The Covid-19 pandemic has led to a significant acceleration of digital transformation. This trend is especially apparent in financial services, where the health crisis prompted an overhaul of legacy processing systems and the widespread implementation of what are known as ABCD technologies – a catch-all term that encompasses artificial intelligence (AI) and automation, blockchain and bitcoin, cloud computing, and digital and datadriven solutions. While such technologies had been growing in importance within the sector prior to the pandemic, 2020 redoubled this trend.
Each of the four categories brings with it a range of benefits and potential applications. AI can be leveraged within banking and finance in two principal ways: first, banks, brokers and asset managers use the technology to garner insights and make predictions, related both to the market and to customers’ needs and risk profiles. Online behaviour – for example, how customers use their online bank accounts – is tracked for analysis, which then feeds into financial technology (fintech) interfaces. Second, AI-based algorithms enable users to leverage so-called Web 2.0 technologies in order to access financial services remotely and seamlessly.
Many activities that were made impossible by lockdown measures, such as visiting a brick-and-mortar bank branch, were supplanted by AI-based technologies. Blockchain, meanwhile, offers the potential to increase efficiency in relation to transactions, and cloud computing keeps systems up to date and secure in comparatively affordable data centres. Digital solutions include mobile banking, which has had a transformational impact on finance in recent years.
Emerging Markets
Even prior to the pandemic, many emerging markets were seeing notable growth in fintech. This was partly fuelled by younger, tech-savvy populations and the expansion of ICT infrastructure. The spread of mobile technology was another key factor, giving previously unbanked consumers access to fintech solutions, subsequently fast-tracking their financial literacy. In Mexico, for example, fintech was seeing rapid growth prior to Covid-19, particularly in traditionally underbanked populations. “A new model, based on bringing services to the consumer without brick-and-mortar branches, holds great promise for inclusion, and opens the door to untapped sources of profit for financial intermediaries,” Carlos Serrano, chief economist at BBVA México, told OBG. This increase in access to financial services is seen as one of the key tools in reducing poverty and increasing economic activity in emerging markets. Other countries have also turned to ABCD innovations, including Kenya, with the 2012 launch of M-Shwari, which uses AI to streamline and expand financial services by disbursing micro-loans using automated credit assessments and instantaneous approval decisions. In the UAE, meanwhile, the government is pursuing its Emirates Blockchain Strategy 2021. The strategy aims to transform 50% of government transactions into the blockchain platform by 2021 to ensure the digital security of national documents and transactions, and reduce operational costs.
Pandemic Response
Many emerging markets were able to leverage digital services as part of their response to the Covid-19 pandemic. Indeed, in December 2020 a study carried out by the World Bank, the Cambridge Centre for Alternative Finance and the World Economic Forum found that most fintech services – with the notable exception of lending – had reported strong growth in the first half of 2020. The report found that this growth was higher in emerging regions, with the Middle East and North Africa seeing the strongest performance, at 40%, followed by sub-Saharan Africa and North America, both at 21%.
In a sign of the importance that fintech services played in allowing people to adhere to health-protection measures, the report also found that digital payments saw higher growth in countries with stringent lockdown measures, at 29%, nearly double the average in low-stringency jurisdictions over the same period.
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