Banks must wake up to the digital revolution

▶ Savvier customers are a challenge for the big finance houses

Standard Chartered has reduced its branch network by 10 per cent over the past two years in a clear sign that the shift to digital banking is picking up pace rapidly. Of the remaining branches, some 30 per cent have been shrunk.

The bank, an emerging market specialist, has had a difficult couple of years amid the steepest drop in oil prices since the financial crisis and has been taking many measures, including reducing its headcount to bring profit to its shareholders. Becoming more digital will be another way to save money.

And while the bank was among the biggest sufferers, it has not been alone. Banks and financial services firms have had a tough run since the financial crisis as limits as to how much they can gamble have been imposed by new regulations that require banks to keep more cash at hand to deal with any financial stress.

They are also contending with a changing pattern of behaviour among consumers who are becoming savvier when it comes to getting a good deal for themselves in a world where there is greater transparency in pricing as well as more competition. In the past few years, there has been a flourishing of no-frills online banks that give better interest rates to customers. The legacy banks definitely have their work cut out.

Mainstreet banks contend that customers want value-added services such as wealth management, an area where banks earn handsome fees by charging high rates. The reality, however, even in this part of the bank, is that customers are becoming smarter, opting for low-cost investment vehicles, such as exchange-traded funds that trade on stock exchanges and come with a sliver of the management and sales fees that banks charge.

Many banks are cottoning on to the trends, especially in the UAE, where digital penetration is high compared to the rest of the world thanks to its young, affluent population.

That is why Standard Chartered is bullish on the UAE because despite the slowdown in economic growth in recent years, the country is still a massive trading hub that attracts wealthy businesspeople who have bank accounts and residences in the country.

Of course Standard Chartered is not the only financial institution that is trying to capture business from expatriates and many local banks are beating the trail on the digital front such as Mashreq and Emirates NBD, two Dubai banks, that have been particularly aggressive when it comes to pushing the frontiers of digital banking.

The latter last week raised the bar when it said it would spend Dh1 billion in the next three years on becoming more digital.