Do you love banking? Are you a tech nerd? Curious (or fearful) of AI? If you answered “yes” to any one of those questions, this interview with our friend Fernando Morillo (LinkedIn) is for you. Fernando is a nerd’s nerd — he loves tech and was trained as an aeronautical engineer — and a banker’s banker, with a passion for how finance can create opportunities for fresh grads to private banking clients, from small enterprises to the largest corporate.

Fernando has been with Mashreq for more than two years. Based in Dubai, he’s the bank’s group head of retail banking, where he’s in charge of everything from the retail experience through digital propositions Mashreq Neo and NEOBiz.

He backed into banking early in his career after a run at McKinsey & Co, where he was focused on banking, ins., retail, and digital across Europe, the Middle East, Africa, and the United States.

Managing tech change has been a fundamental part of his job since he moved full time into banking in 2001, when he joined Spain’s Bankinter. He went on to stints with BBVA, the Spanish multinational giant, and then Standard Chartered in Singapore.

Fernando thought banking was “the most boring industry on earth” and says he “reluctantly accepted the idea of working with a bank, and I didn’t like it until the internet came along.” Turns out his timing was impeccable: “It was right at the time the internet was growing. Technology has been an obsession ever since.”

“In my career it’s been about how can we put a bank into a laptop, and then into a mobile phone, and now into the fabric of your everyday life,” he says.

We spoke over the course of multiple days in Cairo and Dubai. Edited excerpts of our conversation follow.

KEY TAKEAWAYS-

• His top piece of advice for execs starting a journey in banking today: It’s all about getting buy-in.
• Will AI make bankers obsolete? We’re going to see jobs change — and yes, jobs will be lost over the course of the next decade. But AI will, like the Industrial Revolution, create more opportunity than it destroys.
• You won’t be hating chatbots for much longer: AI can now understand human intent, and that’s going to be a game-changer for customer service.
• Microsoft and Google own the workplace — and AI. Where does that leave specialist bank players like Temenos?
• The bank of the future? It has many of the characteristics of a software house…
• Banks have one big edge over fintechs: Scale. He’s not losing sleep over fintech startups, saying some may hit escape velocity, but others will run into the wall — and others, still, will become service providers to larger institutions.
• Where will you speak with a human? Go to a branch? When the regulator or the complexity of a transaction demands it. When you want to (if you're HNW). Or if you’re a corporate client with a complex transaction.

E: You've led technological change in banks across multiple continents for more than 20 years. What’s the biggest lesson you would offer to an exec who is starting that journey today?

FM: You need to develop and articulate a viable, visible, and tangible vision that excites your shareholders or your board and your executive committee — whoever is at the top. In parallel, you must empower the teams below you because digital doesn't happen top-down, only bottom-up.

Yes, the decision to go for it starts at the top. But the implementation? That’s bottom-up. In businesses that are starting the journey, the traditional ways of working are very much top-down. That and institutional resistance to change at the top will be your two biggest challenges.

E: Have you played with ChatGPT?

FM: I have played with ChatGPT as a user, sure, but what’s even more compelling to me is how professionals are deploying generative AI. It’s really exciting.

E: Matt Levine, the Money Stuff columnist for Bloomberg, was writing before ChatGPT hit that if you’re a junior banker, a robot can do your job. How do you see AI impacting the workforce? What’s the banker of the future?

FM: This topic brings up a lot of questions, and not just about job security. The reality is that it's too soon to tell, especially when you consider that AI is not one technology but a vast array of them.

Some applications of AI will certainly have the power to replace some of the activities that humans do — they will have an impact on jobs. But I wouldn't go as far as to say that all jobs below a certain level will be eliminated. Take the marketing function: AI will soon be able to produce hyper-personalized campaigns at scale, but even then, there will have to be humans supervising it. It’s a tool, although clearly a tool that has a lot of potential to replace skills that only humans have today.

We will still need plenty of humans to deal with these new technologies, and that’s going to generate an immense number of high-quality jobs. Think of it in the same terms as the Industrial Revolution, where the early thoughts were that all the jobs would be replaced by machines. The reality is that it created a multiplicity of new jobs — and a multiplicity of new services that improved quality of life for all of humanity.

E: How are you using it inside the bank now? Identifying opportunities for cross-selling? Risk analysis? How should people in finance and in other industries tackle the figuring-out what AI means to their businesses?

FM: Leveraging cutting-edge technologies like AI allows us to offer our customers a seamless, intuitive, and hyper-personalized banking journey. We’re collaborating with fintechs, tech platforms, and other industry disruptors to co-create solutions that redefine banking. We have teams that are working on specific applications, and the results are outstanding.

One of the most interesting developments is that we’ve launched a chatbot in the UAE, and it’s rolling out to other markets. The technology has reached a point of maturity where in interactions with humans, it’s capable of understanding the intent of what a human wants. It can then interpret that intent and translate it into specific actions that we can code in our system.

First-generation chatbots were probably one of the most hated features ever — simply because they were quite dumb, to put it bluntly. They were incredibly frustrating to deal with.

This new generation of AI is much smarter, and the result is that banks can now truly be 24/7 institutions in your pocket. Our vision is that you’ll be able to ask AI questions like “What has happened to my account in the last three days?” or “Can you please increase the limit on my credit cards?” in natural language.

Instead of checking your accounts once a week or via a monthly statement, as was the case a decade ago, you can do it once a day, twice a day, five times an hour. And the systems are becoming real-time. You can know the value of your portfolio to the moment, to the fils or the cent — and yet, a human is just a click away to address more sophisticated questions.

E: So will this replace contact centers?

FM: The short term answer is that this will enhance contact centers immensely. It will have an impact in the mid-term, sure. But the moment the interaction with the AI is not productive, you can always find a human who will get the context of the conversation. And in turn, the humans will be supported by AI that can assist them in doing better by you in that interaction.

E: You said something about bots reading intent a moment ago. How does that factor into a replacement of jobs?

FM: We are collaborating with a handful of fintech players, for instance, that have very sharp, very specialized AI applications. Usually, between two humans, it’s easy enough to sort out intent based on a thousand small cues. The way we talk, our tone of voice, the expressions we use — none of this is unique.

It’s about pattern recognition, whether you’re looking at customer needs or anti-money-laundering, and this is an example of where AI is very helpful in chewing through mountains of data.

E: These jobs are done by humans now.

FM: Yes, they are. Will AI take away jobs? Maybe over the course of a decade. We’re in a period of discovery. There will be a period in which some jobs are lost — and, in parallel, we’ll see the creation of new ones. Again, I look at the Industrial Revolution, where human strength and physical abilities were replaced by machines — and yet, there are so many jobs that only humans can do.

It’s about equipping humans with these new machines so they can do more. It’s about giving humans more meaningful jobs to do.

E: Are we having enough conversations about AI in the Middle East? Conversations about what AI and robots mean to future employment for our people?

FM: Many of the conversations are coming from the source, from countries in which AI is being incubated. But I think the region is quite active. It's very observant. We’re all talking about it and tracking what’s happening.

E: Which software vendors will take the lead? Microsoft is the operating system of big business, and it has ChatGPT. Google owns the startup and small-business ecosystems, and it has Gemini. Where does that leave specialty bank software providers, like Temenos?

FM: In their current natural domains, Microsoft and Google do have an edge, absolutely. It’s a horse race and not really a “winner takes all” type of thing.

When it comes to banking and similar providers, I don’t see them leading the pack. Not in my experience. Not yet, at least.

Instead, what I’m seeing is a lot of specialized AI players who focus on specific situations and come up with solutions that are superior to what you can get with ChatGPT. Specialist approaches to AI, trained on meaningful bank data — that’s where things get really interesting.

I think we’re going to see the progressive adoption of AI across specific use cases and domains, and a future in which there are AI telcos and AI insurance companies. It’s going to be about broad adoption across almost all sectors that deal with data and human interactions.

E: So what’s “the bank of the future”?

FM: The bank of the future is increasingly not a physical location but something that is wrapped around you as a client. Personal finance is not accounts and numbers in tables. It’s everywhere around you — the intersection of your money and your current needs. When you’re shopping, you’re using banking services. When you’re traveling — buying a ticket or insurance to cover the trip — you’re using banking services.

So part one of the bank of the future is the connection between personal finance and what you do. And the second part is being everywhere to offer you solutions based on your data, and that’s where AI comes in. It’s very much banking-as-a-service embedded in everything you do.

At Mashreq, we are already embedding this model. Rather than being disrupted by technology, we are building our own solutions so that we can serve our customers in a way that is relevant to their lives. We are working to develop unique platforms, and to do that, we have been actively participating in the fintech and banking-as-a-service ecosystem for the past few years.

Innovation in banking should be a dynamic fusion of technological enhancements, customer centric strategies, and sustainable practices. A primary focus lies in enhancing digital experiences with banks striving to create seamless and user friendly online and mobile banking platforms.

AI also emerges as a game changer in this trajectory, offering potential for hyper-personalized of financial solutions. Blockchain technology is another frontier in innovation, specifically ensuring the integrity of financial transactions, reducing fraud risks, and enhancing overall security. Sustainable finance practices are also pivotal for potential innovation, ensuring the industry stays aligned with evolving technologies and changing customer expectations.

E: The bank as a software house?

FM: Banks have always been software houses, but we’re having to code more and more to always be where you need your finance to be — when you’re buying a loan or an insurance, when you want to pay for something in installments. Your credit card isn’t a physical thing anymore, it’s code. Banks are increasingly becoming software houses with a layer of human empathy on top.

E: Does AI replace your private banker?

FM: I think over time and below a certain level of wealth, yes, the wealth manager will probably become AI.

But to come back to the question about roles for humans: Life is really complex. There’s a level of complexity above which you need a human. You cannot necessarily put 1 mn USD in the hands of a piece of software that cannot understand your plans, your kids’ plans, the complexity of your life.

I see wealth managers getting new abilities to serve clients through AI. The wealth manager will steer you, help tease out the complexities of your situation. Where AI will help is putting order to the information. It will scan thousands of bonds to help you or the relationship manager (RM) construct the right portfolio for you in an advised relationship. The same goes for stocks and exchange-traded funds (ETFs).

E: Where does the competition between established banks and non-bank financial institutions shake out? There’s an extent to which our region — the GCC in particular — is overbanked. And with the end of the era of free money, it seems there could be an opportunity for people with larger balance sheets, deeper pockets, longer-term views, maybe less shareholder pressure to make a play.

FM: Yes, and all of that comes as we have these disruptive technologies starting to make a difference in the industry. I think there’s an opportunity for disruption across industries, not only banking.

In banking and finance, we operate in regulated markets. That’s certainly going to have an impact on how much change or consolidation will take place. But incumbents will face a lot of disruption unless they adapt, change their behavior, and operate with the nimbleness of software houses.

What clients want from you is effectively software solutions applied to personal finance and their interactions with digital ecosystems. If you are not the supplier of those solutions, it will be increasingly difficult for you to be competitive, and that will trigger consolidation.

E: So will we see incumbents replaced by new market entrants?

FM: Frankly, I don’t think it will be a massive disruption — there’s enough space for everyone. There are incumbents who will survive — the ones who adapt, who understand their clients, and serve them digitally.

And not all of the new entrants — the fintech players and neobanks — will thrive. There’s a bit too much hype about fintech players right now, if you ask me.

The reality is that only a handful of fintech players will reach a critical threshold with a sufficiently differentiated product. There is a lot of space in the middle for fintechs that can provide banks with services and solutions that banks are not naturally positioned to build.

Mashreq recognizes the critical role fintechs play in reshaping the financial landscape and we’re committed to collaborating with these entities to bring cutting-edge solutions to our customers.

E: So the future for fintechs is to become service providers to banks?

FM: As software houses, fintechs have a ruthless focus on solving a client’s single, specific problem. Banks, on the other hand, offer specific solutions to a very broad array of problems. So it's very difficult to have the perfect solution for each of our problems in the way we service our clients, and that’s where working with fintechs can be very helpful.

It's not a binary situation. We'll see some banks thriving, others having to be integrated into larger institutions. We'll see some fintechs that will go straight to clients and become direct competitors of banks. And we’ll see some fintechs that will be fantastic providers of solutions to banks and to other fintechs.

And, of course, we’ll see many fintechs that will not make the cut. Think about it: At the beginning of the 20th century, there were several hundred automobile producers in the United States. How many are there today? Eight? Ten?

And in the meantime, there is so much banks can learn from how nimble fintech players are. At Mashreq we have units that work across functions in an agile way. Scrum masters in a bank… .Who’d have thought that was possible a few years ago?

E: How can banks know enough about the totality of your finances to make good recommendations in an AI world?

FM: That’s where open finance comes in — an emerging set of standards that will allow you to get an integrated view of your financial position regardless of where you are or what you’re doing. You can see how much money you have, how much money you owe, how much money you should save in order to manage your life financially. That's how banks will become part of your life in use cases that transcend the product, and actually tell you whether it is financially sound for you to make that transaction or not.

And that’s the direction of travel. Big data is already there. AI is getting there. And now, open finance is being established in many countries — it’s a data structure and series of pipes that will allow people to share their financial data from one institution to another. I’m very excited about the new use cases that it will make possible.

Think about how easy it will make going shopping for a loan, for example, if you can get data on five different banks and see their tailored offers, all in a single portal.

E: What is the role of the physical branch in this world? Will there be branches 5 years from now? 20?

FM: Branches are the apotheosis of the universal banking approach, where all segments go and interact with their finances — a one-stop physical shop that’s still a big part of the banking system worldwide.

We’re moving in the other direction at Mashreq — in the UAE, we’ve cut our branch network by 85%. It’s been a deliberate move driven by client demand. People don’t want to go to a physical place and wait in line to do something they can do online.

For instance, Mashreq NEO in the UAE is a true reflection of this approach — a full-service, branchless bank proposition that provides best-in-class customer experience. Mashreq NEO was the first in the UAE to provide access to international markets for investments, including foreign equities, gold trading and foreign currency accounts. It is the largest digital proposition in the region that offers a full suite of banking products, both transactional and discretionary services and investment products.

But I think we’ll still see a need for physical branches in a handful of types of situations. The first involves complexity, where it is too difficult for a client to sort out a solution by themselves. The second is regulatory — some things still need to be done in person. And the third is more high-value interactions in which what I call ‘the tail of complexity’ requires an interaction with a human. This often cannot be a video call or a phone call but a conversation that has to take place across several interactions with data and an exchange of ideas.

Even as AI becomes more able to read human intent and emotion — and it’s getting there — other situations will simply be better managed face-to-face by a human, who understands the needs of the person sitting across from them at a human level.

At Mashreq we are expanding our touch points (exploring newer channels) across the UAE offering more enhanced services to our customers. And branches will continue to play an important role, albeit a different one.

We see the branches evolving to serve the changing needs of customers, specifically those who require deeper personal engagement and advisory services such as purchasing a home, financing a business or discussing legacy decisions.

E: How often will I speak with my relationship manager in the future?

FM: Part of the answer depends on whether you’re a small or large business, whether you’re a private banking client or other. More and more, you’re going to get good access to data and sound advice over your device. And you’re going to be able to click in the app to bring your RM into the conversation through chat or video in the digital space.

And then if it’s more complex, perhaps you’ll want to see the RM in an office, or the RM will come to you.

Think of it this way: If it’s tweaking your portfolio, you’ll probably do that 90% or more of the time in the app. Maybe you’ll tap to call in your RM if you have an additional question, but the AI will be great at portfolio construction.

Where you’ll want a face-to-face interaction isn’t when you’re gently rebalancing a portfolio, but when you feel that you need to completely burn it down and start from scratch because you worry you may have gotten the allocation completely wrong.

E: What about at the corporate banking end of the scale?

FM: Corporate or wholesale is really outside of my purview, but I would expect you’ll see AI tools being used by bank relationship managers, risk teams, and the like to ensure they better serve their corporate clients. But robo-advisors for large corporates really don’t seem to be in the pipeline now. Mashreq made substantial progress with the introduction of new digital platforms in its investment banking sector, contributing to enhanced operational efficiency and client servicing. It’s additive.

E: How does your strategy on digitization differ in, say, Egypt or Pakistan versus the UAE?

FM: They’re really different propositions, even if they’re all moving in the same direction.

In Egypt or Pakistan, it’s about digitizing the country’s financial system and driving financial inclusion at large — bringing more people and SMEs into the system is what’s going to move the needle for the industry and for society. It’s not the time yet to come up with advanced, super-niche products.

In a developed economy like the UAE, the foundations for digital are already in place. So the next big thing is digitizing wealth management and providing clients with more advanced products and services that give them the tools they need to manage their finances in the long run.

And in the case of SMEs in the UAE, it's more about digitization of loans and bringing down the cost of lending. And that will roll out to less-developed economies as they mature.

E: What’s driving growth for you folks? Your full-year results were fantastic.

FM: In the case of the UAE, the country has had a phenomenal few years. We’ve benefitted from great management of Covid, the recovery in oil prices, and from the simple fact that the UAE is a great place to live. That’s made it a global hub for business and sparked a property boom. And as a bank, we are growing with that — it’s not just us at Mashreq but the sector as a whole. And, of course, the interest rate environment is great for banks because it provides a tailwind.

In parallel, the bank has a truly entrepreneurial culture, so we’ve really gone for growth — growing our assets, our liabilities, our services. And as we’ve done so, our risk management approach has been just right.

Our culture of innovation and obsession with client experiences and digital have allowed us to outperform the market. It's this obsession with coming up with something cool and good for the market that creates the numbers.

And let’s not forget our greatest asset — our people, who are instrumental in our ability to deliver a superb customer experience and develop award-winning products and services.

E: And in Egypt?

FM: Our operation is much smaller in retail in Egypt. For the most part, we are a corporate bank there, but we see huge potential for growth in the mass market. I think we can play a fantastic role in driving financial inclusion, which is going to be a massive catalyst of growth in the country in the long term. With 110 mn people, the opportunity is immense.

We want to be the ones who gave the middle-aged entrepreneurs of tomorrow their first accounts, their first credit cards, their first loans. We want to look back in 10 years’ time and say we did our bit on that front.

E: What’s the biggest surprise more than two years into your time with Mashreq?

FM: The quality of the people — Mashreq has always been known as a business that can choose and develop great talent, but now that I’ve been here, it’s amazing to see how deep that runs.

And maybe we’ve been a bit too successful on that front [laughs]. Because what happens is that people come here, develop as professionals, and then others in the market start poaching talent…

I think the other big thing — on the personal front — has been re-learning that everything is possible and can be done in a very agile way without compromising on risks. Coming from very large institutions, this gets beaten out of you, and Mashreq is amazing: It has no fear of trying new things, and it balances that off with a very careful approach to risk management. You can see that in our non-performing loan ratio, which is less than half the industry average.

Mashreq is careful about risk, but it leaves the door open to try new things and new technologies in business.

Your limits in business are internal — they’re in you. It’s all about your attitude toward what’s possible, and that’s something I’ve rediscovered at Mashreq. This amazing entrepreneurial culture where you are in a meeting and someone says something that sounds ridiculous, but then you figure out how to make it real. This comes from the top, this culture of “you need to try anything that provides an amazing client experience, even if it sounds crazy — just look for ways to minimize risk as you do”.

Here, we’re asked to dream and come up with things that challenge the status quo. It’s very refreshing, and it’s something I have had to relearn since coming here.