The Banking Executive Magazine - August Issue

ISSUE 200 AUGUST 2025 the BANKING EXECUTIVE 45 FinTech and AI Chornicle Unlike previous waves of automa- tion—whether the steam engine, as- sembly line, or digital computing—AI replaces not only manual tasks but also cognitive and decision-making roles. This is why economists emphasize that AI is not merely substituting human labor in low-skill domains, but also compet- ing with highly trained professionals. For Arab economies, where youth unemployment remains high and the pressure to diversify beyond hydro- carbons is intensifying, the implica- tions are profound. If AI systems take over the very jobs policymakers hope to create for future generations, then the development model itself may need recalibration. BEYOND EFFICIENCY: AI AS A GENERAL PURPOSE TECHNOLOGY Economists classify AI as a "general purpose technology," akin to electric- ity or the internet—an innovation that reshapes every sector, not just one. Such technologies create sec- ondary and tertiary effects that ex- tend far beyond immediate productivity gains. For instance, the introduction of ATMs in Arab banks during the 1980s reduced the need for human tellers but eventually created entirely new services, from debit cards to electronic payments. Similarly, AI is likely to automate existing jobs but also generate unexpected industries and professions. The difficulty lies in predicting which will dominate and how quickly they will materialize. Central banks, therefore, face a unique dilemma: how to regulate and support a technology whose benefits are immense but unevenly distributed, and whose risks extend into systemic financial stability, em- ployment, and social cohesion. THE LABOR QUESTION: REDEFINING WORK When discussing “replacement,” it is essential to ask: replacement of what? If we define work purely as tasks carried out for monetary com- pensation, then AI is already eroding the boundaries. But if work is defined more broadly—as contribution to so- ciety, creative expression, or civic duty—the story is different. For Arab countries, where employ- ment is not only an economic func- tion but also a key to social stability, redefining work will be crucial. If tra- ditional employment contracts van- ish, states may need to design new forms of income distribution— whether through universal basic in- come, negative income tax, or state-sponsored reskilling programs. The Gulf states, for example, are in- vesting heavily in AI while simulta- neously grappling with the challenge of integrating young nationals into competitive private-sector jobs. Without innovative policies, AI could intensify reliance on expatriate ex- pertise while leaving national youth further disconnected from the labor market. SHIFTS IN BANKING AND FINANCE Few sectors illustrate the duality of opportunity and disruption better than banking. Already, AI-driven platforms are personalizing customer experiences, predicting creditworthi- ness with greater accuracy than tra- ditional scoring models, and automating regulatory compliance in ways that reduce both cost and risk. For Arab banks, these developments present a paradox. On the one hand, they offer the possibility of leapfrog- ging into a more competitive, digi- tally advanced position globally. On the other hand, they threaten to re- duce the need for large clerical and mid-management workforces. Moreover, the rise of AI-powered fin- techs—many of which operate out- side traditional banking regulatory frameworks—poses an additional challenge. If left unchecked, these platforms could draw customers away from established banks, erod- ing market share and weakening the stability of national financial systems. For policymakers, the priority will be striking the balance between encour- aging innovation and safeguarding systemic stability. Regulatory sand- boxes, AI governance frameworks, and regional coordination through bodies like the Union of Arab Banks may become essential. ETHICAL AND SOCIAL DIMENSIONS Another dimension of AI’s expansion concerns ethics. Algorithms trained on biased data can perpetuate in- equality. Automated decision-mak- ing may lack the nuance of human judgment, especially in sensitive areas such as loan approvals, med- ical diagnoses, or law enforcement. For Arab policymakers—many of whom are working to enhance finan- cial inclusion, expand women’s par- ticipation in the workforce, and reduce inequality—the ethical di-