip and replace, is probably what the majority of banks do today. They have a technology platform and they want to get onto a new, modern platform. They scope out the requirements of that, and they do one big project. At a certain point, there’s a cut-off date and they go from the old to the new. And you hope that everything was done properly and that that goes smoothly. That has its own benefits in terms of the time it takes to completely transform the bank, but then there’s also that time in between when nothing is changing.
Sometimes you start projects with good intentions and, by the time you get to the end of the project, so much time has passed that requirements have also changed. Technology has changed. The demands of the customers have changed.
More and more, what we’re seeing is what we’ve been terming at Finastra the “symbiosis approach”, where you can have things living next to each other. That’s where, using modern technologies, like Fusion Essence, you can deploy a piece of the functionality alongside the existing core. Maybe you want to open a new capability, but you don’t necessarily replace everything that you have today, which is complicated, it’s disruptive. Instead, you launch that alongside the existing ecosystem, and that way you can almost incrementally start to transform the bank and see benefits in a shorter time scale while reducing the risk.
“We’ve only scratched the surface of how we can really tailor products and services to everyday people.”
We’re working with one bank in Qatar and it made sense for them to do one rip-and-replace project. Whereas here in the UAE, we’re working with other banks that are doing this progressive approach, where they may replace their branch solution first. They may implement the analytics and data solution around the existing core and then, eventually, keep introducing new components. I think it really just comes down to the specific landscape of that bank, their objectives and their priorities.
How can new core barking capabilities help banks support social initiatives while delivering value to shareholders and customers?
Rudy: For something to be sustainable, it needs to do both. It has to be good business and good for society at large.
When it comes to banking and technology, what we always try to remember is that banking is a really important part of the economy. It touches our lives in a really meaningful way. Sometimes we can forget about that when we just talk about technology and software. But, at the end of the day, we’re talking about the deposits of people, and deploying them as loans for people to start a business or to buy a home, and that’s really critical to the economy. From our perspective, a big part of that is financial inclusion.
In the Middle East, and especially across Africa, there’s a significant number of underbanked or unbanked people. I think that technology plays a huge part in bringing more people into the banking system, and that happens through innovations that are reducing the cost of delivering these services.
We’ve all seen the power of what digital banking and mobile banking can do to bring people into financial services. For me, I think fintech and the financial technology space have a huge part to play in increasing the number of people who are banked by lowering the barriers to access to these technologies, so that the benefits of finance, the benefits of what banks do, can be felt across society.
“Fintech and the financial technology space have a huge part to play in increasing the number of people who are banked”
What are some of the key considerations that financial institutions should keep in mind to ensure that the solutions that are being implemented are safe and secure?
Rudy: I think this topic is really high on most CIOs’ agendas. Banks are heavily regulated, and for a good reason. People like to say “Sometimes they’re not as fast to move”, but that’s also because they have to make sure things are done properly. People place a lot of trust in financial institutions. That’s where they put their money, their savings, and they want to know that they are being taken care of and protected.
With change also comes risk. We talked about how transactions are increasingly digital, which is fantastic, but it also means that things like fraud are increasing, and so, with these new capabilities, it’s important to deploy the tools to ensure that you’re maintaining that security. It has to go hand in hand.
When it comes to things like open banking in the region, we’ve seen a lot of regulation being released on how that should be governed, so that we can make sure that customers’ data is protected and that the way we authorise access to sensitive information is controlled. That’s all really important. The minute we get ahead of ourselves and create additional risks and things go wrong, then people lose trust in the system.
Looking forward to the next couple of years, what are you most excited about?
Rudy: I’m excited about the ability to truly get more personalised banking services. I think we’ve only scratched the surface of how we can really tailor products and services to everyday people. Technology now is at the point where we’re going to unlock that potential. With modern and open core banking platforms like Fusion Essence, we’re able to integrate and deploy these kinds of capabilities and giving tailored advice. I think across AI and data analytics, open API and open banking, that can become a reality now and, in the future, it will be the norm. The same way that all of our other services are tailored to us, there’s no reason not to expect the same when it comes to banking.
