The Promise & Peril Of GenAI Presents Puzzle To African Banks & Fintechs

| September 20, 2024

The integration of artificial intelligence (AI) into financial services is not a new phenomenon. For years, traditional AI has been used by banks and fintechs globally to enhance fraud detection, improve customer experience, and personalise services.

Now, with the rise of generative AI (GenAI), the landscape is shifting further. African financial institutions are beginning to explore how this technology can revolutionise their operations, yet many remain cautious of its potential risks.

In a recent interview with WT, Andrew Mori, co-founder and CEO of Deimos, a fast-growing African cloud engineering and DevOps consultancy, provided insights into how African banks and fintechs can both harness and safeguard against the risks of GenAI. His company, Deimos, has built its reputation by helping organisations, largely in financial services, apply technology optimally, and he sees the rise of GenAI as a critical moment for the financial sector.

However, GenAI adoption in Africa and elsewhere faces challenges such as data poisoning, reverse engineering, and deep fakes. Data poisoning can corrupt AI systems, leading to biased outcomes and increased fraud risks. In Africa, nearly one-third of online verification documents are fake or stolen.

Also, AI-generated synthetic media, are becoming more sophisticated and are being used by criminals to defraud businesses. In a recent Hong Kong case, an employee was tricked into transferring USD 26 M after deepfakes of colleagues, including the CFO, were used in a video call. Recently, a notable crypto firm, Luno, was put on high alert after a deepfake scam targeted an employee, highlighting the rising threat of AI-powered fraud and the need to tread with caution.

The Appeal of GenAI in Financial Services

GenAI transforms fintech by using data to personalise customer experiences and automate tasks. The Nigeria Fintech Marketing Outlook 2024 reveals 29% of fintechs used GenAI for content creation and 14% for workflow automation in 2023. In addition, a recent Gartner report forecasts that over 80% of banks will adopt GenAI by 2026, a significant rise from 5% today, while McKinsey notes its potential to revolutionise banking’s risk and compliance functions.

One of the most exciting applications of GenAI is its ability to significantly improve customer experience. Mori explains that Deimos has already begun implementing GenAI internally to streamline workflows and provide better support for developers. For banks, a similar approach could dramatically improve client services.

“Instead of Googling how to perform an EFT for Kuda Bank or any of the wonderful banks in Nigeria, you can query an AI assistant directly, and they can explain it immediately without asking support,” Mori noted. This kind of instant, AI-driven assistance could transform how customers interact with their financial institutions, making services more accessible and reducing the burden on human customer support teams.

Furthermore, AI assistants could perform actions directly on behalf of users, simplifying complex processes. “For a certain request, it can retrieve information, present creative solutions, and you should be able to ask this assistant to execute something for you,” Mori told WT. Such capabilities would be a game-changer for fintechs looking to provide seamless, intuitive user experiences.

Traditional AI and GenAI: Complementary Forces

Although GenAI holds great promise, it is important to remember that traditional AI is already deeply entrenched in financial systems. Technologies like fraud detection algorithms, credit risk scoring, and personalised recommendations have become standard tools for many African banks and fintechs.

Mori points out that “traditional AI is still very good at things like recommending stuff, personalisation, guessing things… there’s some very strong AI that’s now considered traditional, and that’s very good at fraud detection, for example.” Rather than replacing these systems, GenAI is poised to complement them, Mori figures, by offering more dynamic, creative capabilities, while traditional AI continues to handle structured, data-driven tasks with precision.

This hybrid model—where traditional AI takes care of routine tasks and GenAI enhances user interaction—could provide fintechs with a more robust AI ecosystem, allowing them to address both operational efficiency and customer satisfaction.

Barriers to Adoption

Despite its potential, the adoption of GenAI in African financial services is still in its infancy. According to Mori, one of the main barriers is the complexity of securely implementing GenAI at scale. “The benefit we will bring is deploying GenAI securely at scale,” he says. Security, scalability, and cost control are critical concerns for banks and fintechs considering the adoption of this technology.

There is also an underlying challenge in terms of human capital. Mori worries that the rapid rise of AI, particularly GenAI, could displace junior talent. “I feel like the junior engineer is drying up as a role because I would rather pay 50 cents a day to use an AI assistant… that gives me the same code, even better code than a junior,” he says. The fear that GenAI could reduce entry-level job opportunities in tech is real, particularly in Africa, where youth unemployment is a pressing issue.

Mitigating the Risks

To successfully integrate GenAI while managing its risks, financial institutions must take a thoughtful, incremental approach, Mori advises. One way is to focus initially on low-risk, high-reward use cases such as customer service automation and internal workflow optimisation, areas where Deimos has already seen early success.

Mori also stresses the importance of using AI securely, particularly in sectors as sensitive as financial services. “How to do this securely at scale… that’s probably where the most benefit from our company will come from,” he notes.

Ensuring that AI systems comply with regulatory frameworks, especially around data privacy and financial security, will be essential. The Deimos boss also recommends banks and fintechs invest in ongoing AI audits and monitoring to identify and rectify vulnerabilities before they lead to significant issues.

In addition, Mori emphasises that African fintechs and banks must upskill their workforce to coexist with AI systems. As automation becomes more pervasive, companies must provide training and development opportunities that equip employees with new skills in AI management, data analysis, and strategic decision-making, he explains. By doing so, they can avoid the displacement of workers while benefiting from the enhanced productivity that AI promises.

The Role of African Fintech in Leading the Charge

Africa’s fintech industry has a history of embracing innovation to solve the continent’s unique challenges, from mobile money to crypto exchanges. Chipper Cash, one of Africa’s leading fintech platforms, has deepened the use of technology to enhance cross-border payments and identity verification through its Chipper ID product. With nearly 5 million users, Chipper Cash demonstrates how fintechs can thrive by leveraging cutting-edge technology.

NALA, another thriving African fintech, has developed its own B2B payment platform, Rafiki, to ensure payment reliability, a critical issue in a region where payment infrastructure is often unreliable. These examples show that African fintechs are no strangers to technological innovation, and their success with traditional AI bodes well for their ability to integrate GenAI in meaningful, secure, and scalable ways.

The adoption of GenAI in African banks and fintechs offers immense possibilities, from improving customer experiences to streamlining backend operations. However, it is essential to move cautiously, focusing on secure, scalable deployments and the upskilling of the workforce. With the right strategies in place, GenAI could become an invaluable tool in the continued growth and transformation of Africa’s financial services sector.

As Mori succinctly puts it, “It’s very easy to implement technology in the wrong way… but we really want to help companies use technology in the right way.” African banks and fintechs have the opportunity to lead the way in harnessing the power of GenAI, especially if they do so thoughtfully and responsibly.