months, expectations of a unified and powerful international policy response remain low, amid all the bickering over trade issues and growing nationalism. such developments have further elevated the risks to global economy, particularly in the backdrop of rising geo - political tensions. central bank of kuwait - public عام - بنك الكويت المركزي ii. technology the second challenge we need to consider is the impact of technology on the banking industry. the latest digital technologies are transforming the economic landscape and are disrupting many traditional industries along the way. banking is no exception, where financial technology is fast - evolving and being adopted at a breathtaking pace. cutting edge technologies such as digital payments, mobile banking, data analytics, artificial intelligence, and blockchain are changing the way banks operate and interact with customers. fintech firms are beginning to eliminate the role of many traditional intermediaries in the financial services industry. according to mckinsey, five major banking business segments are particularly at risk : consumer finance ; mortgages ; smes ; payments ; and wealth management. mckinsey estimates that this could put up to 40 % of bank revenues at risk by 2025. 6 part of the reason is that fintech firms can provide access to financial services in a more efficient and cost - effective manner. for example, some fintech lenders have up to a 400 - basis - point cost advantage over banks because they have no physical distribution costs. another example is the execution of payments ; transactions that used to take 3 to 5 days to process can now be completed in 3 to 5 seconds, and for less than one - tenth of the original cost. although banks have generally been slow to innovate, they have sought to stay ahead of the game by partnering with or acquiring fintech firms. according to a recent pwc report, over 54 % of banks surveyed have already established partnerships with fintech firms, and 82 % expect to increase such partnerships in the next 3 to 5 years. 7 central bank of kuwait - public عام - بنك الكويت المركزي while banks can potentially manage the onslaught by the fintech firms, the real challenge will be posed by the big techs. what would happen when the likes of facebook, amazon, whatsapp, and alibaba start competing with banks to provide financial services? these technology giants come with large and captive user bases, low online acquisition costs

contracts. by allowing parties to transact without central intermediaries, blockchain can strip off costs, reduce inefficiencies, and enhance customer services. host of other innovations are reshaping the way we transfer money or obtain credit. for instance, mobile wallets are enabling payments by smart phones, peer - to - peer lending is providing new sources of financing, and roboadvisors are offering financial advice. while undoubtedly exciting, these developments bring in their own unique risks and challenges. i would like to flag a few of them, particularly from the standpoint of financial stability. first, cyber security risk is becoming an increasingly major part of banks ’ operational risk landscape. as various hacking episodes illustrate, now fraud can be perpetrated swiftly, remotely, and on a massive scale. though such occurrences are still uncommon, the impact is substantial, given the high degree of interconnectivity of our systems and markets. second, fintechs are unbundling parts of the finance value chain, offering financial services directly to customers. apart from increasing competition, and squeezing banks ’ profits, fintechs are moving part of the banking business to shadow banking which remains lightly regulated, if at all. likewise, tech - enabled peer - to - peer lending and crowdfunding can further expand the scale of shadow banking, and may also exacerbate procyclicality. as this discussion indicates, innovations are by nature a disruptive force, causing a considerable degree of instability. therefore, regulators face a daunting task of keeping financial systems safe and stable while continuing to ensure the convenience and efficiency that modern technologies offer. to ensure that, we must strengthen our own capacity to identify, monitor, and mitigate the risks from technological innovations. this would require closer cooperation with the banking industry as well as among regulators, both within a country and across the borders. yet that is not enough ; we also need to leave our comfort zone and engage with other stakeholders, primarily the tech firms themselves. ultimately, as regulators, we wish neither to stifle innovation nor to undermine financial stability – and it is indeed a very delicate balance to achieve. similar to when navigating unfamiliar domains, we need to remain agile, adaptive, and proactive – this will ensure reaping the enormous benefits of financial innovations, yet limiting their downside. let me now turn to the second part of my speech. regulatory reforms ; costly but essential banking regulation has been