Banking's new dynamic: what challengers are teaching incumbents
Ahmed Al Aulaqi
Published: 11/08/2026
5 min read
It is competing on intelligence, speed and customer experience. From DIFC’s vantage point, digital‑native challengers are setting the pace of banking innovation across high‑growth MEASA markets. The sector has just recorded its highest-ever net income at USD 1.2tn, according to McKinsey’s latest global banking review, yet trades at around 1.0 times book value, nearly 70 per cent below the average of other industries.
DIFC’s second Future of Finance report of 2026 sets out why. Without decisive transformation, industry profit pools could fall by USD 170bn by 2030, pushing many institutions below their cost of capital. Underlying productivity at traditional banks has been declining by roughly 0.3 per cent a year since 2010, even as a new generation of AI-driven, cloud-first, asset-light challengers has fundamentally reset the benchmark. What we are seeing across DIFC's ecosystem confirms this pattern: banking's direction is being set not by incumbents, but by challengers reshaping the standard
That standard is now visible across the industry. Digital-native platforms have expanded what customers expect from financial services. Their ability to anticipate customer needs has turned seamless, predictive and hyper-personalised services into a feature of modern banking rather than a novelty. This is no longer a niche experiment at the edge of the sector; it is the template established institutions are now competing to match.
Three lessons stand out from what the challengers have built.
First: AI works as core infrastructure, not as a pilot project.
Half-measures will not close the productivity gap. The winners will not be the banks that deploy the most AI pilots. They will be those that redesign the institution around AI – from decision-making and software development to compliance and customer engagement. Institutions committing to enterprise-wide transformation, rather than isolated experiments, stand to see their efficiency ratios move from around 65 per cent to 50 per cent, with Deloitte estimating software development costs could fall by 20 to 40 per cent as gains compound across the value chain. The distinction between using AI as a back-office tool and embedding it into a bank’s operating model is what will separate the sector's front-runners from the rest.
Second: Data quality determines AI quality.
Every gain the industry is chasing, from faster credit decisions to sharper fraud detection and more personalised products, rests on data that is clean, connected and genuinely AI-ready. The industry's largest players are treating data modernisation as a permanent discipline, not a one-off project. The real challenge lies in transforming fragmented data into a trusted foundation that can be effectively leveraged across the organisation. Banks that establish these foundations early will find that every subsequent investment in AI delivers greater impact, scalability, and value.
Third: Banking itself is becoming experience-led rather than product-led.
The fundamental shift is from offering standalone products to delivering seamless, outcome-driven experiences. Customers increasingly think in terms of outcomes rather than products, expecting real-time visibility, instant transactions, and services that feel intuitive and integrated into their daily lives. The institutions that will lead this next chapter, whether traditional or digital, will share the ability to deliver real-time experiences at scale, with data and AI embedded at the core.
Executing on this shift depends as much on where banks choose to build as on what they build. Innovation-friendly hubs give the sector room to test before it scales. Firms from the United Kingdom, the European Union, Canada, Singapore and Hong Kong have already engaged with the Dubai Financial Services Authority's on DFSA Innovation Testing Licence (ITL) Programme and Tokenisation Regulatory Sandbox, using it to trial model accuracy and governance in a controlled setting.
The transformation of banking is not limited to how institutions make decisions; it is also reshaping the underlying infrastructure through which financial value moves. While AI is redefining intelligence and efficiency across banking operations, digital assets are creating new possibilities for payments, settlement and financial connectivity. DIFC is actively shaping the next frontier. Stablecoins are emerging as a real-time, low-cost layer beneath global payments, remittances and treasury management, yet still account for less than one per cent of global money flows, signalling the scale of the runway ahead. To support the safe, transparent and interoperable growth of digital money across the region, DIFC recently incorporated the Middle East Stablecoin Association, establishing a dedicated body to help shape how this next layer of banking infrastructure develops.
Dubai has reinforced its position as one of the world's most important hubs for financial innovation, combining ambition with precise execution. Its ecosystem encourages innovation while maintaining a firm focus on governance, resilience and customer protection, connecting emerging FinTech with global capital across Asia, the Gulf and Africa. As the first AI-native financial centre, DIFC now ranks seventh in the Global Financial Centres Index and remains MEASA's highest-ranked hub. The banks that treat this window as decisive will shape competition in 2030. From where we sit, that shift is already under way.