Ali Imran, Customer Advisory Leader Middle East, Financial Services Consulting at PwC, speaks candidly to Banker Middle East about the development of technology in the Middle East.
How would you compare the development of technological advancements in the GCC to other emerging markets?
As a region, the Middle East appears to have embraced the digital revolution with pride, a digital revolution that is driving the technological advancements we are seeing around the globe today. Demand and acceptance for ‘going digital’ are being led, primarily, by the consumers across the region, unsurprising given the relatively young demographic. Countries such as the UAE, Bahrain and Kuwait are among the most penetrated around the world, in terms of mobile subscriber rates at over 90 per cent, which goes to show the thirst for technology is high. Although the call for new technologies by consumers is strong, when it comes to digitisation, Middle Eastern companies are still in the process of adoption in comparison to the West.
Governments across the region also have high expectations of technological advancements—in fact technology plays a critical role in many of the key visions coming out of the Middle East. Visions and initiatives such as Smart Dubai, Saudi Arabia’s Vision 2030, Qatar’s Connect 2020 ICT Policy and Oman’s digital strategy are all a testament to the enthusiasm and dedication that these governments have towards technology. However, displaying enthusiasm and being able to deliver on this are very different. According to PwC’s most recent CEO Survey, 62 per cent of CEOs were concerned with the availability of people with the necessary digital skills, and over half of the CEO’s surveyed said they found it “somewhat difficult” or “very difficult” to recruit digital talent. In comparison to other emerging markets, India has a very large and growing fintech ecosystem—much more expansive than the Middle East currently.
We work closely with our PwC India team to connect our clients with over 750 fintechs around the country. East Asia has also always been dominant in the technology field—China, Japan and South Korea are all very mature markets in comparison to the Middle East. Although the region certainly has a strong and clear vision, it still lags behind a number of other emerging markets. In summary, it can be said that the technological advancements in the key GCC markets are being driven primarily by the consumers in the region, but also being led by strong and technologically-focused governments. However, the private sector now needs to pick up the pace and gain the same momentum that is both desired and mandated.
Buzzwords such as blockchain and cryptocurrency have been hot on the lips of industry players over the past 18 months. What is your view on this?
It’s important to differentiate blockchain and cryptocurrency and talk about them separately. Cryptocurrency is only one outcome from its underlying technology, the blockchain. Personally, we feel that this is where the true value lies—in the technology that enables these new methods of doing business. Along with cryptocurrencies, the blockchain is an enabler to many new and exciting ways of working. For example, smart contracts could change the way contractual agreements between parties occur, enhancing trust and accountability.
Supply chains could become more streamlined, accurate, audited and secure. And of course, the transfer of assets may be significantly accelerated, tracked and protected. This final use-case is the space in which we have seen the emergence of cryptocurrencies. Cryptocurrencies have acted as an excellent catalyst for the disruption we are seeing in the financial services industry, acting as a PR agency for the truly valuable blockchain technology. To quote our Global PwC FS Advisory leader, “The only thing that is driving bitcoin is what the next person will pay for the bitcoin. It reminds me of tulips in the Netherlands some centuries ago!”
Within the market, we are seeing an element of ‘FOMO’ (fear of missing out) among larger organisations when it comes to blockchain and cryptocurrency. However, the advice we continue to offer to our clients is to start with a clear definition of the problem statement and not to be tempted to try to find a problem to fit a blockchain solution!
Looking at things realistically, how feasible is the implementation of blockchain technology in markets such as UAE and KSA?
Very feasible—we are already seeing a variety of projects underway to do just this. For example, Dubai has introduced its own blockchain-based cryptocurrency called emCash and has committed to have the world’s first blockchain powered government by 2020. In KSA, the Saudi Arabian Monetary Authority has just signed an agreement with US based blockchain firm Ripple to help banks throughout the kingdom use its enterprise software to facilitate crossborder payments instantaneously.
Both the UAE and KSA have very strong infrastructures that will enable blockchain technologies to be successfully implemented, and with the heavy focus on digital technologies coming from the top, the policy should also start to reflect an environment that is conducive to growth in this area.
The UAE has announced that it plans to introduce a digital currency in the country. What would you say are the risks that should be taken into consideration in exploring this?
The UAE government is at the forefront of driving forward the digital evolution. The introduction of a central bankbacked digital currency is somewhat ironic, given that cryptocurrencies like bitcoin were originally invented as a way to circumvent the banks.
However, as mentioned previously, the benefits of the underlying technology that enables bitcoin and others is hard for central banks to ignore. There are also risks associated with being a first-mover in this space. The most obvious risk, and the first thing on consumers’ minds, would be whether or not their money is safe. In theory, blockchain technology enables a much more secure method for making transactions, however with any relatively new technology, this theory needs to be stress-tested. We have already seen multiple cases of cryptocurrency hackings over the last couple of years. Therefore, as the sophistication of hackers develop, so should the technology protecting consumer’s money. Consumer adoption should be at the forefront of the UAE’s mind when it comes to introducing a technology such as digital currency.
When assessing how the public will react to this digital currency, questions should be raised around its ease of use, the speed in which people can convert between their digital and real wallets, and what tangible benefits consumers will be able to realise that they do not already today.
What specific countermeasures should financial institutions be weary of when implementing new technologies?
The top three that come to mind are: 1. Upcoming regulation changes that may make new technologies obsolete; 2. The speed at which a particular technology is developing—will it be 20 per cent the price in two years? Will it be outdated in a year? 3. Resistance to change from within/ active blockers, people afraid they will lose their jobs to automation.
What would you suggest to banks seeking to strike a balance between technological advancement and true innovation?
Both true innovation and technological advancements are essential for any organisation to thrive in today’s business landscape. However, traditional banks have rarely been the source of true innovation, especially when it comes to technology—and why would they be, this has never been their remit. On the other hand, a technology company, by its very nature, has an innate responsibility to innovate and to ‘think outside the box’ in order to create the ‘next big thing’.
Therefore, by design, banks cannot innovate like tech companies and tech companies cannot run banks. In order to develop the pockets of true innovation that banks require to compete in a technology driven landscape, we’re seeing more banks looking to partner with fintechs to innovate. In essence, they are keeping the focus on a ‘run the bank’ agenda and accepting that the ‘change the bank’ is one that can be better implemented in some cases, with some help by outsourcing innovation.
For example, we are in discussion with a number of banks regarding how they can bring to life innovation initiatives with the support of fintechs around the globe. We identify pain points and problem statements within the financial institutions and have our networks of over 1000 fintechs compete to find the best ROI solution for those institutions.
Many have talked about the possibility of robots and AI replacing the human aspects of various tasks in a financial institution. What is your opinion of this?
As we saw in the 1950s with mechanisation, the replacement of human labour with machines, we will see a similar transition to this but in a more digital era. The advancements in artificial intelligence (AI), robotic process automation (RPA) and intelligent process automation (IPA) across the financial services industry has surprised many and 2017 saw AI companies receiving more funding than ever before. In fact, according to PwC’s 2017 Digital IQ Survey, 52 per cent of those in the financial services industry said that they are currently making ‘substantial investments’ in AI, with a further 66 per cent stating the same is expected to be done within the next three years. These results go to show that executives in financial institutions are eager to utilise digital labour.
Nevertheless, consideration should be paid for those employees whose jobs may appear to be at risk. With excitement comes fear, and to deploy technology successfully, honesty and transparency is key. Voicing future strategies with employees and helping them understand how their job will be affected, addressing their concerns head on and offering training to enable people to adapt to any changes will allow for a more successful transition into a digitally augmented workforce.
With this being said, the replacement of human tasks with AI and robotics is inevitable, particularly for typically repetitive, high-frequency processes. Even within our own auditing service line, many of the repetitive tasks will eventually be automated and this is changing the way we hire and the skillsets we look out for. The same will go for financial institutions and the workforce of the future: adaptability will be key. As the futurist Alvin Toffler once said, “The illiterate of the 21st century will not be those who cannot read and write, but those who cannot learn, unlearn and relearn.”
What is your outlook/projection on this over the next couple of years?
As we move further into the fourth industrial revolution we are seeing both governments and businesses across the Middle East embrace these disruptive technologies and invest heavily. According the PwC’s Global Artificial Intelligence Study, by 2030 the economic contribution of AI is estimated to be at $15.7 trillion globally, of which the Middle East will realise two per cent— approximately $320 billion. Further to this, when broken down by industry, AI’s economic impact derived from the financial services industry will account for around $38 million in the region by 2030.
Within the next few years, we will start to see the results of the early proof of concept projects around the region, following which we are expecting to see a larger enterprise-level roll out of these technologies and more transformative change. We will see our workforce adapt as we become more digitally integrated, our levels of trust throughout the supply chain will enhance and productivity will be digitally enabled to grow. Our outlook in this space is very positive. The pace with which we will see this change will surprise many which is why it is vital that we are prepared to learn, unlearn and re-learn. Adaptability will be paramount in the face of these advancing technologies.