The Future is Now

The ongoing coronavirus saga continues to reshape the bank of tomorrow as financial institutions are accelerating and strengthening their digital transformations, from an increasing adopition of openbanking, improving and faster payments and easier and seamless onboarding

The outbreak of COVID-19 and the new variants that ensued is truly a tipping point that changed everything, certainly not ‘the next normal’ as normal is no longer available but a new reality that is made of complexity, uncertainty and opportunities.

The pandemic is continuing to reshape the bank of tomorrow as financial institutions are accelerating and strengthening their digital transformation amid evolving banking preferences and

behaviours among consumers globally. “COVID-19 has demonstrated how the capacity of a company or a bank to shift its business online is critical for its continuity,” said S&P Global.

The next phase of the digital payments revolution is expected to stem from open networks, which empower banks to reimagine their payments offerings for newly-demanding customers. Advancements in the sector are being driven by several factors including the growth in e-commerce and associated services, the shift from cash payments at height of the pandemic and regulatory support.

Despite the unprecedented transition in the financial services sector, bankers are confronting a wide range of challenges, many ongoing, but also some new obstacles in a bid to improve competitiveness and boost capital after the pandemic significantly impacted the industry.

On the Islamic banking front, higher digitalisation and fintech collaboration could help strengthen the industry’s resilience in more volatile environments and open new avenues for growth.

Meanwhile, the rally in crude oil prices on growing optimism for a speedy global economic recovery and easing concerns about the impact of the Omicron variant is a boon for GCC banks given how growth in the sector is linked to regional GDP.

“Stronger government finances benefits banks’ solvency, funding and liquidity due to the governments’ dominant role as key depositors, borrowers and shareholders in their country’s banking system,” said Moody’s.

The future of banking

The GCC financial services sector is currently in the midst of a profound digital transformation, as c-suite level executives and their teams prepare to embrace the next major phase of digitalisation, thanks to the pandemic. The outbreak of coronavirus two years ago presented an opportunity for the global banks to accelerate and strengthen the digitalisation of complex processes and end-to-end customer journeys across the front, middle and back offices, a trend that was already in full throttle across the region.

Banks in the region are exploring technological innovations and new business models that include digital banking, open banking, predictive banking, and modernisation of payment systems

to harness innovation, drive operational efficiencies and grow business.

Consumer use of digital banking in the Middle East has also entered a stage of acceleration, driven largely by innovations launched in the region. The current operating environment calls for regulators who can strike a balance between supporting innovation and protecting consumers as most global banks have moved all interactions with customers to digital. number of consumer digital payments transactions in the UAE soared at an annual rate of 9% between 2014 and 2019, compared to 5% growth in Europe. Saudi Arabia also recorded an astronomical growth in card payments with more than 70% growth between February 2019 and January 2020.

The GCC region is witnessing a burgeoning digital payment industry as financial watchdogs are issuing

regulations governing the licensing, set-up and operations of digital wallets allowing the expansion of the market to include fintechs, tech companies and telecom companies alongside incumbent banks.

Globally, payments remain one of the best performing financial services products but unfortunately for banks, traditionally the main providers of payments services, this momentum is no longer extending to most of them especially under the current operating conditions.

The emergence of new technologies is offering regional banks a window to be more innovative and efficient in-service

OPEN ARCHITECTURE IS A COLLABORATIVE, INTEGRATED APPROACH THAT ENABLES US TO 1) RESPOND TO CLIENTS EVOLVING NEEDS FAST; 2) OFFER CLIENTS GREATER CHOICE AND FLEXIBILITY THROUGH AN EVER-EXPANDING SUITE OF PROPRIETARY AND THIRD-PARTY SOLUTIONS; 3) AND HAVE ACCESS TO INNOVATION THROUGH BNY MELLON’S RELIABLE, RESILIENT AND SAFE GLOBAL INFRASTRUCTURE.”

– Anthony Habis, Head of the Middle East and Africa, BNY Mellon

Digital payments

The digital payments sector was growing rapidly even before the outbreak of the pandemic. McKinsey said that the

delivery, but it is also opening the door to new entrants such as fintechs, global retail giants as well as card networks and neobanks.

While digital transformation in the financial services sector is boosting growth in the payments sector, changes in the environment such as lower merchant discount rates may be necessary to fuel wider adoption of digital payments by merchants.

Digital onboarding

Customer onboarding is the first contact that a new user has with the bank and the process should be intuitive, seamless, responsive and efficient. The implementation of an automated customer onboarding process is an essential feature that determines whether or not a financial institution can obtain new customers.

Digital customer onboarding provides a mutually beneficial situation offering speed, efficiency and convenience for the customers while freeing bankers for more value-added tasks. The process should remain as simple as possible with low documentation requirements as compared to customer onboarding in legacy banks, should offer simple online uploading capabilities, precise explanation during the onboarding process as well as interactive assistance through chatbots.

KPMG identified three approaches that banks should adopt in their digital customer onboarding journey: • Protect – which entails the development of in-house processes and standards to ensure compliance with jurisdictional requirements in terms of data privacy and API guidelines. • Compete – that is investing in strategic enablers both in-house and externally including internal data usage (e.g. unstructured, big data) and external (e.g. mobile app, social media). • Innovative – products and services offered through the building of strategic partnerships with nonfinancial services players to enhance user experience.

Open banking

The radical transformation in the financial services industry across the Middle East region is partially being driven by the advancement in digital technology as previously closed industrial systems have become networked and open, providing ideal conditions for open banking to flourish. “Open architecture is a collaborative, integrated approach that enables us to 1) respond to clients evolving needs

fast; 2) offer clients greater choice and flexibility through an ever-expanding suite of proprietary and third-party solutions; 3) and have access to innovation through BNY Mellon’s reliable, resilient and safe global infrastructure,” Anthony Habis, Head of the Middle East and Africa, BNY Mellon tells MEA Finance.

Open banking requires a robust, agile, and scalable IT architecture to enable API integrations with multiple entities. Its implementation promises to create a new data-sharing infrastructure, which will form the basis of a much richer range of services and products across the whole of financial services.

“The business transformation towards a platform-based open banking ecosystem will provide the opportunity to define a courageous ambition that goes beyond incremental change and deliver breakthrough value,” said Deloitte.

GCC states are unarguably mature when it comes to regulators’ preparedness for open banking. The Saudi Central Bank (SAMA) plans to start the implementation of its open banking framework in the first half of 2022, a move that is expected to enhance trust between customers, banks, fintechs and other financial players. Bahrain’s financial regulator ordered financial institutions operating in the Gulf state to ensure that they implement the requirements for

the second phase of its open banking framework by the end of June 2022.

Meanwhile, the UAE central bank opened a FinTech Office to support financial innovation in the country to aid efforts by the Abu Dhabi Global Market and the Dubai Financial Services Authority to support the growth of open banking in the Gulf state.

Profitability in the GCC banking sector is expected to pick up this year driven by a recovery in regional economies, which is set to solidify as the effects of the pandemic lessen and businesses and consumers adapt. Meanwhile, the region’s state-of-the-art technology infrastructure, a highly tech-savvy population and high penetration of smartphones and internet use will boost digitalisation in the financial services sector as banks receive support from pro-innovative regulators.

THE BUSINESS TRANSFORMATION TOWARDS A PLATFORM-BASED OPEN BANKING ECOSYSTEM WILL PROVIDE THE OPPORTUNITY TO DEFINE A COURAGEOUS AMBITION THAT GOES BEYOND INCREMENTAL CHANGE AND DELIVER BREAKTHROUGH VALUE

– Deloitte