HOW THE GULF CAN LEAD IN DIG­I­TAL BANK­ING WITHIN THE NEXT TWO YEARS

Man­ag­ing direc­tor of fi­nan­cial ser­vices for MENA at Ac­cen­ture, ex­plains why GCC coun­tries can leapfrog their way to the top of the dig­i­tal bank­ing tree

Gulf Business - - FINTECH - Amr El Saadani,

The ‘fourth in­dus­trial rev­o­lu­tion’ and its reach is said to have much more im­pact than any other in­dus­trial leap that has ever changed the world in the past.

Emerg­ing economies have the most to gain from in­dus­trial digi­ti­sa­tion, where the po­ten­tial to leapfrog pipe­line so­ci­etal ad­vance­ments and get on par with other de­vel­oped economies, is a faster re­al­ity.

While there is much ex­cite­ment sur­round­ing this op­por­tu­nity, there is also a re­al­i­sa­tion that all or­gan­i­sa­tions may face dig­i­tal dis­rup­tion while oth­ers are al­ready ex­pe­ri­enc­ing what we call a ‘dig­i­tal cul­ture shock’.

The key driv­ers of dig­i­tal change and in­no­va­tion are the evolv­ing tech­no­log­i­cal ca­pa­bil­i­ties avail­able in the mar­ket, pres­sured macro and mi­cro eco­nomic sit­u­a­tions and cus­tomers who are de­mand­ing change and se­cu­rity. ‘Be dig­i­tal’ and ‘go dig­i­tal’ are terms that we are hear­ing more and more in re­la­tion to the bank­ing sec­tor. Th­ese terms go hand-in-hand: ‘Be dig­i­tal’ re­fer­ring to the need to re­main in the mar­ket and on top of cur­rent tech­nol­ogy, and ‘go dig­i­tal’ re­fer­ring to the process of how new and in­no­va­tive tech­nolo­gies are in­te­grated and im­ple­mented.

The key tenet of dig­i­tal bank­ing is that it pro­vides fi­nan­cial ser­vices in real-time. This is the con­cept of GAFAA bank­ing (Google, Ap­ple, Face­book, Ama­zon, Alibaba) through which the process of trans­ac­tions be­come seam­less and in­vis­i­ble. The more we ex­press our feel­ings and ideas on so­cial me­dia, the more the GAFAA sys­tem can ac­cu­rately pre­dict what peo­ple will de­cide and buy.

A closer look at the re­gional land­scape

Banks in the re­gion need to take a proac­tive ap­proach to col­lab­o­rat­ing with fi­nan­cial tech­nol­ogy (Fin­Tech) firms dur­ing the early stages rather than scram­bling af­ter­wards to catch up. This can as­sist banks in en­rich­ing their of­fer­ing for a spe­cific tar­get cus­tomer group, lever­age al­ter­na­tive chan­nels to of­fer core bank­ing prod­ucts and adopt in­no­va­tive so­lu­tions to in­crease ef­fi­ciency.

The Mid­dle East, and in par­tic­u­larly the UAE and Saudi Ara­bia, have all the ad­van­tages and driv­ers to be suc­cess­ful in the dig­i­tal age.

Firstly, both coun­tries can lever­age the sup­port­ing governance struc­ture, the ap­petite to in­vest, the need for eco­nomic diver­si­fi­ca­tion and the need to im­prove ef­fi­ciency. Also, due to the na­ture of the bank­ing sec­tor in the Mid­dle East, banks can in­no­vate in both clas­sic and Is­lamic bank­ing func­tions alike to cre­ate pow­er­ful new dig­i­tal Is­lamic bank­ing prod­ucts.

Se­condly, the Mid­dle East – again most no­tably the UAE and Saudi Ara­bia – has a young, dy­namic, highly ed­u­cated and fast grow­ing pop­u­la­tion. This sec­tion of the pop­u­la­tion is ex­tremely ea­ger to utilise new dig­i­tal tech­nolo­gies and is very ac­tive on cur­rent dig­i­tal and so­cial plat­forms. There is a clear trend in the de­creased us­age of tra­di­tional pay­ment meth­ods, such as cash and cheque, and grow­ing adop­tion of eWal­let us­age across the retail sec­tor.

Thirdly, the re­gion has an in­ter­est­ing com­bi­na­tion of pop­u­la­tion seg­ments, each bring­ing their own needs. Each pop­u­la­tion seg­ment is ac­tive and en­gaged in dig­i­tal, pro­vid­ing an op­por­tu­nity for growth and in­no­va­tion, and for a strong pivot to more dig­i­tal tech­nolo­gies.

And lastly, the new Frame­work for Stored Val­ues and Elec­tronic Pay­ment

Sys­tems of the UAE will open the mar­ket to FinTechs and in­no­va­tion. It is ex­pected that banks will use dif­fer­ent mod­els for dif­fer­ent cus­tomer seg­ments, on­line bank­ing chan­nels for the older gen­er­a­tion, older mil­len­ni­als us­ing bank based apps, and younger gen­er­a­tions us­ing chat type apps. The fu­ture of bank­ing must care­fully nav­i­gate the needs of each seg­ment and in­cor­po­rate dig­i­tal ac­cord­ingly. Th­ese fac­tors will play a key part in defin­ing and de­vel­op­ing the bank of the fu­ture.

The near fu­ture

This drive to­wards con­stant in­no­va­tion and dig­i­tal­i­sa­tion of the bank­ing process does not sig­nal the end of brick and mor­tar in­sti­tu­tions.

One ex­am­ple where the re­gion is al­ready ac­cel­er­at­ing its in­no­va­tion in­ten­tion is in blockchain. It is al­ready in full play in Dubai where a pub­lic ser­vices blockchain mi­gra­tion plan un­til 2020 is al­ready de­fined. How­ever, there are still many op­por­tu­ni­ties for its additional us­age in ar­eas where Saudi Ara­bia and the UAE can be the pioneers and fron­trun­ners, such as land registry and hous­ing pur­chases, var­i­ous types of loans, trade fi­nance and other trade trans­ac­tional ac­tiv­i­ties.

With the pace of change and in­no­va­tion rac­ing ahead, and new vari­ables com­ing into play, along with the need for con­stant in­no­va­tion and im­prove­ment, banks in the Mid­dle East need to stay in the mar­ket and at the same time de­velop as play­ers with­out dis­rup­tion to cus­tomers at the front-end.

Ac­cen­ture has de­vel­oped a two speed bank­ing trans­for­ma­tional road map of ‘ be dig­i­tal’ and ‘go dig­i­tal’, which in­cor­po­rates the dif­fer­ent com­po­nents of the bank of the fu­ture and cre­ates a re­li­able tem­plate for long-term tran­si­tion­ing, with room for ma­noeu­vre when new op­por­tu­ni­ties and chal­lenges arise each day.

In the next two years, the Mid­dle East will leapfrog into the dig­i­tal age by adapt­ing the best dig­i­tal tech­nolo­gies from around the world and im­ple­ment­ing them suc­cess­fully and con­struc­tively in the lo­cal mar­ket. For banks to be best placed to meet the needs of the chang­ing mar­ket, they need to be in­no­va­tive and ready for change, they must act in the mo­ment and look to the fu­ture.

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