COVID-19 has arguably been the biggest game changer in all industries, including banking. It has had an impact on consumer needs and behavior, paving the way for new opportunities and innovative business models. While most banks have reacted quickly to create solutions to help clients in the aftermath of the crisis, the real question is whether they will be able to capitalize on the momentum and advance their broader transformation goals. digital to make them competitive in the future.
So far, most banks have found themselves lagging behind fintechs and big tech companies in the pace of digitization. According to the Innovation in Retail Banking report produced by Efma and Infosys in November 2020, when respondents were asked about the progress of digital transformation efforts, just 7% said they had gone big and that results obtained were in line with expectations.
For digital transformation to be successful, a simple lift and shift approach does not always make sense. Instead, banks need to completely reinvent their processes and models while driving a shift from a legacy to a digital banking culture. Innovation and meeting changing customer expectations can be particularly difficult during a crisis. However, progressive leaders and a culture of innovation are important success factors for banks to thrive in the digital future. A commitment to building a truly digital organization rather than just ticking the boxes is extremely crucial.
Drivers of banking innovation
In the Middle East and North Africa (MENA) region, factors such as changing customer preferences, high mobile penetration rates, and growing competition from FinTech companies are the drivers. drivers of change. These, coupled with the push by governments to digitize financial services to boost global competitiveness, are leading to industry disruption. For example, the government of the United Arab Emirates (UAE) has put in place measures to boost digital innovation by increasing spending and encouraging private investment. Likewise, the Saudi Vision 2030 Goals also focus on investments in digital banking and innovative banking models.
According to a report by International Data Corporation, spending on digital transformation initiatives is expected to reach $ 40 billion by 2022 in the Middle East, Turkey and Africa (META) region. Bank of Oman Sohar found that income from its loan portfolio increased by more than 10 times the target once it set up a basic banking platform. Likewise, RAKBANK has worked to ensure contextual interactions and consistent cross-channel journeys for its clients while preparing for API-based innovations. It has seen a 50% increase in user transactions on its digital platforms, as well as a 70% increase in high value transactions through digital channels. Aafaq Islamic Finance also operated a modern digital platform, which enabled it to automate all operations and enable the opening of new accounts in less than five minutes.
Innovative banking trends
As the region’s banks embark on their transition to digital transformation, the following key technology trends in the banking industry have gained prominence.
# 1 Digital payments / Instant payments
The digital payments market in Middle East and North Africa is expected to grow at a CAGR of 6.5% from 2020 to 2025. This is due to factors such as sharp increase in e-commerce sales, internet availability ubiquitous and strong mobile penetration. At the same time, the growing number of digital wallet fintechs, as well as the growing acceptance of digital wallets among retailers, have also driven demand. A shift in consumer preferences, spurred by demographic shifts and global trends, is also a factor. Regulatory changes such as the push for open banking and the ISO 20022 migration raise expectations.
ACI Worldwide, a provider of real-time electronic payment solutions, recently announced a strategic global partnership with Vocalink in Saudi Arabia, enabling rapid adoption by banks of real-time payments through ACI’s UP Real-Time Payments solution. First Abu Dhabi Bank (FAB) launched the UAE’s first all-in-one digital wallet. Emirates NBD has implemented its Enterprise Payment Hub which offers full scalability to rapidly launch new and existing payment innovations in all markets and entities of Emirates NBD. The UAE Central Bank has also adopted its UAEPASS initiative to process all banking transactions.
# 2 Digital banks only
In the recent past, there has been an increase in digital banks and payment banks with a multitude of announcements in the Middle East region. Data generated by digital banking also lends itself to AI and advanced analytics to identify consumer preferences and deliver relevant offers. Integrating banking services, analytics can aid in payment forecasting and loan decisions.
In its attempt to empower the country’s FinTech sector, the Saudi Central Bank (SAMA) recently licensed 13 payment companies, including International Digital Solutions Co and Azm Fintech Co. In addition, ADQ, the holding company of some of the UAE’s largest assets, including Abu Dhabi Airport, has announced plans to implement a digital banking license inherited from First Abu Dhabi Bank (FAB). In December 2019, Bank ABC launched “ila Bank” its exclusively mobile digital bank in Bahrain. Egyptian Bank Misr has announced plans to launch a digital-only bank in the third quarter of 2021.
# 3 redesigned digital branches
Banks in this part of the world have traditionally relied on physical branch offerings given the customer segment and regional customers’ affinity for personalized service. However, lagging banks are trying to turn traditional branches into digital branches. Banks are exploring technologies such as voice robots, full-service kiosks, digital appointments and video conferencing, mobile kiosks, and AI-powered hyper-personalization, among others. Many banks in the Middle East have developed such digital offerings to make their branches more tech savvy, paperless and fewer in number, while still maintaining personalized customer service. The Meem Bank in Arabia is one example. In the UAE, Mashreq Bank and ENBD are investing heavily in digital branch offerings.
# 4 cloud adoption
For banks, the biggest question about cloud adoption is not “why” but “how”. Typically a step-by-step approach that begins with moving non-critical environments to the cloud, leveraging cloud techniques to optimize infrastructure investments and performance, and finally, moving the production environment to the cloud is working well. Already, countries like the United Arab Emirates and Bahrain have embraced cloud computing, while the Kingdom of Saudi Arabia (KSA), Egypt and Oman are also opening up cloud adoption for banks.
# 5 Open Banking
Open banking is also gaining momentum. The Central Bank of Bahrain (“CBB”) launched the Bahrain Open Banking Framework in October 2020, with KSA following suit in January 2021. Jordanian bank al Etihad is in the process of finalizing its open banking development portal with more of 400 API. Banks are redefining their technology needs around open banking to take advantage of the growing fintech and partner ecosystem in the region and to meet the dynamic needs of their customers beyond banking.
As 2021 approaches, the onus is even more on banks to better understand the banking ecosystem and customer preferences. This can help identify gaps, reset priorities, and make the right investments. The bottom line is that digital banking transformation is no longer optional; rather, it is essential for survival.
As the world braces for the post-COVID ‘new normal’, it’s important to keep in mind that there is no guide or proven strategy that promises to deliver. However, the right investments in technology coupled with a precise customer focus will help create the right solutions for the region’s banks to survive and thrive.