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Essential resources for banking executives:Enter ‘Banking Reinvented’

Banking transformation: GenAI, Cloud-First Digitalization, and Enhanced Customer Experience

The banking sector stands at the threshold of a revolutionary transformation shaped by the advent of generative artificial intelligence (GenAI), a cloud-first approach to digitalisation, and the relentless pursuit to augment customer experience.

In this blog, I will answer the most burning questions around the trends and use cases that emerged over the past 12 months which are redefining how we bank and how institutions can enhance customer experience including GenAI, open banking, digital banking, BaaS, PaaS, the cloud and digital payments among others.

by Muhammad Hasan

4 mins read


Banks are proactively integrating emerging technologies into their operations, yet they recognise the crucial need to prioritise foundational improvements as well. This balancing act is essential as they strive to not only keep pace but to lead in a fiercely competitive market. Key focus areas include forging a future-proof operating model and enhancing digitalisation and automation to ensure seamless customer journeys.

As part of foundational improvements, banks are focusing on delivering use cases such as instant loans, alternative payments, digital account opening for Retail and SME, investing, and more which have become essential in the region. Additionally, banks are also investing significant effort into emerging technologies like Open Banking, AI-driven chatbots, Blockchain and Super Apps to extend these capabilities for their customer base.

How do you see Open Banking developing over the next few years?

Open Banking will play a pivotal role in reshaping the financial sector in the coming years. Previously, financial institutions were cautious about sharing sensitive customer data, largely due to concerns over regulatory compliance and losing potential competitive advantages. However, with the advancement of Open Banking technologies, supported by robust regulatory frameworks and propelled by fintech innovation, we are witnessing a significant shift in this mindset. The IBSi forecasts that the Open Banking market in the Middle East will expand by 25% annually over the next five years, potentially hitting $1.17 billion. This growth indicates a strong, region-wide adoption as banks begin to realize the substantial benefits Open Banking offers—aligning perfectly with their strategic goals and performance metrics.

Through the strategic application of Open Banking technology, banks are poised to introduce compelling use cases aimed at bolstering both customer acquisition and retention. These offerings encompass a spectrum of services, ranging from seamless account opening and account aggregation to transaction enrichment, credit scoring, and beyond. These examples merely scratch the surface of the diverse array of use cases available in the market. Open Banking's primary objective is to facilitate the unrestricted flow of valuable customer data. By harnessing this data, both banks and fintechs can further build exciting use cases that resonate with customers. The future of Open Banking remains promising, with ample opportunities for continued growth and advancement.

Are we now seeing tangible instances where the use of AI has brought enhanced benefits to banks?

Absolutely. Artificial Intelligence is not just enhancing but revolutionizing banking operations, particularly in the Middle East where banks are pioneers in adopting AI-driven innovations. These solutions are significantly changing how banks operate, delivering profound efficiency improvements and superior customer experiences.

Examples include AI-driven chatbots, advanced credit scoring, personalized banking experiences, and robo-advisory services. These use cases showcase AI's versatility across different banking domains, from credit assessment to fraud detection and customer support, delivering extensive advantages. To optimize AI's performance, my advice to banks is that they must first eliminate fragmented IT architecture and instead consolidate operations into a unified platform. This approach seamlessly aggregates data from various customer touchpoints, enhancing process efficiency and enabling AI-driven insights to identify critical events and uncover customer opportunities.

Which cloud use preferences are emerging amongst regional banks – Public, Hybrid, Private or a combination?

Lately, there has been a noticeable increase in interest towards cloud-only or hybrid deployment models. Banks are recognizing that to remain competitive in a constantly evolving market, fostering rapid innovation is imperative. Hosting in an environment that offers flexibility, scalability, and reliability is considered one of the most effective methods to drive innovation forward. However, from a bank's standpoint, it's understandable that not all systems and data can transition seamlessly to the cloud due to compliance, legacy systems, and regulatory constraints. This is precisely where the hybrid model comes into play. Companies like Backbase remain entirely agnostic regarding deployment methods, thereby accommodating all potential models.

Within the realm of cloud offerings, the Software as a Service (SaaS) model is emerging as a particularly favored option, particularly among banks with smaller IT teams striving to compete with digital frontrunners. For such banks, a SaaS solution proves optimal, as it transfers the responsibility of hosting, maintenance, and the development of new capabilities entirely to the software provider, allowing the bank to concentrate on its core competency of customer service.

What currently keeps the region’s bank CTO’s and CIO’s up at night?

Bank CTOs and CIOs in the region face a relentless array of challenges, from escalating cybersecurity threats to the crucial tasks of developing internal talent and fostering an innovative culture. Attracting skilled professionals also remains an important priority. Furthermore, the pressing demand for rapid digital transformation initiatives cannot be overstated. This involves not merely modernizing legacy systems, but also strategically harnessing data for actionable insights and integrating cutting-edge technologies like AI and blockchain into their operations.

Among these, two challenges particularly dominate the landscape:

  1. Fintech distribution: The emergence of non-traditional players such as neobanks and embedded finance use cases are steadily claiming market share. While various factors contribute to their success, one pivotal element warrants attention: their modern IT architecture. This infrastructure empowers them to thrive in innovation by swiftly developing new capabilities or seamlessly integrating with relevant systems to deliver tailored services to customers. Equipped with such a flexible platform, non-traditional players surpass customer expectations by providing personalized, seamless experiences and extending beyond traditional banking services. Consequently, customers now anticipate higher standards from their banks. The days of relying on physical branches for services or enduring lengthy application response times are swiftly fading into obsolescence.

  2. Legacy Systems: Legacy systems in banking pose significant challenges to innovation. These systems, often outdated and inflexible, hinder banks' ability to adapt to rapidly changing market dynamics and customer expectations. Additionally, maintaining and upgrading legacy systems can be time-consuming and costly, diverting resources away from innovation initiatives. As a result banks end up losing market to non-traditional players mentioned above. To address these challenges, banks must commit to modernizing their IT infrastructure. However, the complexity of transformation projects often weigh heavily on the minds of CIOs and CTOs. My advice to these banks is to adopt a progressive modernization approach and prioritize the layers that will produce maximum impact. For instance, by focusing on transforming the engagement layer, banks can enhance all customer touchpoints, streamline operations through automation, and achieve a comprehensive 360-degree view of customers for more effective support. Looking ahead, the engagement layer will become the main driver for innovation, with other downstream modules serving primarily as systems of record for storing and sharing data.