Welcome to the February 2023 issue of MEA Finance Magazine. This difficult third decade of the 21st century seems to annually reshape ordinary words and phrases like, climate, economy, Ukraine, cost of living etc., making them cast foreboding shadows. However, mindful that a new year brings hope for new beginnings and resolutions to improve, the prestigious progress our region is making in the face of a world of challenges has shored local economies against approaching storms and provides some justifiable optimism for the near future, as shown in our Market Focus on the UAE, page 16, where following a good finish to 2022 the year ahead is showing further positive signs.
Some of this optimism is also expressed in our cover story featuring Dr. José Viñals, Group Chairman of Standard Chartered Bank, talking with MEA Finance about their long presence in Africa and the Middle East and the real growth opportunities of these regions, “Our strong commitment to Africa and the Middle East has been there from the beginning and will always remain”.
From page 20, you can read about the Journey Towards Frictionless CrossBorder Payments. This, the title of our latest roundtable, was hosted by Swift who welcomed influential leaders from key organisations and financial institutions to debate the modernisation of cross-border payments and the benefits this will bring to business and economies.
This issue maintains the development theme and with additions from key industry contributors, we provide perspectives from varied points across the financial services sector. From page 36 we look at how climate change will affect banking in the region, with input from Chuka Umunna, Head of EMEA ESG at J.P. Morgan, from page 44, an overview of the expansion of Open Banking where we hear from Glen Fernandes, Managing Director, Global Client Management at BNY Mellon and from page 10, the changing retail banking market, with Dinesh Sharma, Regional Head of Wealth and Personal Banking, HSBC Bank Middle East Ltd.
One development creating a lot of buzz at this time is ChatGPT, the chatbot launched by OpenAI. From page 50, Geoff Rapp, Co-Founder, Virtuzone tells us how this brings Artificial Intelligence nearer to mainstream interactions, “ChatGPT’s overnight success has brought AI closer to the public and increased their awareness of AI trends and tools currently accessible or being developed in the market”.
Staying with technology, on page 52, Rajashekara Maiya, Vice President and Head, Business Consulting Group, Infosys Finacle describes the top three trends we can expect in banking technology this year. More trends, this time in Data Privacy are outlined on page 58 by Astrid Gobardhan, Data Privacy Officer, VFS Global, and while we are taking a look ahead into how 2023 will shape-up, we provide outlooks for investment and the economy in the region over pages 54 & 56.
Our regular round-up of some of the region’s market news highlights are, as usual covered at the start of this, another issue filled with content and contributors who cumulatively provide words that together shape up to a hopeful journey along the course into the coming year.
6 Dubai’s DIFC announces ‘DIFC Metaverse Platform’
7 Mashreq acquires Digital Banking License to commence operations in Pakistan
9 EY: 2022 was a record year for MENA IPOs with 51 listings RETAIL
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EVENTS AND MARKETING MANAGER Cris Balatbat crissyb@mea-finance.com
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physical studio for metaverse technology that will promote the development of a creator community and venture building. The platform will also address the metaverse policy development and legislation on open data, digital identity and company law frameworks in the metaverse. Furthermore, the initiative will foster the development of a metaverse community that will explore ways to enhance the metaverse experience for customers.
The DIFC Metaverse Platform is aligned with the Dubai Metaverse Strategy, which aims to add US$4 billion to Dubai’s GDP, support 40,000 virtual jobs by 2030 and attract 1,000 companies specialised in blockchain and metaverse technologies.
The platform also supports the objective of the recently launched Dubai Economic Agenda D33 to generate economic value worth AED100 billion from digital transformation annually.
Commenting on the announcement, Omar bin Sultan Al Olama, Minister of State for Artificial Intelligence, Digital Economy, and Remote Work Applications, Chairman of the Dubai Chamber of Digital Economy, Vice Chairman of the Dubai Higher Committee for Future Technology and Digital Economy, stated that the UAE adopts advanced technologies in its aim to keep pace with global changes, reflecting the directives of its leadership, in transforming the country and Dubai to
become a leading hub for utilising the best technology and developing capabilities.
Al Olama added that this Metaverse platform is the first in a series of initiatives that aim to strengthen Dubai’s position as a global platform for the latest digital trends and accelerate the pace to achieve the objectives of the Dubai Metaverse Strategy.
Arif Amiri, CEO of DIFC Authority, said, “The Dubai government has shown great foresight in introducing a metaverse strategy that has the objective of making the emirate a global hub for technology and innovation. The development of the integrated DIFC Metaverse Platform will accelerate the achievements of Dubai’s aspirations in this sector. The initiative is a natural extension of our Innovation Hub proposition that has shaped the technology and innovation landscape in the Middle East, Africa and South Asia region.”
The DIFC Metaverse Platform includes three key initiatives. The first is an accelerator programme with a dedicated
The Metaverse Accelerator Programme, the first initiative to be launched under the umbrella of the platform, will start accepting applications this month. In the coming years, the programme seeks to attract more than 500 applications, identify 50 of the most promising graduates from the programme and stimulate investment opportunities that will help the sector grow.
The programme demonstrates DIFC’s commitment to support innovative metaverse start-ups by introducing them to the region’s largest players. The programme also helps them explore partnerships, gain exposure to investors, access a regulatory sandbox and obtain marketing support.
In early November, the region’s first and largest FinTech Accelerator – DIFC FinTech Hive – hosted its annual Investor Day on the Metaverse Platform, giving the region’s finance ecosystem a first-hand experience of the technology. DIFC Fintech Hive also partnered with Emirates NBD to launch and co-create their own Metaverse Accelerator programme, which received more than 100 global applicants.
International Financial Centre
announced the launch of the “DIFC Metaverse Platform”, in line with the Dubai Higher Committee for Future Technology and Digital Economy’s aim to attract technology innovators from around the world
Mashreq announced the acquisition of a Digital Banking license, under the Digital Regulatory Framework issued by the State Bank of Pakistan (SBP). Mashreq’s intention is to bring their digital expertise to Pakistan and further the interests of the SBP in the digital arena. With the commencement of digital banking operations, Mashreq will usher in a team of bankers and engineers with multicultural experience as well as its proven Neo banking capabilities and world class technology to address the evolving customers’ needs in Pakistan.
With over five decades of expertise, Mashreq is one of MENA’s best performing banks with an expanding presence in Europe, Asia, and the US. Mashreq has always considered Pakistan to be an attractive financial destination owing to the unprecedented growth and turnaround of the country’s banking sector in recent years. Moreover, Mashreq’s excellence in the realm of cybersecurity and compliance is well known as it establishes a robust technological infrastructure and compliance strategy coupled with accomplished technical expertise and an effective risk management culture for each geography into which it expands.
Ahmed Abdelaal, Group Chief Executive Officer, Mashreq said: “Our ingress into Pakistan’s banking sector with the digital banking solutions is indeed a seminal moment in Mashreq’s strategic expansion plans. I strongly believe we can capitalize on Pakistan’s existing robust financial infrastructure to greatly enhance the banking experience by delivering customer centric solutions through our products and services.”
He further added: “Mashreq will, without a doubt, prove to be a catalyst in leading the evolution of digital finance and the wider digital economy in Pakistan through the deployment of truly transformational banking platforms and solutions. We want to thank SBP for providing the opportunity for Mashreq to gain a foothold in one of the most promising markets of the world.”
Fernando Morillo, Group Head of Retail Bank, Mashreq said: “We look forward to exploring a new Pakistani chapter in our strategic expansion road map. I believe that Mashreq’s vision is in tandem with the country’s Digital Pakistan Initiative. At Mashreq, we applaud the efforts of SBP in laying down the foundation that has catalyzed the digitization of the country’s banking sector, transforming it as a whole. Through this powerful synergy, we aim to create and deploy a digital ecosystem in the country with infrastructure and institutional frameworks for the rapid delivery of innovative digital services.”
“As for the country’s flourishing banking sector, Mashreq underpinned with the Digital Banking license, remains committed to deliver its promise of customer value creation and financial inclusion”, he added.
Mashreq’s comprehensive suite of digital banking products like Mashreq Neo, NeoPay and NeoBiz firmly positions it to become one of the most progressive banks in the country.
Pakistan has the third largest unbanked adult population globally with about 100 million adults without a bank account and 82% women without any access to financial services. According to the World Bank, 63% of population of the country comprises youth aged 15 and 33 years of age making it an important market for Mashreq. With financial inclusion and customer convenience at the centre, Mashreq is set to bring its premium offerings to provide innovative possibilities and empower customers in rural areas and underserved markets. Mashreq plans to contribute to the economic activity by increasing lending to small businesses and providing consumer loans to lowincome households, especially women entrepreneurs and the youth.
Additionally, Mashreq has plans to invest in rural infrastructure, including microfinance institutions. These initiatives will help in increasing access to financial services for underserved populations and promoting economic growth through increased lending activity. Thus, by addressing the distinctive needs of its customers in Pakistan, Mashreq will lay the roadmap for all banking operations entering the country’s financial landscape for years to come.
According to the EY MENA IPO Eye Q4 2022 report, the MENA region saw a record number of IPOs in 2022 with 51 IPOs and combined proceeds of US$22.0 billion. The strong run across the MENA region’s markets included 20 IPOs in Q4 2022 that raised US$7.3 billion in proceeds. In terms of value, Q2 2022 was the strongest quarter with US$9.2 billion in proceeds raised across nine IPOs.
Brad Watson, EY MENA Strategy and Transactions Leader, says:
“MENA IPOs had a stellar 2022, with interest and liquidity in the region continuing to defy global trends. The number of IPOs in Q4 2022 was the highest at 20; however, Q2 marked the highest proceeds with the listing of Dubai Electricity and Water Authority (DEWA) on the Dubai Financial Market (DFM) which raised a record US$6.1 billion. The year to watch will be 2023 as there is a healthy IPO pipeline across the region against the backdrop of a challenging and volatile global economic environment.”
Globally, 2022 saw a total of 1,333 IPOs raising US$179.5 billion in proceeds, a 45% decrease in volume and 61% decrease in value year-on-year. In contrast to the recordbreaking 2021, IPO activity hit long-term lows by volume and value across several regions, with the strongest downward trend observed in the Americas. The MENA region, however, continues to buck the trend, with listings remaining strong until end-2022, and a positive outlook for 2023. Several companies have already announced their IPO plans for the new year. MENA equity performance experienced volatility throughout 2022 due to rising interest rates, inflation, and geopolitical unrest, which impacted investor sentiment. At the closing of the year, 24 out of the region’s 51 IPOs had a negative return compared to their IPO price.
Saudi Arabia witnesses an increase of listings.
The Kingdom of Saudi Arabia (KSA) continued to dominate listing activity in Q4 2022. This included seven IPOs on the Saudi Exchange (Tadawul) Main Market, raising US$4.7 billion in proceeds, and six IPOs raising US$65.2 million as well as two direct listings on the Nomu – Parallel Market. The largest public offering belonged to Saudi Aramco Base Oil Company (Luberef), which raised US$1.3 billion – an amount that alone exceeded the total value of Saudi listings for Q3 2022. Meanwhile, Americana Restaurants International PLC (Americana) brought a first-time dual offering and concurrent IPO on Abu Dhabi Securities Exchange (ADX) and the Tadawul. In total, the company offered 30% of the equity to raise US$1.8 billion.
In the United Arab Emirates, DEWA raised US$6.1 billion in Q2 2022, becoming the largest MENA IPO for the year in terms of proceeds raised.
In Q4 2022, ADX welcomed three listings – Americana, Burjeel Holdings PLC, and
Bayanat AI PLC, which raised a total of US$14.0 billion. Furthermore, there were two new listings on DFM – Emirates Central Cooling Systems Corporation (Empower), raising US$724.1 million, and Taaleem Holdings PSC with US$204.2 million.
Despite a lower number of IPOs and trading volumes, the Egyptian Exchange (EGX) outperformed the largest GCC markets – Tadawul and ADX – in 2022 with an annual gain of 22.2%.
The fourth quarter of 2022 saw an increase in IPO activity across the wider MENA region with smaller listings in Oman, Morocco, and Tunisia. The IPO of Pearl Real Estate Investment Fund (Pearl REIF) raised US$60.7 million on the Muscat Stock Exchange (MSX), Akdital Holding S.A. raised US$75.6 million on the Casablanca Stock Exchange, and Assurances Maghrebia Vie S.A. raised US$14.6 million on the Tunis Stock Exchange.
Gregory Hughes, EY MENA IPO and Transaction Diligence Leader, says:
“The year 2022 marked a record year for MENA IPOs with a year-on-year growth of 179% in total proceeds raised from both state-owned and private companies. The region is coming together with the recent first-time regional dual listing and concurrent IPO of Americana Restaurants on ADX and Tadawul, and announced collaborations with regional and international exchanges, as well as a unified set of ESG Disclosure Metrics by the GCC Exchanges Committee. The question remains whether the global economic outlook and lower GDP forecasts for the MENA region will impact expected listings for 2023 despite the pipeline of large government-backed and private company IPOs.”
The economies of energy exporters in the Middle East are powering ahead as the oil boom and a rebound in domestic activity helped insulate them from a dual threat of slowing growth and soaring inflation—which is threatening to tip the global economy into recession.
A rally in Brent prices, which traded mostly above the $100 mark last year, had the effect of pushing budgets of oil-
rich Gulf Arab states into the black for the first time in years and the spillover effect is being felt across the banking sector. It is worth noting that growth in the Middle East banking assets is linked to regional GDP, which moves largely in tandem with oil prices.
GCC banks are returning to form after a strong finish to 2022. “Banks in the GCC region are set to report near-prepandemic levels of profits for the full year
2022, driven by an economic recovery and central banks’ move to tighten monetary policy,” S&P Global said last December adding that the benefits are expected to continue this year.
Regional banks are treading a fine line characterised by evolving customer demands and expectations, a challenging external environment, intensifying competition and technological disruption. However, these trends are not new to the GCC banking sector, but they have been significantly intensified by the new economic order.
PwC said that regional banks have been investing significant sums in their digitalisation capabilities as well as joining forces with financial technology firms to enhance customer engagement and remain agile.
Meanwhile, the GCC banking sector remains highly fragmented making
competition intense and banks in the region are demonstrating that they are eager to buy, sell, invest or partner to enhance their competitive edge, rightsize their portfolios, add scale and expand markets.
Globally, retail banks have committed significant capital to digital and analytics transformations to enhance the customer experience across mobile and web channels. Specifically, retail banking customers are clamoring for a superior cross-channel experience and hands-on guidance during challenging times.
“These heightened demands will require banks to go beyond a product lens and create customer experiences that are data-driven, consistent across channels, and complete with personalized advice,” said Deloitte.
Banking customers now not only expect a superior experience from retail banks, but one that is tailored to their unique needs and financial institutions can demonstrate their unique value proposition by aligning distribution models and delivering datadriven offerings.
Leading retail banks in the GCC region are implementing an entirely new approach to innovation by rearticulating their value proposition, bearing in mind the power of simultaneously simplifying and upgrading the customer experience and creating value through data.
This strategy requires banks to free themselves from a ‘product-centric’ view but instead adopt a ‘customer-first’ strategy which starts with understanding customer needs. To thrive in the new digital environment, banks need to understand that the fight for customer relationships has shifted to new unfamiliar terrain.
McKinsey said that many incumbents are ill-equipped to defend market share on the digital battlefield—a battle that they cannot afford to lose. To maintain and fortify their market positions, banks in the GCC region are launching new, reimagined, fit-for-purpose value propositions and business models.
Retail banks in the GCC region are leveraging their existing resources to introduce speedboats—cloud-native digital spinoffs that enable faster timeto-market for the launching of new products and market expansion. Digital attackers or challenger banks such as UAE’s YAP and Saudi Arabia’s D360 Bank are fighting for market share with digital banking units of incumbent banks including Emirates NBD’s Liv., Bahrain’s Arab Banking Corporation’s (Bank ABC) ila Bank and Boubyan Bank’s Nomo.
Meanwhile, to deliver a market-leading platform-based value proposition, retail banks will need to work like technology companies. Customers’ lifestyle habits
are increasingly motivated and directed by the speed and simplicity of digital services that are at their disposal; the same is true of how they want to bank.
Today’s retail banking market is significantly different in shape and structure from the old environment and winning banks will be those that choose the businesses in which they can lead and commit to building a value proposition, core technology and operating model fit to win on the digital battlefield.
GCC banks started 2023 on a solid footing after earnings for most financial institutions almost reached pre-pandemic levels last year spurred by high oil prices, soaring interest rates and large-scalegovernment projects that are supporting their creditworthiness.
S&P Global said that the banks’ profitability mirrors the US Federal Reserve’s hawkish stance, the currency pegs between GCC currencies and the US dollar and the structure of regional banks’ funding profiles.
The combined profits of the top five banks in the Gulf region— Qatar National Bank (QNB), First Abu Dhabi Bank (FAB), Emirates NBD, Saudi National Bank (SNB) and Al Rajhi Bank—reached over $16 billion in the first nine months of 2022. QNB, the GCC’s biggest lender by assets, reported a 9% increase in annual net profit to $3.91 billion (QAR 14.3 billion) in 2022 from $3.6 billion (QAR 13.2 billion) a year earlier.
S&P Global
Gulf central banks raised key interest rates by half a percentage
CUSTOMER HEIGHTENED DEMANDS WILL REQUIRE BANKS TO GO BEYOND A PRODUCT LENS AND CREATE CUSTOMER EXPERIENCES THAT ARE DATA-DRIVEN, CONSISTENT ACROSS CHANNELS, AND COMPLETE WITH PERSONALISED ADVICE
– Deloitte
BANKS IN THE GCC REGION ARE SET TO REPORT
NEAR-PRE-PANDEMIC LEVELS OF PROFITS FOR THE FULL YEAR 2022, DRIVEN BY AN ECONOMIC RECOVERY AND CENTRAL BANKS’ MOVE TO TIGHTEN MONETARY POLICY
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point in December following the Federal Reserve’s decision to increase rates by the same. Monetary policy in the Gulf region is usually guided by Federal Reserve—which signaled that more hikes are coming as data indicates the fight to wrestle inflation back to manageable levels is far from over.
S&P Global said that net interest income—the difference between interest revenues earned from lending activities and interest paid to depositors—at the region’s banks has soared over the quarters as lenders are passing rate increases on to customers.
With the backing from some of the world’s biggest sovereign wealth funds, banks in the Gulf Arab states cannot hide their growing ambitions to dominate the global financial services industry. FAB, one of the Middle East’s largest banks by assets, said in January that it had considered a bid for London-listed Standard Chartered (StanChart) but was no longer doing so.
FAB was created via a landmark merger between the National Bank of Abu Dhabi and First Gulf Bank in 2016—a tie-up that sparked a deluge of consolidations in the Middle East’s financial services industry.
The Abu Dhabi-based bank’s interest in acquiring StanChart comes months after it withdrew an offer to acquire a controlling stake of ‘no less than 51%’ in the Egyptian universal bank EFG Hermes Holding. The lender has not made any other significant acquisitions since the takeover of the Egyptian unit of Lebanon’s Bank Audi in 2021.
Buoyed by bumper hydrocarbon receipts, investors based in the oil-rich GCC region increased their shareholdings in European financial institutions in 2022 and could buy further financial services stakes this year. SNB invested as much as $1.5 billion in Credit Suisse last October for a stake of up to 9.9%—making the Saudi bank the top shareholder.
SNB, which was founded in 2021 through the merger between Samba
Financial Group and the National Commercial Bank, now commands about 30% of the overall banking market in the Gulf state. Credit Suisse already counts Saudi Arabian conglomerate Olayan Group and Qatar Investment Authority among its top shareholders.
Meanwhile, the GCC banking system remains highly fragmented making competition intense and the trend is likely to intensify due to pressure on small banks’ profitability, alternative
“Retail banks attain scale by capturing market share, merging with or acquiring other banks and pursuing fastgrowing markets. Increasing revenues is fundamental to this process and strategically vital because it enables banks to compete effectively over the long term,” said McKinsey.
Earlier in January, Bank ABC said that it has completed the merger of its Egyptian business with BLOM Bank Egypt. The deal tripled Bahraini lender’s
delivery channels and competition from digital banks. This will likely increase shareholders’ appetite for consolidation to enhance the resilience of banks’ financial profiles.
HSBC Bank Oman and local rival Sohar International Bank entered into a binding merger agreement in November. Sohar International is also linked with a potential merger with Omani Islamic lender Bank Nizwa. Both proposed mergers are subject to regulatory and shareholder approval.
The mergers and acquisitions market has rebounded over the past two years to post impressive increases in deal volume and value in 2022—a trend that is expected to continue as banks position themselves for improved economic conditions.
market share in Egypt to create a bank with total assets of $2.5 billion (EGP 67 billion). Kuwait Finance House also completed its acquisition of Bahrain’s Ahli United Bank last October—a rare cross-border tie-up that had been almost four years in the making.
The structural characteristics of banks in the region are a diverse mix of conventional and Islamic entities as well as being both retail-focused and corporate-aligned in their stance— which from a potential future merger perspective will offer value-added consolidations. Further GCC investments in major European banks and other assets are possible as the wealthy oil-rich countries have been buoyed by a global increase in energy prices.
RETAIL BANKS ATTAIN SCALE BY CAPTURING MARKET SHARE, MERGING WITH, OR ACQUIRING OTHER BANKS, AND PURSUING FAST-GROWING MARKETS. INCREASING REVENUES IS FUNDAMENTAL TO THIS PROCESS AND STRATEGICALLY VITAL BECAUSE IT ENABLES BANKS TO COMPETE EFFECTIVELY OVER THE LONG TERM
– McKinsey
Regional
Bank Middle East Ltd. tells us how HSBC, like other banks, having experienced a time of accelerated development, has prepared an agenda including new capabilities to deliver modern and effective services and stay at the head of wealth and personal banking
Can you identify three clear changes in regional retail banking over the past five years?
The past five years have been a period of intense development across the banking industry globally, including here in the economies of the Middle East and particularly in the Gulf Cooperation Council area. Those developments have primarily been driven by greater global connectivity, itself spurred by increased digital innovation, which in many respects responds to rising demand for wealth management solutions that give customers access to a full range of international investment opportunities and an ability to make those investment choices where they want, when they want, and whether on mobile or on desktop devices. These stand out to me as some of the most obvious changes our industry has seen and that’s certainly where we, at HSBC, have been investing to respond to those trends and meet the needs of our customers.
Are you expecting any noticeable developments in regional retail banking services in 2023?
We have an ambitious agenda for the coming year. We’ll be unveiling new capabilities for our customers, building on the success of our Global Money Account that gives customers the ability to hold, manage and send 21 different currencies
directly from their mobile phones. This captures the essence of what HSBC’s strategic goal to “digitise at scale” means for our wealth and personal banking business, particularly bearing in the mind the trends already mentioned regarding international connectivity, digitisation and wealth management.
What key activities are you pursuing to enhance customer engagement?
We are focused on delivering value and best in class service for our customers, ensuring they get access to accessible, user-friendly products and services that
fit their needs. We achieve this by listening to and learning from feedback at various stages of individual customer journeys to ensure we are constantly adapting and optimising customer experience to provide relevant, timely support.
One example of how this has worked in practice is the investment we’ve made in streamlining processes for when a customer changes bank or opens an account on arrival in a new country –we’ve acted to take the stress and the complexity as far as possible.
How are you adapting to the increasingly diverse competitive retail banking environment?
Banking has always been a competitive business, and I believe HSBC is well positioned to handle the arrival of new players and to invest to keep us at the forefront of developments in wealth and personal banking. Our established heritage in the Middle East, where our origins date back to 1889, our international footprint that covers more than 90% of global financial flows, and our investments to ensure we are great place to work and a great place to bank, all combine to attract great talent. There are very few truly global financial organisations. The global trends of international connectivity, digitisation and wealth management are especially evident in this region, which makes the road ahead one that is full of opportunity.
Impending mandates around ISO 20022, Target 2, SWIFT gpi and regional payment rails has meant that migration paths for ease of adoption are a key consideration for market participants. Every payment rail will have its own flavour of exceptions and investigations, which if not handled correctly, can result in costly time-consuming processes.
SmartStream’s Advanced Payments Control solution puts you in control of the payments investigation and exception lifecycle. It brings a standardised and automated approach across different payment rails, significantly improving efficiencies in handling message queries.
an upside risk to growth and the federal government is leaving no stone unturned in its efforts to diversify the economy away from heavy reliance on oil revenues.
The UAE has remained relatively insulated from the global economic downturn with the Gulf state projected to maintain above-average growth in 2023 to become the best-performing economy in the Middle East region. Economies around the world have been grappling with a multitude of shocks—from the war in Ukraine to soaring COVID-19 cases in China—that have sent inflation soaring and weakened activity.
The International Monetary Fund (IMF) forecasted that global GDP growth will slow from 6% in 2021 to 3.2% in 2022 and 2.7% in 2023—the weakest growth profile
since 2001. Meanwhile, the UAE enjoyed a strong finish to 2022 led by a strong economic rebound on higher oil prices and production as well as the recovery in tourism, construction and non-oil activity linked to the Expo 2020 Dubai.
“Looking ahead, the UAE economic outlook remains positive supported by domestic activity,” the IMF said last November while projecting that GDP growth will reach 5.1% in 2023 and nonhydrocarbon growth is forecasted to be around 4%.
Though the world’s largest economies face heightened recession risks, the UAE’s strong reform momentum provides
The UAE, the Middle East’s leading business and tourism hub, has introduced a series of reforms over the past few years to increase foreign direct investment and make itself more attractive for foreigners to live and work amid growing competition from its GCC neighbours.
The performance of the UAE’s banking system improved last year on the back of lower cost of risk and higher interest rates and profitability is expected to reach pre-pandemic levels in 2023. However, the increasing risk of recessions in the US and Europe along with higher interest rates could pressure the operating environment.
Banking sector
UAE banks are entering 2023 ‘on solid footing’ despite higher uncertainty.
The UAE enjoyed a strong finish to 2022 led by a strong economic rebound on higher oil prices and production as well as the recovery in tourism, construction and non-oil activity.
Banks in the Emirates reported higher profits on the back of improving operating conditions marked by economic recovery and the central bank’s moves to tighten monetary policy.
“Banks’ performance improved in 2022 on the back of lower cost of risk and higher interest rates,” S&P Global said in January while noting that the central bank’s Targeted Economic Support Scheme (TESS) helped the banking system through a period of stress, limiting the increase in nonperforming loans (NPLs). The benefits are expected to continue this year.
The combined profits of the UAE’s top five banks—First Abu Dhabi Bank (FAB), Emirates NBD, Dubai Islamic Bank (DIB), Abu Dhabi Commercial Bank (ADCB) and Mashreq Bank—reached $8.5 billion (AED 31.4 billion) in the nine months of 2022.
FAB, the UAE’s largest lender by assets, reported a 19% increase in 9M 2022 net profits to nearly $3 billion (AED 10.9 billion), Emirates NBD registered a 25% y-on-y increase in profit to $2.5 billion (AED 9.1 billion), DIB’s net profit soared by 34% to nearly $1.11 billion (AED 4.1 billion), ADCB saw it net profits in the nine months to the end of September jump by 22% y-on-y to $1.3 billion (AED 4.7 billion) while Mashreq’s net profit reached $708 million (AED 2.6 billion).
S&P Global said that net interest income—the difference between interest revenues earned from lending activities and interest paid to depositors—at UAE’s banks has soared over the quarters as lenders are passing rate increases on to customers.
The Central Bank of the UAE (CBUAE) hiked its base rate by fifty basis points to 4.4% in December after the US Federal Reserve raised its interest rate by half a percentage point marking one of the most aggressive years in monetary policy history as central banks heightens their fight against inflation.
The UAE’s financial institutions have adequate capital overall and abundant liquidity while their asset quality has improved modestly from pandemic-era
peaks. However, pressures on small banks’ profitability, alternative delivery channels and competition from digital banks are expected to increase shareholders’ appetite for consolidation to enhance the resilience of banks’ financial profiles.
Digital banking is swiftly changing the field of play in the UAE financial services sector where incumbents are facing increasing competition from neobanks and challenger banks which are billing on customer experience as their point of sale.
KPMG said that financial regulators are keen to align the country’s digital agenda with the country’s banking industry operations as neobanks, like the homegrown Zand, are focusing on
Digitalisation in the UAE financial service market is partly being driven by tech-savvy customers and regulatory initiatives such as regulatory sandbox and open banking—which are creating an enabling environment.
The disruptions to oil trade and output that followed the war in Ukraine have driven up the cost of commodities while contributing to cost-of-living crises around the world. However, in the UAE, the oil boom has had the effect of pushing budgets into the black after the economic impact of the pandemic while creating an ideal environment for the country to proceed with ambitious reforms under
streamlining operations to conduct highvolume digital transactions.
The leading neobanks in the UAE include RAKBANK-backed YAP, ADQowned Wio, Shariah-compliant Zand Bank and Abu Dhabi-based Al Maryah Community Bank. These challenger banks are competing with several speedboats including Emirates NBD’s Liv., Mashreq Neo and DIB’s rabbit.
The UAE is about to roll out its National Payment Systems Strategy, a state-of-the-art, real-time payments clearing and settlement rail which is an interbank, real-time clearing and settlement infrastructure to which all the commercial banks operating in the country will connect. The instant payment platform is expected to drive substantial economic benefits for corporates and consumers alike.
favourable macroeconomic conditions.
Global benchmark Brent traded mostly above the $100-mark last year and JPMorgan projected that it would average $90 per barrel in 2023. The UAE, the Arab world’s most competitive economy, approved the federal budget for the fiscal years 2023-2026 last October with a total expenditure of $68.69 billion (AED 252.3 billion).
The Gulf state forecasted total revenues of $69.6 billion (AED 255.7 billion) over the period while revenue and spending for 2023 will grow by an estimated 11% and 4%, respectively. The finance ministry said that the cabinet approved the budget for the fiscal year 2023, with a total estimated expenditure of $17.2 billion (AED 63.06 billion) while total revenues are projected at $17.3 billion (AED 63.6 billion).
The UAE allocated $572 million (AED 2.1 billion), 3.4% of the total general budget, towards the financial investments sector, including $205 million (AED 753 million) which will go towards federal investment projects.
The federal government, which sold its first bond in its half-century history in 2021, returned to international bond markets last October with the CBUAE receiving bids worth $2.1 billion (AED 7.57 billion). The debt is rated Aa2 by Moody’s— the third-highest investment grade and one step lower at AA- by Fitch Ratings.
The increased global uncertainty is driving foreign investment inflow into the UAE while contributing to rapid real estate price growth in some segments. The country is set to host the World Trade Organisation’s (WTO) 2024 ministerial conference, the largest global gathering of trade ministers.
The gathering scheduled for February 2024 will come at a critical time as the global economy is being confronted by a confluence of challenges including the war in Ukraine, an ongoing pandemic and a simmering trade war between the US and China—the world’s two biggest economies.
For the Emirates, hosting WTO’s 13th ministerial conference is part of a broader strategy by the government to burnish its credentials as a global hub for business. The government has been rolling out bilateral trade deals with fast-growing markets since the pandemic.
The UAE signed a wide-ranging economic pact with India in February 2022. The trade pact, called CEPA, removed duty on almost 90% of goods traded between the two states and it is expected to boost bilateral trade from $60 billion to $100 billion within the next five years.
The Gulf state is home to some of the world’s biggest wealth funds including Mubadala Investment Company, Abu Dhabi Investment Authority, ADQ and Investment Corporation of Dubai.
Buoyed with cash from last year’s commodity boom, the UAE is investing billions of dollars in Egypt, Indonesia, Sudan and Jordan to diversify its economy away from crude.
In a major policy shift, the UAE said that it will levy a 9% federal corporate tax on business profits exceeding $102,110 (AED 375,000) for the first time starting 1 June 2023, as the Gulf state moves to align itself with new international standards, particularly the move toward a global minimum tax on multinational corporations.
by scrapping a law that required an Emirati shareholder or agent when foreigners are opening a company in the country. The UAE’s new company law came into effect last June and it is expected to boost the country’s economic competitiveness.
The UAE plans to offer Emirati citizenship and passport to a set group of foreigners, including investors, professionals, and special talents – a first in the Gulf region as the government looks to give its huge expat population a bigger stake in the economy to drive growth. The country also approved regulations on the entry and residence
The ambitious plan, which will see the UAE ditching the tax-free regime that made it the Middle East’s business hub, aims to eventually set 15% as the base levy to stem international competition to offer more attractive rates.
Fitch Ratings cautioned that the UAE’s federal corporate tax could have uneven credit implications on rated corporates, with privately-owned corporates and government-related entities rated on a bottom-up basis most affected.
Moody’s also said that although the introduction of a corporate tax will broaden the federal government’s income base, it would negatively affect the credit profiles of companies operating in the country.
The government also revamped its Commercial Companies Law
of foreigners last April formalising a process aimed at giving expatriates a bigger stake in the economy.
The Gulf state’s residence schemes and entry permits now include the golden residence scheme, green residence, five-year residence visa, job exploration entry visa as well as multi-entry business and tourist visas that do not require sponsorship.
Over the years, the UAE has implemented a raft of economic and structural reforms, including issuing citizenship to foreigners, to attract investment, foreign talent, enhance competitiveness and maintain its global trade and business hub status amid growing competition from its equally ambitious Gulf neighbours.
NET INTEREST INCOME—THE DIFFERENCE BETWEEN INTEREST REVENUES EARNED FROM LENDING ACTIVITIES AND INTEREST PAID TO DEPOSITORS—AT UAE’S BANKS HAS SOARED OVER THE QUARTERS AS LENDERS ARE PASSING RATE INCREASES ON TO CUSTOMERS.
– S&P Global Ratings
At the latest MEA Finance roundtable hosted by SWIFT and the UAE Banks Federation, entitled - The Journey Towards Frictionless Crossborder Payments, the need for, and movement toward faster and smoother payments was avidly discussed with numerous viewpoints and observations making for an informative and enjoyable debate on this matter of key importance to banks, businesses and economies in the region
The push to make end-to-end money movement more instant, secure and transparent across borders is driving the payments industry to continuously look to improve the user experience. The financial services industry is in the midst of a significant transformation that was accelerated by the outbreak of the pandemic three years ago.
From ride-hailing apps to instant food and grocery delivery to voice-command musical and cinematic playlists, customers everywhere are clamoring for real-time conveniences. Global businesses are turning to financial institutions and fintech partners for
payment solutions that are instant, secure and transparent in the face of increasing customer demand for seamless, intuitive and mobile-centricity digital self-service.
“The easy and intuitive experiences offered by leading online retailers and tech platforms have heightened customer expectations in financial services,” said EY. To meet the growing demand, payment solution providers are turning to the latest digital innovations to transform the cross-border payments experience for treasurers, their beneficiaries and their customers.
Cross-border payments typically require three to five days of end-to-
end processing before reaching the intended recipient and the shortcomings are compounded by high costs, lengthy settlement times and opaque processes.
However, the real-time capability is revolutionising cross-border payments. Globally, several initiatives and technological developments are fasttracking the various real-time borderless payment trends. The growth of borderless e-commerce, cross-border B2C payments and web-centric transactions in the Middle East are also driving the demand for cross-border real-time payments.
MEA Finance in partnership with SWIFT and the UAE Banks Federation hosted an exclusive roundtable themed The Journey Towards Frictionless Crossborder Payments in Dubai, where senior
other financial institutions to enhance cross-border payments experience and cut costs for end-customers.
Jamal Saleh, the Director General of the UAE Banks Federation (UBF), in his opening remarks, said that the world is turning into a fully global village where cross-border payments have to be as seamless as domestic payments. Saleh said that he expects the initiatives that are being implemented by the UBF and the Central Bank of the UAE (CBUAE) to nearly or fully eliminate the friction in international payments.
Sido Bestani, the Managing Director of the Middle East Africa India Sub Continent at SWIFT, opened his welcome remarks by highlighting the monumental challenges in the payments industry. He said that the payments landscape
representatives from across the financial service sector shared insights on the foundation of the cross-border payments industry and explored new ways to address the complexities of providing secure and ubiquitous payments.
Correspondent banking—in which one financial institution carries out transactions on behalf of another, often because it has no local presence—has been instrumental in facilitating crossborder payments for centuries. Several banks in the Middle East have made headway in expanding their services and are exploring how the new innovative financial technologies can better support their businesses while partnering with
remains fragmented, and it includes instant payment systems, automated clearing houses and digital wallets— which creates a lot of challenges and opportunities, at the same time.
Bestani identified the prolonged pandemic and growing demand for realtime, transparent and low-cost crossborder payments among the trends reshaping the payments landscape.
Shirish Wadivkar, the MD, Global HeadWholesale Payments & Trade Strategy at SWIFT, opened his presentation by shedding light on the projects that the company has been working on over
WE ARE CONVERTING OUR TRADITIONAL MESSAGING NETWORK INTO AN OPEN-SOURCE PLATFORM WHERE WE CAN INVITE THIRD PARTIES, REGULATORS AND MARKET PARTICIPANTS TO COME AND INTERACT WITH THE SWIFT NETWORK
– Shirish Wadivkar
the past three years as well as its strategy. Wadivkar said that ‘instant and frictionless’ payments are the core of SWIFT’s strategy. “That is what we stand for and what you are trying to achieve,” he added.
Beyond payments, SWIFT is extending ‘instant and frictionless’ to securities and trade. “Today, we are talking about payments and that is the work we commenced six years ago with SWIFT
said while underscoring that this is the conversion from a standard messaging outfit to a platform layer.
Wadivkar closed his remarks with Central Bank Digital Currencies (CBDC) interoperability, the new element that was introduced by SWIFT making it easy for central banks to integrate digital currencies seamlessly with existing payment systems while facilitating transactions across borders.
and the disruption in the market and globally,” he said. Saeed emphasised that the learning curve for the customers is paramount, especially for a legacy relationship where technology, banks should understand whether customers are comfortable with the innovative technology or not.
Zameer Ajaz Punjabi, Vice President, Product Owner - Payments & Remittance at Mashreq Bank said that customer
gpi (Global Payments Innovation) and continues with SWIFT GO and all other initiatives that we are working on to enable faster and low-cost payments across the world,” said Wadivkar.
He also highlighted how better-quality payment data is enabled by the adoption of the ISO 20022 standard. The structure of better quality data allows banks to address a plethora of challenges that they face today by increased automation, faster processing, more effective reconciliations, improved mitigation of financial crime risk and better insights on the purpose and context for payments.
“We are converting our traditional messaging network into an open platform where we can invite third parties, regulators and market participants to come and interact with the SWIFT network,” Wadivkar
Digital transformation across the financial services sector is all about enhancing the customer experience for personal and business users alike. The emergence of new technologies and evolving customer requirements have heightened the need for banks to improve the process of cross-border payments.
Faisal Saeed, the Head of Retail Liabilities & Transaction Banking at Emirates NBD, said that the payments landscape is changing “quite” rapidly, and the digital-native banks have raised the bar when it comes to meeting customer expectations and demands.
“As one of the leading banks in the country, the real challenge is how do we balance the legacy base of our customers, the stock of a business that we manage, the disruptive innovative technologies
experience has been Mashreq Bank’s core focus over the years ranging from frontend channel development to enhancement of various customer digital journeys.
“The financial service sector needs to build a fully automated end-to-end ecosystem wherein a lot of other functionalities that are currently being handled manually will be digitalised to ensure a complete frictionless seamless experience for the customers,” Punjabi said. He acknowledged that there is room for improvement given that a lot of backend processes are currently being handled manually.
The growing frustration with the traditional correspondent banking model, which is often considered cumbersome and costly in a world of real-time low-cost payments, is
providing a fertile ground for the growth of non-bank providers. Today’s customers require their international payments to be equally seamless as domestic transactions.
From a neobank perspective, Seemanti Considine, the Head of Operations and Correspondent Banking at Wio Bank said that challenger banks are on the opposite end of the spectrum compared to incumbents, “because we
“All the customer complaints that we received since we launched last September have been actually around lack of speed,” added Considine.
Banking customers are spoilt for choice when it comes to payment options and banks should provide services and products that go above and beyond to drive engagement and maintain a competitive edge in the Middle Eastern market.
banks” logic was something we heard in the past but right now what we probably see among fintech firms is “you need to work closely with the banks.” He said that there is growing collaboration and engagement between fintechs and incumbents.
Sethi said that there is a lot of ecosystem play in the regional financial services system while giving an example of BUNA—the cross-border and multi-
are getting the digitally native customers who do not want anything to do with traditional banking but they are after instant gratification.”
Sanjay Sethi, the Senior Managing Director, Head of Global Transaction Banking at First Abu Dhabi Bank, said that this “you need banking and not
currency payment system owned by the Arab Monetary Fund.
While responding to the question on the difference between digital-exclusive and traditional banks, Viplav Rathore, the Managing Director and Head of Cash Management for Africa, Middle East and Pakistan for Standard Chartered Bank said that sometimes banks are innovating for the sake of ‘innovation’. He gave an example of a CBDC that is being piloted under the mBridge project between the central banks of the UAE, Hong Kong, Thailand and China while noting that “we all somehow have to take the balanced approach and how much innovation is good and what is the innovation which is addressing the problems.”
Rathore said that as a corporate client of a bank and as a banker he
THE FINANCIAL SERVICE SECTOR NEEDS TO BUILD A FULLY AUTOMATED END-TO-END ECOSYSTEM WHEREIN A LOT OF OTHER FUNCTIONALITIES THAT ARE CURRENTLY BEING HANDLED MANUALLY WILL BE DIGITALISED TO ENSURE A COMPLETE FRICTIONLESS SEAMLESS EXPERIENCE FOR THE CUSTOMERS
– Zameer Ajaz Punjabi
always identified friction in cross-border payments as the problem that reduced efficiency and had an impact on the customer experience.
Stuart Keenan, Vice President, Receivables Product Head for Middle East North Africa (MENA) at Citi, said that from a corporate perspective, the
Exchange weighed in saying that though their business is predominantly run through a brick-and-mortar model, the digital platforms are witnessing an increase in volumes over the past two to three years, especially for the mid to high consumer groups. Despite the digitalisation drive, Raipancholia said
Sá highlighted that the enrichment of data and reporting is a key priority together with speeds. “Timesaving in terms of reconciliation and the enrichment of data in all the reporting is what is key from the corporate side together with the channels that cover all the corporate segments from mobile
main trends include the growth of instant real-time payment schemes worldwide, how they are enhancing cross-border payments and the choice and types of payments.
Consumers have high expectations and the new innovative technologies are raising them even further driven by the growing demand for seamless interactions, security at every step and easy access to purchase information. With SWIFT Go, banks are providing instant and frictionless cross-border transactions while enhancing transparency and endto-end digital strong security.
While responding to a question about the growing trends in the GCC payments landscape, Onur Ozan, Regional Head - Middle East, North Africa and Turkey at SWIFT said countries are introducing instant payment schemes “one after another in our part of the world” including Bahrain’s Fawri+ and Saudi Arabia’s newly introduced SARIE while the UAE has embarked on a journey to build its stateof-the-art instant payments clearing and settlement rail.
From an exchange house perspective, Rajiv Raipancholia, the CEO of Orient
that the demand for brick-and-mortar locations and exchange house branches remains high among less educated expatriate communities.
Ana Rita de Brito e Sá, the Lead –Product Management Cash Management & Escrow at Abu Dhabi Commercial Bank added by saying that from a corporate banking perspective, areas of concern include interoperability speed, high charges, frictionless on the end of the flow and the payment journey.
applications to APIs, SWIFT and online banking,” she added.
Kapil Arora, the Head of Correspondents & Banking Relations at Al Ansari Exchange believes the current operating environment is ripe for collaborations. “The customer experience, the customer journey, the user experience and service delivery can be enhanced with transparent collaborations between banks and their correspondents, between
– Kapil AroraTHE CUSTOMER EXPERIENCE, THE CUSTOMER JOURNEY, THE USER EXPERIENCE AND SERVICE DELIVERY CAN BE ENHANCED WITH TRANSPARENT COLLABORATIONS BETWEEN BANKS AND THEIR CORRESPONDENTS, BETWEEN EXCHANGE HOUSES AND FINTECHS AND BETWEEN BANKS AND EXCHANGE HOUSES
exchange houses and fintechs and between banks and exchange houses,” said Arora.
Arora said that non-banking institutions such as exchange houses are highly dependent on the banks for different kinds of services and processes while noting that some banks within the UAE are
Globalisation, digitalisation and the rise of e-commerce have changed the way consumers around the world shop, creating a truly global marketplace. Despite the economic headwinds originating from multiple sources, crossborder payments revenues are on track
border payments typically take place between financial institutions, governments and multinational nonfinancial companies while retail crossborder payments are typically between individuals and businesses. EY said that traditionally, cross-border payments flow via the correspondent banking network
collaborating with the exchange houses with a keen focus on enhancing service delivery and the customer experience in international remittances.
Sanjay Rakesh, the Head of Corporate Banking and Shared Services Operations at Zand said that a frictionless customer journey can be achieved by leveraging data analytics. Drawing from his experience at a Singaporean bank, Rakesh said that extensive data analytics into cross-border payments, type of payments, the origination, the beneficiary and the amount that the central bank sends to the beneficiary to settle the cross-border transaction gave them in-depth insights that helped augment customer experience.
The cross-border payments landscape is becoming increasingly competitive and customers’ demands for fast and seamless experiences are higher than ever. The standardisation of cross-border payments can help global financial institutions eliminate many of the factors causing friction and SWIFT’s shift to the richer file format of ISO 20022 will enhance cross-border payments for banks and their correspondents.
for solid growth over both a five-year and a ten-year horizon.
“From a market infrastructure point of view, obviously, we see that instant payments and interoperability are among the key trends and models that will drive growth, for obvious reasons,” said Faisal Alhijawi, the Chief Strategy & Development Officer at Buna. The growth of cross-border payments has translated into the emergence of several different use cases including cross-border bank transfers, merchant payments and alternative payment methods, corporate disbursements, and e-commerce.
This sturdiness stems partly from the fact that, unlike some other facets of the financial services sector, payments affect just about everyone and every industry daily. “If you put the ingredients of frictionless into cross-border payments by reducing cost, making the payment instant (24/7) and complementing and enriching it with overlay functionalities through APIs, it is definitely a great driver for growth.” said Alhijawi.
There are two main types of crossborder payments. Wholesale cross-
which most front-end providers use to settle the payment.
However, over the years, we have seen new back-end networks emerging to optimise cross-border payments and enable interoperability between payment methods and provide senders with more possibilities to reach the receiver.
Afzal Khanani, Head of Retail Operations at Abu Dhabi Islamic Bank, said that the prolonged pandemic is driving growth in payments volumes, ‘mainly domestic’, thanks to the UAE central bank which is helping banks to deliver instant experience.
Two main pain points are affecting service delivery in cross-border payments with retail customers more concerned about experience and pricing while commercial customers are worried about compliance issues. “One is the compliance issues where the customer is stuck if the payment is debited from his side, but correspondent banks are dealing with their internal compliance requirements,” Khanani said while noting that SWIFT can address the issue by a validation kind of functionality.
Bestani concurred with Khanani saying that there is a lot of competition around the cost of pricing while asking the bankers who attended the roundtable whether they are ready to reduce prices knowing that this will have an impact on their profits.
Khanani said that there are five main corridors where remittances go from UAE: India, Pakistan, Bangladesh, Saudi
Cash and liquidity management charges contribute around 45% to the total charge value, Dutta quoted a McKinsey study while posing a question on whether SWIFT or regulators are working to ensure that operational costs come down.
To reduce friction in cross-border payments, Jacob Pinto, the Crossborder Payments and Currency
Correspondent banks are financial middlemen that act as go-betweens in cross-border payments. Crossborder payments are supporting the development of digital economies and are driving innovation all while functioning as a stable backbone for global economies. Jayesh Patel, the CEO of Wio Bank said
Arabia and the Philippines and banks charge customers in this mass market varying services fees ranging from AED 15 to AED 20.
“I believe a big portion of the cost in our charges are the intermediary charges on the correspondent banking charges,” Gautam Dutta, the MD and Head of Cash Product Management & Innovation at First Abu Dhabi Bank weighed in. Dutta said that the charges emerge either from payment operation charges, foreign exchange transaction charges, liquidity management charges, network management charges or overhead charges.
Bhupesh Sharma, the Head of Transaction Banking at Abu Dhabi Commercial Bank said that cross-border payment charges are ‘definitely’ coming down as the industry is evolving. “BUNA can bring the cross-border cost correct to the bare minimum and I believe that innovative technologies and different platforms are joining the payments ecosystem forcing to give up high charges,” said Sharma.
Clearing Lead at HSBC Bank Middle East said that friction in international payments can be eliminated by upfront verification of account details in realtime—payment pre-validation. He said that HSBC implemented SWIFT validation so “we do not even let the payment leave our customer’s account without validating the accuracy of the recipient account.”
From a cost perspective, Pinto said that SWIFT rails are fast enough to the extent that “the majority of transactions go within seconds if there isn’t friction.” Pinto said that financial institutions can leverage structured data to increase efficiency in the cross-border payments process such as On-Behalf-Of (OBO) and final beneficiary information.
The adoption of faster, cheaper, more transparent and inclusive crossborder payment services could spur widespread benefits for people and economies worldwide while supporting economic growth, international trade and financial inclusion.
that fintech firms and new innovative technologies are bringing efficiency to the payments ecosystem.
Fintech companies take away the unnecessary legacy steps that come with existing payments rails to enhance end-to-end customer experience, said Patel. The Middle East region has always been viewed as innovative and a leader in payments and finance—spearheading the move to a less cash-reliant society while encouraging consumers to embrace different ways to settle payments.
The emergence of new technologies has shaken the banking sector and new payments initiatives such as Buna—a payments platform that seeks to deliver the Arab world’s most cutting-edge, crossborder payments system, encompassing multiple currencies and payment types.
From a compliance perspective, Finali Fernando, the Regional Head of ProductGlobal Payments Solutions at HSBC Bank Middle East said to facilitate compliance with global standards in the markets that we operate in and ensure compliance with
regulatory requirements, some costs are being incurred and “yes correspondent banking fees are high.”
In response to calls for the reduction of cross-border payment charges to increase market share, Fernando said that these are conversations that banks always have with customers. “There are correspondent banking caps that were introduced and I believe they came
sector predicted that fintechs will take over banking and banks will disappear. However, over the past years banks caught up with fintechs, he added saying that what “we are witnessing currently in the financial services sector is less of competition but more of collaboration.”
Zand’s Considine concurred with Bestani saying that the Dubai-based Shariah challenger bank is still in ‘build mode’ which
provided by the tech enablers to create a superior end-to-end customer experience.
Considine highlighted that neobanks are agile, flexible and can adapt easily since they do not come with any legacy hangover of infrastructure and processes. “So, as we are building Zand we are defining what we need as a bank so that we are in a position to meet customer needs and requirements more efficiently
into effect earlier in 2023 so there is standardisation taking place in the payments sector,” she said.
Spurred by the outbreak of the pandemic, innovation is coming faster than ever before in all aspects of banking including cross-border payments where a key trend is a new focus on retail customers and small to medium enterprises.
Bestani said that over the past five to six years, the financial service
has afforded it the ability to go down both routes—payment channels around the traditional correspondent banking and partnership with several fintechs.
Customers have choices, and so far, they are often finding better crossborder experiences outside the traditional banking channel. Still, traditional banks in the UAE have a real opportunity to evolve into concierges or curators of the best of the fintech world and maximize the tools
than a traditional correspondent bank,” he added.
Rathore argued that incumbents are the backbone of correspondent banking while fintechs are providing the technology umbrella or the connectivity umbrella.
Within countries, the new ways to access digital financial services have made the payments ecosystem very efficient, inexpensive and more inclusive. “The fact is that conventional banks are the providers of the payment rails while fintechs are introducing technology solutions that allow customers to connect to legacy bank rails more easily,” Rathore said adding that in the process fintechs are “actually helping to increase adoption of payment types.”
From a cost perspective, Huny Garg, the Senior Account Director at SWIFT said that fintechs are leveraging technology to deliver low-cost solutions for international payments for individuals, small businesses and corporates.
Promising work is currently underway in correspondent banking
IF YOU PUT THE INGREDIENTS OF FRICTIONLESS INTO CROSS-BORDER PAYMENTS BY REDUCING COST, MAKING THE PAYMENT INSTANT (24/7) AND COMPLEMENTING AND ENRICHING IT WITH OVERLAY FUNCTIONALITIES THROUGH APIs, IT IS DEFINITELY A GREAT DRIVER FOR GROWTH
– Faisal Alhijawi
networks to boost cross-border payments as part of a broader strategy by G20 countries to augment the global economy. However, progress on this front has been much slower as moving money from one country to another remains slow, expensive and inconvenient.
payments originating from Taiwan banks to beneficiary banks in other markets.
“Today, one of the main challenges is about the compliance, about the quality of data and about risk management on who we are dealing with,” Osama Rahma, the Head of Business Development at Emirates Investment Bank said adding that the new innovative technologies will allow the financial services sector to address the friction in cross-border payments.
Traditional banks are tapping emerging technologies, including blockchain, to enhance cross-border money transfer processes. JPMorgan Chase adopted blockchain technology in 2021 to enhance money transfers between financial institutions globally including
The adoption of ISO 20022, a globally developed methodology for transmitting data that provides a consistent messaging standard for payments, by financial institutions is expected to bolster the acceleration of cross-border, cross-currency instant and business-tobusiness payments in the next five years.
Hamayoun Khan, the Head of Transaction Banking at Commercial Bank of Dubai said that the adoption of ISO 20022 will unify current practices based on fragmented standards and provide the financial services industry with highly structured and enriched data for end-toend customer experience.
ISO 20022 is emerging as a common language and model for financial messages across the world. SWIFT projected that 80% of global, high-value
THE FACT IS THAT CONVENTIONAL BANKS ARE THE PROVIDERS OF THE PAYMENT RAILS WHILE FINTECH FIRMS ARE INTRODUCING TECHNOLOGY SOLUTIONS THAT ALLOW CUSTOMERS TO CONNECT TO LEGACY BANK RAILS MORE EASILY
– Viplav Rathore
payments by volume will be processed through this standardised messaging system as major currencies are adopting it.
“With structure and dedicated fields for payment details, ISO 20022 creates communication efficiency and offers universal messaging language rather than managing multiple market systems that speak different languages,” said Khan.
Dutta argued that though SWIFT is providing a communication network interoperability standard and the ISO 20022 standard, the endpoints continue to be on the legacy platform with processes that limit the amount of automation. “We are continuously being plagued by the processes that we need to adapt to support the payment operation in a near real-time manner,” he added.
Shirish Wadivkar, the Group Head of Wholesale Payments & Trade Strategy at SWIFT joined in, saying that ISO 20022 it is a data and messaging standard. Wadivkar highlighted that the messaging
standard uses ISO 20022 while the data center is independent of the messaging communication and can be wrapped in an API layer and exchanged.
SWIFT said that from November 2022, it expects ISO 20022 to revolutionise the way its community exchanges payments messages—a move that is set to unlock numerous opportunities for financial institutions including boosting operational efficiency, enhancing customer experience and enabling innovative new value-added services.
Globally, countries are working to connect fast payment systems, resulting in lower transaction costs for cross-border payments. A promising path is multilateral cross-border payment platforms that combine new forms of CBDC with new innovative technologies.
The International Monetary Fund said that these platforms could shorten transaction chains and improve security
as central bank money would be available for settlement. Last October, CBUAE said that project mBridge with the central banks of Hong Kong, Thailand and China demonstrated faster, cost-effective and secure cross-border monetary settlements using central bank money.
Bestani said that initiatives in the market such as project mBridge are aimed at augmenting cross-border payments and basically making them more efficient. He said that the growth in correspondent banking is being driven by financial institutions’ quest to make payments more efficient and frictionless.
A platform based on a new blockchain— the mBridge Ledger—was built by the central banks to support real-time, peer-to-peer, cross-border payments and foreign exchange transactions using CBDCs.
The Saudi Central Bank (SAMA) and CBUAE also launched Project Aber in 2020—a joint CBDC that showed that central banks can leverage distributed
ledger technology (DLT) to issue and exchange their CBDCs.
The Arabian Gulf System for Financial Automated Quick Payment Transfer (AFAQ) system, which is owned by Riyadhbased Gulf Payment Company, seeks to provide financial institutions and both retail and corporate customers with a channel of transferring funds faster and more secure at a lower transaction cost across the Gulf region.
Technological innovations and partnerships among stakeholders can address the challenges around speed, cost and transparency in cross-border payments. Over the years, fintechs, banks and regulators have been experimenting with DLT in the cross-border remittance space—a model that leverages a bidirectional messaging and settlement component that validates transactions using DLT before funds are transferred.
Correspondent banking network—a network that has been reportedly shrinking and becoming more concentrated over the years—is an enabler of cross-border payments that plays a pivotal role in global trade and for migrants who send remittances home, especially in the Middle East. The G20 endorsed a roadmap to boost crossborder payments and the strategy lays
out a comprehensive set of actions covering 19 ‘building blocks’ identified by the Committee on Payments and Market Infrastructure across five focus areas.
The migration to ISO 20022 is expected to translate into greater adoption of enhanced and rich data that will drive better quality of outgoing messaging and improve cross-border payments.
In attendance at the roundtable were: Bhupesh Sharma, Head of Transaction Banking, ADCB; Ana Rita Sa, Lead, Product Management, ADCB; Afzal Khanani, Lead - Product Management, ADCB; Kapil Arora, Head - Correspondents & Banking Relations, Al Ansari Exchange; Faisal Alhijawi, Chief Strategy & Development Officer, Buna; Stuart Keenan, Vice President, Receivables Product Head for MENA, Citi; Hamayoun Khan, Head of Transaction Banking, Commercial Bank of Dubai; Zameer Ajaz Punjab, Vice President, Product Owner - Payments & Remittance, Mashreq; Faisal Saeed, Head Retail Liabilities & Transaction Banking, Emirates NBD; Finali Fernando, Regional Head of Product - Global Payments Solutions, HSBC Bank Middle East; Jacob Pinto, Cross border Payments and Currency Clearing Lead, HSBC Bank Middle East; Viplav Rathore, Managing
Director and Head of Cash Management for Africa, Middle East and Pakistan, Standard Chartered Bank; Jamal Saleh, Director General, UAE Banks Federation; Hafid Oubrik, Director Payments Systems Operations and Development, Central Bank of the UAE; Sanjay Rakesh, HeadCorporate Banking and Shared Services Operations, Zand; Osama Rahma, Head of Business Development, Emirates Investment Bank; Maha Salem, Senior Vice President, Head of Payment Sales, Middle East and Africa, Wells Fargo; Rajiv Raipancholia, CEO, Orient Exchange; Sanjay Sethi, Senior Managing Director, Head of GTB, First Abu Dhabi Bank; Gautam Dutta, MD & Head - Cash Product Management & Innovation, First Abu Dhabi Bank; Seemanti Considine, Head of Operations and Correspondent Banking, Wio Bank; Jayesh Patel, CEO, Wio Bank; Sido Bestani, Managing Director, Middle East Africa India Sub Continent, Swift; Shirish Wadivkar, Group Head of Wholesale Payments & Trade Strategy, Swift; Huny Garg, Senior Account Director, Swift; Cem Soydemir, Head of Payment Go-To-Market MEAISC, Swift; Onur Ozan, Managing Director/ Regional Head –MENAT, Swift; Alaa Al Rousan, Senior Account Director, Swift; Moderated by Andrew Cover, MEA Finance.
– Royalty, circa 1644
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MEA Finance met with Dr. José Viñals Group Chairman, Standard Chartered Bank during his recent visit to Dubai, and here in the full-length cut of our interview with him, he underlines the importance of the region to the bank and the opportunities it promises, the improvements that digitisation is bringing and how the principles of ESG align with those of the bank
What is your view on the Africa and Middle East outlook in the current macroeconomic environment?
Well, the first thing to be said is that Africa and the Middle East is a very diverse region, where you have oil and commodity exporting countries as well as having all the commodity importing countries. And I think that, at present, given the elevated prices of oil and other commodities, this is a bonus for the first group. We can see that here in the UAE and also in Saudi Arabia, and in other countries across the region which is something that is very positive for them. But if you look at other markets, other countries in Africa, there are some which are going through a difficult situation. There are some lowincome countries with debt vulnerabilities.
They are in debt distress already or close to becoming debt distressed. But you also have other markets, which are important, and which are doing well. So, it’s a very heterogeneous region where we can see a little bit of everything. I can tell you that our Africa and the Middle Eastern region has had the best performance in many years. And that we have a very positive on the outlook for these places, in spite of the current difficulties in some countries.
We identify a number of opportunities, and in the discussions that we have had this week here in Dubai, where we have had one of our first overseas board meetings, we have been talking a lot about such opportunities. Because in the world, we know about the challenges, we know about the downside risks, but there is also an upside, and there are opportunities. And in a region which is so broad and so diverse, certainly, there are opportunities. We can see them clearly here in the UAE. We have been speaking to clients during our days here and there are many interesting and important things that we can do with them, and that we are doing with them. The UAE for example, is an international trade, financial and business hub. We have trade and connectivity in our DNA so there are important opportunities coming from this, such as making sure that we act as a bridge between different parts of the region, but also between the region and the rest of the world. So, again, with those corridors which are now well established across the emerging markets, between Africa and the Middle East and Asia, and also between Africa, the Middle East and Europe, and North America, this is where we really bring our capabilities to help our clients do business.
And we see important areas of opportunity. For example, the region has a lot of natural resources, which I think is a great opportunity, not only in terms of
oil-producing and exporting countries, but also in minerals, many of which are very important for the new economy that is coming.
There are also opportunities to help finance development across these regions, particularly in Africa where there is a clear need for building the infrastructures necessary for development and growth. More opportunity still, resides in providing sustainable finance, a critical element along the path to the transition to Net Zero, something that will happen gradually.
We also see important opportunities in working with our clients, with our corporate clients in particular in order to offer them professional support and financing for the transition towards Net Zero. Again, it is something which will not happen overnight, it has to happen
affluent clients and also to our corporate clients through digital means, providing them a seamless access to the fantastic network that we have through Asia, Africa and the Middle East in particular.
So, these are some of the areas of opportunity in addition to the demographics in Africa, in the Middle East, but particularly in Africa, with its increasing rate of urbanisation, which again, for a bank like ours are important areas of future business. So, no shortage of opportunities in the region. We are very positive about the region, it is part of the challenges that we understand and that we try to navigate as well as possible.
Our strong commitment to Africa and the Middle East has been there from the beginning and will always remain. And this is extremely important. We have a very extensive franchise in the region. We are the main international bank in Africa. We are one of the main international banks in the Middle East and we continue to invest and to strengthen our capabilities in the region so that we can continue to provide all our clients -retail clients, affluent clients, corporate clients, the best services, so demonstrating that our commitment is there.
gradually from brown to semi brown, to semi green, to green because you cannot in most instances go directly to green overnight. And the energy mix is going to include green and non-green components for quite a long time still. But we want to make sure that we move the world in the right direction through our operations, working closely with our clients.
And another big area of opportunity is digital. We are introducing a number of digital innovations across our footprint in order to help people, to include people in financial channels, to provide better services to our retail clients, to our
And that commitment has been strengthened recently by our entry into two very important markets, Egypt and Saudi Arabia. In Egypt, we have gotten a provisional banking license, and where before we had before a representative office, now this is going to allow us to do banking from inside of Egypt and be able to bring our capabilities much closer to our clients. And we have a formidable sort of set of clients in Egypt. This is a country that we think has a bright future over the medium term. There is a lot of potential there.
Saudi Arabia is another very large market. In Saudi Arabia we also got a banking license and we have opened a
OUR STRONG COMMITMENT TO AFRICA AND THE MIDDLE EAST HAS BEEN THERE FROM THE BEGINNING AND WILL ALWAYS REMAIN
bank here too. Before this, we only had a capital markets license. And again, this is a country which is going through a process of diversification in the pursuit of their vision and there are plenty of opportunities here. Its scale is very important as the largest country in the Middle Eastern region and again, we’re very pleased to be there. So, we have a strong commitment to this part of the world, operating in eighteen markets across the region, and though we decided to exit a few small markets in order to maximise the opportunities to make the biggest contributions to our clients and to the business, our commitment to Africa is
unshakable, and it will remain. So, that is what we’re doing.
Since the pandemic, all the digital trends that we were seeing already beforehand have accelerated dramatically. I think this is something that we have noticed in our personal lives, but also in the business. Now the majority of the operations that we generate with our retail clients are generated digitally. We are also doing more and more digital transactions with our corporate clients. And ten years back,
when people talked about technology, it was something that was supposed to be useful to improve the efficiency of your internal operations and to save on costs. But now it is fundamental to provide a second-to-none service to your client. You have to maximise their convenience. Clients need to be one click away from you and you need to be able to serve them with whatever it is that they want, in no more than 3 clicks. So, the investment that we have been making on the digital front has been fantastic, both inside of the bank in terms of our corporate business, in terms of our retail banking, but also in terms of new things and new digital platforms that we have created.
For example, digital banks. We have created, in Africa, a great digital banking proposition. Outside of the Africa, Middle Eastern region, we have created in Hong Kong, a very successful digital bank. We have reproduced that model in Singapore. In Indonesia, we have entered into a partnership with Bukalapak, which is the Amazon of Indonesia, in order to serve their more than 100 million clients. In India, we have created a platform that now we have reproduced in Kenya called Salt, to provide all sorts of services for small and medium sized enterprises. We provide banking and other services, auditing, financial and non-financial are supplied by high quality providers that we bring on to the platform. And again, this is something that we are re-exporting through our market. So, digital is certainly a very fundamental part of the new Standard Chartered.
And we also have Standard Chartered Ventures (SC Ventures), where we are investing in developing a number of ventures with external partners in many fields. And many of those ventures would be applicable to the bank in the future, and also will have a life on their own. It will be able to create value also in that way for the bank and its shareholders. So, we are very pleased with the innovative angle of the bank. And digital is yes, one of our key bets going forward.
Well, ESG is extraordinarily important nowadays for any organisation but particularly, I would say, for financing, for global banks like us. Of course, the G, which stands for governance, means that you have to have the right governance, because that’s something which will make sure that the organisation goes in the right direction. And in fact, in our case, we want our profit to be fully aligned with our purpose, which at the end, tries to use banking to improve the lives of everyone that we touch as clients and other stakeholders.
The S in ESG has to do with the social dimension. And that is related to things like diversity, like inclusion. We have a very international footprint with 59 markets where we have a direct presence, and then many others where we have operations directly from those other markets. And so, all things having to do with all facets of diversity are critical. We have more than 120 nationalities in the bank. We very much value diversity in all of its forms. We were born half in Africa, half in Asia, and then became Standard Chartered. So, our roots are really very diverse. And so, we feel that diversity and inclusion is something which is not just a matter of fairness, it’s something that makes us be a much better organisation, much more productive, increases our employee value proposition so we can attract the best talent in the world and also deliver the best services to our clients, who also coming from so many countries are very diverse themselves. So, those aspects of diversity and inclusion as part of the S in ESG are critical.
And we also have the E of environment. And this is something to which we are very strongly committed. We are very strongly committed to help the world move towards Net Zero, what is normally defined as a just transition. Which for a bank like us, that banks primarily in emerging markets, means that we need to help our clients and the markets in which we operate go down
the path towards the transition to Net Zero, but in a way which is just, which means that is consistent with furthering the economic and social development objectives of those markets, of those economies, of those societies. So, that is something where we are also very invested. We have committed, between now and the end of the decade, to mobilising $300 billion
And just to conclude on this, our strategy for the bank is supposed to deliver 3 standards, which go really very well with the ESG we are talking about. The first is accelerating Net Zero through the things that I’ve just mentioned. The second is lifting participation, trying to bring in activities that will improve the lives and the conditions of one billion people in our markets.
for green and transition finance. We have established objectives in terms of emissions for the high carbon sectors in our portfolio. And we are developing many products (many which are already on the market), sustainable products, sustainable finance products so that we can provide our clients or corporates, not only with the best professional support, but also with the best financing to help them move along in the transition.
And the third is resetting globalisation. Globalisation, which I think has served the world well, needs to be perfected, not abandon or discarded, but perfected. And that means making a globalisation which is more inclusive, so that the benefits can be distributed among all people, not just a few; more sustainable and fairer. And these are the three standards we have put in line with ESG ideas which are so critical for organisations nowadays.
CLIENTS NEED TO BE ONE CLICK AWAY FROM YOU, AND YOU NEED TO BE ABLE TO SERVE THEM WITH WHATEVER IT IS THAT THEY WANT IN NO MORE THAN 3 CLICKS
The Middle East is shifting gears and transforming from an obstructionist negotiation bloc to a group of countries with ambitious climate goals
The Middle East region’s presence on the global sustainability agenda continues to grow driven by the acceleration of climate action-related initiatives and increased international cooperation to mitigate the impact of climate change. The initiatives are part of Middle Eastern oil and gas exporters’ broader strategies to diversify and open their economies with a strong focus on sustainability.
The energy-exporting countries are shifting gears and transforming themselves from an obstructionist negotiation bloc to a group of countries with ambitious climate goals. Globally,
governments and corporates are pledging to achieve net-zero carbon emissions by 2050 and limit global warming to 1.5°C but what would it take to achieve this ambitious target?
The hosting of the 28th Conference of the Parties (COP28) by the UAE later this year after COP27 in the Egyptian town of Sharm El-Sheikh last November is expected to translate into fiscal policies to fight against climate change.
While addressing world leaders at the COP27, the UN Secretary-General António Guterres warned that “we are on a highway to climate hell with our foot on the accelerator.” Guterres said
that the planet is fast approaching tipping points that will make climate chaos irreversible.
Governments in the Middle East must balance the potentially profound impacts of climate change with the strategic role the region will play in energy transition, pioneering hydrogen and circular economies and developing sustainable destinations, said PwC.
Sustainable financing together with technological innovation and digitalisation in the financial services sector is instrumental to sustainable innovation and growth as well as the transition to a less carbon-intensive economy.
The World Bank said that sustainable finance has two major objectives; to manage sustainability-related risks for the financial industry and enable the shift of investments from unsustainable to sustainable economic activities. The financial system must be reoriented to meet the huge financing demands
required to transition towards a 2050 net zero target.
Playing host to two consecutive COPs is a landmark achievement in the climate sphere for the Middle East—the world’s hottest, driest and most water-scarce region. The COP27 climate talks in Egypt ended with an early-hours deal to create a fund to pay developing countries for the harm caused by climate change.
The UAE is determined to carry the climate talks forward and deliver meaningful progress at COP28. This year’s meeting, which will be hosted at Expo City Dubai, seeks to transform and urgently accelerate climate action to meet the commitments the world has made.
The climate talks will be the most significant event hosted by the UAE this year and the meeting marks the conclusion of the first global stocktake—a comprehensive assessment of the progress made in achieving the goals of the Paris Agreement.
“We must work closely with the UAE, which will host COP28, to ensure that the first global stocktake under the Paris Agreement produces a meaningful outcome setting the stage for even greater climate ambition in the years ahead,” US climate envoy John F. Kerry said in his COP27 closing statement.
Skepticism remains among climate activists that the hosting of COP in a Middle Eastern nation that relies on oil and gas sales for a second year in a row could stall the transition towards low-carbon economies. Kerry touted COP28 UAE saying the meeting would encourage fossil fuel economies to lead the transition to clean energy.
President Sheikh Mohamed bin Zayed Al Nahyan declared 2023 the “Year of Sustainability” while emphasizing that effective climate action requires a shared vision and collective will. The UAE appointed Sultan al-Jaber, the Minister of Industry and Technology and the country’s climate envoy, as president for the COP28 climate summit.
Al Jaber is central to the UAE’s goal of reaching net-zero emissions by 2050. The UAE became the first Middle Eastern nation to ratify the Paris Agreement and unveiled a strategic initiative to achieve carbon neutrality by investing as much as $163 billion (AED 600 billion) in renewable energy.
Saudi Arabia, the world’s top oil exporter, said in October 2021 that it aims to cut its carbon emissions by 2060 by investing more than $186 billion (SAR 700 billion) into a green economy, in a way compatible with the Gulf state’s development plans.
Bahrain, Kuwait, Oman and Qatar also bolstered their pledges to cut their greenhouse gas emissions by 2030. The International Monetary Fund called on GCC governments to consider implementing fiscal reforms “geared towards economic diversification and inclusive growth while addressing intensifying vulnerabilities from climate change”. The wealthy oil-rich GCC countries should therefore ensure that this forms a significant part of their post-pandemic recovery plans.
The Middle East has embraced the vision of a climate-focused future, investing heavily in renewable energy and dynamic technologies centered around sustainable innovation. Central to these investments is a vision of a fully sustainable economy bolstered by effective regulatory oversight and contributions from all stakeholders.
The UAE is extensively investing in nuclear energy, solar plants and sustainable transport. The country operates three nuclear power reactors that feed energy to its grid and is home to three biggest solar plants in the world— the GW Noor Abu Dhabi solar park, the Mohammed bin Rashid Al Maktoum Solar Park which will produce 5,000MW of power by 2030 and Masdar City’s 17,500MWh solar plant.
Last month, the Emirates earmarked $15 billion for energy-transition projects over the rest of the decade as part of the country’s broader strategy to burnish its green credentials ahead of the key global climate summit. The UAE also reached an agreement with the US in November 2022 to invest $100 billion in clean energy projects to produce 100 GW by 2035.
Saudi Arabia has been going all out to commit itself to sustainable development and the country plans to rely on renewables for 50% of its electricity generation by 2030. The National Renewable Energy Program, which is part of the Gulf state’s ambition to secure a comfortable energy mix for producing electricity using sustainable means, will see ACWA Power producing 11.8 GW by 2025.
The Gulf state launched five new projects in September 2022 to produce electricity using renewable energy with a planned total capacity of 3,300 MW. The wind farms in Yanbu, Al-Ghat and Waad Al Shamal have a total production capacity
WE MUST WORK CLOSELY WITH THE UAE, WHICH WILL HOST COP28, TO ENSURE THAT THE FIRST GLOBAL STOCKTAKE UNDER THE PARIS AGREEMENT PRODUCES A MEANINGFUL OUTCOME SETTING THE STAGE FOR EVEN GREATER CLIMATE AMBITION IN THE YEARS– US climate envoy John F. Kerry
of 1800 MW while two solar plants in Al Hinakiyah and Tabarjal will have a total production capacity of 1500 MW. GCC countries have been slowly moving away from fossil fuels in favour of clean energy.
Globally, many countries have ambitious plans for green hydrogen, but GCC states have unique advantages that could allow them to lead the transition to hydrogen. Hydrogen is a highly efficient energy carrier and upon combustion, the only by-product of this zero-emissions fuel is water—making it an ideal medium for electrification and substitution of fossil fuels.
GCC countries, including Saudi Arabia, the UAE and Oman are working on hydrogen projects with the kingdom’s $5 billion green-hydrogen plant in NEOM expected to be completed in the coming months. Saudi Arabia was the first country to debut a carbon offset auction in the region, offering one million credits in October 2022.
The auction follows the establishment of the Regional Voluntary Carbon Market Company by the Public Investment Fund in partnership with the Saudi Tadawul Group. Mubadala-backed AirCarbon Exchange is setting up the UAE’s first regulated carbon trading exchange and carbon clearing house in Abu Dhabi Global Market.
Countries in the Middle East are diversifying their economies away from heavy reliance on hydrocarbons by creating new sectors and revenues, including through a big push in renewable energy.
Governments in the Middle East have an especially important role to mobilise financing required for a transition towards carbon-neutral economies.
The Abu Dhabi Sustainable Week, the first sustainable event after COP27, underscored the role that is being played by the financial services sector to accelerate the development of the green growth sectors.
Abu Dhabi’s First Abu Dhabi Bank (FAB) facilitated over $7 billion (AED25.7 billion)
for sustainable projects in 2022 across different sectors including energy and utilities, real estate, supply chain and the food industry.
“Regional banks also have an opportunity to benefit significantly from financing the transition of the oil and gas industry and other strategically important sectors to cleaner, more sustainable technologies,” said BCG.
Retail investors in growth regions are becoming more conscious about the sustainability issues facing their home markets and beyond. Standard Chartered projected that $8.2 trillion can be mobilised towards sustainable investments in 10 growth markets by 2030 across Asia, Africa and the Middle East.
JPMorgan Chase & Co. unveiled a $2.5 trillion funding package in 2021 to lend, invest and provide other financial services over the next decade to advance long-term solution projects that address climate change and social inequality. HSBC aims to provide between $750 billion and $1 trillion globally by 2030 to support its customers in their transition to a low-carbon economy.
However, optimism that the financial sector is stepping up to its responsibilities in tackling climate change has waned over the years due to a lack of transparency and mixed messages on how banks will provide the $200 trillion in financing to achieve net zero by 2050.
There is growing concern that members of the Net-Zero Banking Alliance (NZBA) are abandoning the group after the methodology set out by the UN’s Race to Zero initiative was made more stringent last summer, for the first time explicitly requiring members to “phase down and out of all unabated fossil fuels”. NZBA counts FAB, Commercial International Bank, National Bank of Egypt, Banque Misr as well as Banque Du Caire and Arab African International Bank among its members from the Middle East.
When it comes to transition risks, banks have an even more challenging job on
their hands. Financial institutions could see their earnings decline, businesses disrupted, and funding costs increase due to policy action, technological changes as well as consumer and investor demands for alignment with sustainability policies.
“Financial watchdogs including the European Central Bank are stepping up their supervisory engagement with banks on climate-related efforts and this may result in punitive measures on those institutions that fail to meet expectations,” said S&P Global.
Despite the wider economic downturn last year, sustainable investments managed to weather the storm reasonably well driven by wealthy investors’ growing demand for sustainability. Capgemini said that asset and wealth managers are increasingly integrating ESG into their primary portfolios in response to growing client demand—a trend that can be attributed to a paradigm shift in client demography.
The world’s top banks including Credit Suisse, Goldman Sachs and HSBC are increasingly in the crosshairs of wealthy investors, shareholders and climate activists over their role in funding coal, oil and gas projects—the leading causes of man-made greenhouse gas emissions.
“Transition risks materialise on the asset side of financial institutions, which could incur losses on exposure to firms with business models not built around the economics of low carbon emissions,” said the International Monetary Fund.
However, the pivot toward sustainable investing has also led to greenwashing as companies and financial institutions are purporting to be environmentally conscious for marketing purposes but they are not making any notable sustainability efforts.
The Middle East is at the heart of the world’s ambitious decarbonisation agenda. The growing commitments to climate change and the hosting of two consecutive COPs in the region will provide an ideal platform for countries and corporates to reaffirm and accelerate their commitment toward a sustainable future.
With COP 28 on the horizon, Chuka Umunna
Head of EMEA ESG at J.P. Morgan, spoke with MEA Finance explaining that they are experiencing strong demand for sustainability linked products, that we are likely to see concentration on scaling renewable energy technologies and despite global cost-of-living challenges, net flows to ESG funds outpaced conventional funds in 2022.
Is climate change considered, or growing as a factor in your regional credit risk calculations?
All of JPMorgan’s businesses are required to examine the activities they are responsible for and to identify, discuss and escalate the associated risks, and this includes climate-related risks. Over recent years, we have enhanced our risk management processes to understand the different ways in which climate change can manifest not just as credit risk but also as strategic, investment, market and operational risk types.
To assess climate risk, we have developed a classification system that describes how climate risk drivers could translate into potential impacts to our
clients, our exposures and our operations. In respect of credit risk specifically, we consider whether factors such as shifts in consumer preferences to lowcarbon goods and services, or changes in policy, or technological advances, are likely to jeopardise the viability of certain business models. If we think there is a climate-driven risk, this is then built into the credit risk calculation.
This is our global approach to climate-related risk and it applies to our businesses operating in the Middle East and Africa (MEA) region. In applying the global approach to the region, there are likely to be location-specific factors that we need to weigh more heavily than in other areas of the world. For example, from a physical climate risk perspective, in parts of MEA we might be required to put greater emphasis on the impact that increased water scarcity could have on manufacturing output, relative to a similar assessment in a different part of the world, based on what we understand from climate models.
It’s really exciting to think about the opportunities that COP28 will bring for the MEA region, building on a successful COP27 in Egypt. Clients in the region have been paying considerable attention to sustainability and ESG for some time, but ahead of COP28, we’re seeing clients sharpen their focus on sustainability issues in general and the energy transition in particular, to fully seize the opportunities the transition will bring.
Looking ahead to COP28 itself, I think we are likely to see a focus on how to scale the technologies required to increase renewable energy generation, as well as the transformation of food and agriculture systems. Another priority issue is likely to be climate adaptation finance, which is particularly relevant as countries in the region consider how to adapt to challenges brought about by the effects of climate change, such as rising
sea levels, biodiversity loss and increased instances of heat stress.
In terms of our business, while COP28 is likely to bring a renewed focus on climate and sustainability, we already have a strong track record of partnering with our clients in the region and helping them to evolve their business models to take advantage of the wealth of opportunities the lower-carbon economy will bring. I’m looking forward to getting together with businesses and policymakers from across the region in Dubai later this year to collectively move forward in our efforts to address the challenges of providing clean energy solutions at scale, while at the same time ensuring we are delivering energy that is secure, reliable and affordable. I am very hopeful that COP28 will leave a strong legacy for the region, underscoring the important role it has to play in helping the world to transition.
Globally across our businesses we are witnessing sustained, strong demand
for products and services that have a positive environmental and/or social impact. To give just two examples, that ranges from our asset management business, where we offer investors a range of ESG funds, through to my team in the investment bank, where we work with corporates to help them integrate ESG factors in their businesses and help them access ESG and sustainablefocused capital.
We are seeing clients in the region express a strong demand for ESG products and services, and we have observed a positive reaction from investors in the region and elsewhere in response to the sustainability leadership shown by a number of Gulf states. MEAfocussed investors tend to have a strong understanding of the strategic importance of the transition away from fossil fuels, particularly for countries which have historically relied heavily on hydrocarbon exports.
Investors have welcomed the articulation of net zero commitments and strategies by the Kingdom of Saudi Arabia, Qatar, the UAE and other sovereigns in the region, which have set out paths to a greener economic future.
Such targets and plans provide platforms for state-owned entities and other corporates to bring ESG-labelled deals to market. As an example, JPMorgan led the issuance of the Saudi Public Investment Fund’s $3bn green bond issued in October 2022. ESG-labelled bond issuance in the MEA region was approximately $8bn overall in 2022 and it’s likely that we will see demand grow as investor confidence in the region’s ESG credentials increases.
The cost of living crisis is having a huge impact on the lives of many around the world, with people facing incredibly difficult circumstances brought about by an increase in energy and food prices. This is a philanthropic focus area for JPMorgan this year and we have recently committed £1.5m to three UK charitable organisations working to support communities in need as part of a larger $5m global commitment. Long term, I am not of the view that the cost-of-living crisis will reduce demand for sustainable investment; it may in fact do the opposite as investors seek to help address societal inequity through their investments.
Considering the bigger picture, the growth of sustainable investing we have witnessed over recent years has been a result of a strong desire from investors to deploy capital for a more positive influence, across a range of environmental and societal factors. There is also a growing body of academic research that suggests over the long term, integration of sustainability factors into investment strategies can deliver better returns. So while there are bound to be periodic challenges to sustainable investing, in my view these will tend to be relatively shortterm in nature and will be outweighed by long-term, structural demand from asset owners looking for a range of ESG-aligned investment opportunities.
That said, we have seen some strong headwinds over the past year. Morningstar data has shown that global ESG AUM (as of Q3 2022) have declined by 24% since the start of 2022 as a result of value depreciation, which is primarily linked to ongoing geopolitical events and the energy crisis. This is a recent trend that has prompted the suggestion that ESG is in decline – but in reality, net flows to ESG funds largely outpaced those of conventional funds in 2022.
Looking forward, the financial materiality of environmental and social themes, from climate change to the loss
potential, specifically its existing export infrastructure and financing resources. In particular, green hydrogen and its derivatives bring enormous promise. There are already nearly 50 green hydrogen projects already underway in the MEA region, with Oman, the UAE and Egypt leading the way.
Looking specifically at Africa and its significant future energy demands as living standards and prosperity increase, there is scope to meet energy needs in large part through renewable energy. This would not only reduce future greenhouse gas
of social cohesion, will likely accelerate rather than decelerate in the coming years, prompting more regulatory and policy initiatives, and supporting demand from asset owners.
Transitioning to a lower-carbon economy will not only steer our planet away from the worst damages of climate change, but also will bring an abundance of growth opportunities and new sources of prosperity. In this respect, there is a great deal for the MEA region to feel optimistic about as it looks to the future, not least as it has the potential to become a major future supplier of sustainable energy to global markets. The region is strong in terms of the prerequisites it possesses in renewable energy
emissions but also bring attractive investment opportunities and, with the right investment in skills, many jobs too. To illustrate the point, consider that Africa is home to 60% of the best solar resources globally, yet only 1% of installed solar PV capacity [Source: IEA]. This is just one example of the fantastic potential the region possesses. Analysis from the International Renewable Energy Agency shows that renewables and other transition-related technologies have already created 1.9 million jobs across Africa, a number that will likely grow substantially as countries further invest in the energy transition, to an estimated 9 million additional jobs by 2030.
Across the entire MEA region, there is plenty to be excited about as we look ahead to COP28 and the economic opportunities the low-carbon transition brings that lie beyond.
THE REGION IS STRONG IN TERMS OF THE PREREQUISITES IT POSSESSES IN RENEWABLE ENERGY POTENTIAL, SPECIFICALLY ITS EXISTING EXPORT INFRASTRUCTURE AND FINANCING RESOURCES
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Open banking is shifting the financial services industry toward hyper-relevant, platform-based distribution while offering banks a window to expand their ecosystems and extend their reach
The Middle East banking sector is at a pivotal moment. Faced with changing consumer expectations, emerging technologies, and new business models, financial institutions will need to start putting strategies in place now to help them prepare for an AI-powered bank of the future.
Technology disruption and evolving consumer demands are laying the basis for a new S-curve for banking business models while the challenging operating environment and competition from digital attackers are accelerating these trends.
McKinsey said that to meet customers’ evolving expectations and beat competitive threats in the
AI-powered digital era, banks must offer propositions and experiences that are intelligent, personalised and blend banking capabilities with relevant products and services beyond banking.
Building upon this momentum, the advancement in financial technologies offers banks the potential to boost revenues at lower costs by engaging and serving customers in radically new ways using new business models.
Digitalisation in the GCC banking sector is a prime example of how financial institutions are leveraging customer data, analytics and segmentation to improve their products and services as well as build a ‘bank of the future’.
Open banking is shifting the financial services industry toward hyperrelevant, platform-based distribution while offering banks a window to expand their ecosystems and extend their reach. “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.
Banking customers are accustomed to the service standards set by technology companies and have come to expect the same degree of speed, simplicity, consistency and convenience from financial-services providers.
The relationship between banks and their customers has transformed significantly over the years and for banks to maintain a competitive edge and create new revenue streams, integrating core personalisation elements across the range of touchpoints will be critical to delivering a superior experience.
Financial institutions in the Middle East are exploring new avenues through which to provide value and thrive in an ever-shifting business environment. One growing business model is banking as a service (BaaS)—which involves a non-bank organisation integrating with banks through APIs to provide financial services for more integrated customer experiences.
BaaS underpins and broadly unifies open banking, embedded finance, modular banking and banking as a platform. It offers a radically different approach to financial services—one that deconstructs the traditional banking model and places its building blocks in the hands of a wider range of stakeholders.
The innovative technology allows banks to monetise their banking stacks such as data, capabilities and infrastructure by seamlessly integrating financial services and products into other kinds of customer activities, typically on non-financial digital platforms. Embracing BaaS can help incumbent banks unlock new business opportunities and add value for end users and corporate customers.
“To meet the rising demand for embedded finance, financial institutions are increasingly offering BaaS—bundled offerings, often white-labelled or cobranded services, that nonbanks can use to serve their customers,” said McKinsey.
BaaS has grown in prominence over the years driven by the advances in
– PwC
technology that have made embedded banking possible among other several factors but the soaring demand is being driven by customers’ evolving preferences.
Today’s banking customers are increasingly demanding integrated, multiproduct experiences—what McKinsey referred to as ‘ecosystems’— to meet their needs. By integrating relevant financial services into a brand’s existing offerings, banks can create the seamless experience today’s customers want.
Globally, banks are currently operating in a highly competitive and challenging environment and as a result profitability in the sector has struggled to reach prepandemic levels. To remain competitive and offer returns to investors in this difficult climate, platform-based banking offers financial institutions a significant opportunity to create new forms of customer value and open new avenues for growth.
Through open banking, banks can carve out a fresh role as the centerpiece
or participant in a digital ecosystem, connecting service providers, fintechs and customers with monetisation opportunities as the common point of connection.
The emergence of the platform business model is a significant feature of the AI-bank of the future with embedded finance, instant real-time payments and BaaS possessing enormous benefits that can manage the transition to this customer-centric approach.
Banks that recognise the value of emerging technologies to augment customer experience are moving steadily toward a platform operating model while leveling command-and-control structures to speed decision making delivering solutions that customers value.
Open Banking in the GCC GCC banks are taking a more sophisticated approach to their use of APIs to maximise the value they derive from these digital workhorses. Incumbents are increasingly leveraging APIs internally to reduce costs and complexity associated with IT integration while freeing up change capacity by as much as 30%.
PwC said that open banking has the potential to reshape the financial services landscape and several financial centers in the emerging markets, the GCC region included, are making considerable moves in this space.
Open banking requires a robust, agile and scalable IT architecture to enable API integrations with multiple entities.
OPEN BANKING HAS THE POTENTIAL TO RESHAPE THE FINANCIAL SERVICES LANDSCAPE AND SEVERAL FINANCIAL CENTERS IN THE EMERGING MARKETS, THE GCC REGION INCLUDED, ARE MAKING CONSIDERABLE MOVES IN THIS SPACE
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
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.
Saudi Central Bank (SAMA) introduced an ‘Open Banking Lab’ last December as part of the Gulf state’s broader strategies to speed up the development of open banking. The ‘Lab’ constitutes a ‘technical testing environment’ to enable established banks and fintech companies the opportunity to ‘develop, test and certify’ open banking services to ensure compatibility with the framework.
The kingdom is implementing a marketdriven strategy and its approach is inclined towards a more formal regulatory framework. SAMA issued a roadmap for open banking rollout in 2021 and published an open banking framework last November.
Bahrain is implementing a Europeanstyle regulation-driven approach and the UAE has adopted an Americanstyle market-driven approach under the guidance of the Abu Dhabi Global Market and Dubai Financial Services Authority.
APIs are at the core of banks’ Open Architecture and play a significant role in our digital strategy. Abu Dhabi Islamic Bank (ADIB) launched its first API developer portal last June allowing fintech developers to use the Shariahcompliant lender’s APIs. Dubai’s Emirates NBD also launched a ready-to-use API developer portal ‘Emirates NBD API Souq’, to provide fintechs, developers and
corporate clients an all-in-one ecosystem to build innovative financial solutions.
The GCC region is one example of an emerging global open-banking microcosm and PwC projected that the innovation has the potential to reshape the financial services landscape and several financial centers in the emerging markets are making considerable moves in this space.
Financial services providers initially adopted APIs in 2018 to comply with regulations such as Europe’s Payment Services Directive 2 (PSD2) which seeks to make real-time payment solutions more secure while propelling innovation as part of a shift to ‘open banking.’
Consumers’ increasing desire for frictionless, more seamless and intuitive value-added banking experiences is driving incumbents to develop open and
collaborative financial ecosystems amid a surge in digital attackers and neobanks.
Open banking allows incumbents to deliver end consumers payment solutions giving online retailers such as Amazon, noon and Careem a convenient way to make direct fund transfers for online transactions. The process mandates banks to provide open APIs to allow software at third-party companies to access payment account information and payment initiation from another.
Mastercard said that there are two fundamental trends shaping the API ecosystem around the world at the moment, one being acceleration in the speed and availability of payments as well as the democratisation of access to data.
Payments trends such as the ongoing displacement of cash and new payment options including the request to pay, digital currencies and buy now, pay later services (BNPL) are all creating exciting opportunities for those able to seize them.
Banks are eager to seize the seemingly limitless potential of new and disruptive technologies and open banking makes data, algorithms, transactions, business processes and functionality available to other players in the banking ecosystem. Given the inevitability and opportunity of open banking, the big question facing most banking executives in the region is what business strategies they are putting in place to seize emerging business models.
TO MEET THE RISING DEMAND FOR EMBEDDED FINANCE, FINANCIAL INSTITUTIONS ARE INCREASINGLY OFFERING BANKING AS A SERVICE—BUNDLED OFFERINGS, OFTEN WHITE-LABELLED OR COBRANDED SERVICES, THAT NONBANKS CAN USE TO SERVE THEIR CUSTOMERS
– McKinsey
THERE ARE TWO FUNDAMENTAL TRENDS SHAPING THE API ECOSYSTEM AROUND THE WORLD AT THE MOMENT, ONE BEING ACCELERATION IN THE SPEED AND AVAILABILITY OF PAYMENTS AS WELL AS THE DEMOCRATISATION OF ACCESS TO DATA
– Mastercard
Outlining its necessities, benefits and wider effects, Glen Fernandes Managing Director, Global Client Management at BNY Mellon tells MEA Finance how Open Banking will impact regional banking and economies
What key requirements do banks need to meet when aiming to provide Open Banking services?
Agility is the backbone of Open Banking. We are in a rapidly changing industry and markets landscape - from both a business and a technology perspective - where client needs, requirements and expectations change quickly. Clients expect data to be made available to them much faster, at a much more granular level, and to be delivered to them where they want to receive it, be that on our own front-end portals, via APIs, or to third parties. They want the data to be turned into insights. They want us to work with third parties and bring them the best of what the industry has to offer where we can combine our capabilities and data with theirs and with others. They want more seamless integration of data and capabilities to drive faster insights for a broader set of users.
To provide more personalised client experiences, products and services, means financial institutions must have the agility to innovate and be able to
work with fintechs, while remaining focused on strong data management and architecture policies. Banks need to ensure that they comply with the applicable data laws and regulations where they operate, which include data privacy and security at the core. Robust technology authentication protocols, policies and risk mitigation to prevent or manage data leakages is paramount, as is the openness that banks have with customers on how data will be used and shared. At BNY Mellon, we deploy advanced AI and Machine Learning, to ensure we continually improving our ability to identify and manage any issues as they come up in real time.
Are Open Banking and API’s providing clear business growth benefits to banks when compared to times before their use?
Technology-driven innovation is redefining how the banking industry operates. Industries are beginning to converge, changing traditional services and creating new models. The oppor tunities t o reimagine the future of banking is boundless and Open Banking is exponentially speeding up innovation within the sector. Through APIs financial institutions have a more detailed real-time view of their customer enabling them to provide customised products and services in ways that were unheard of in the past, when organisations were focused on building a single solution that would cater to all clients.
Ke y to this is our ability to be agile, flexible and responsive to everchanging and growing complexity and
sophistication of our clients’ needs in terms of new products, new capabilities and new services to clients. We know that not every client is the same, and we understand the agility they need to continue their growth strategies.
Our approach is innovation through collaboration. We believe in working with the best companies across the industry, which allows us to innovate faster. We introduced an open-architecture approach to our core operating model which provides the ability to collaborate and integrate with the relevant market players of choice: fintechs, traditional providers and clients. We operate a data- and client-centric platform that connects a full portfolio of capabilities and third-party collaborations. It is the aggregation of those capabilities and it’s delivering them in a unified, digital experience.
With the advent of Open Banking, BNY Mellon developed with Intellect Global Transaction Banking (iGTB) a solution with distinctly innovative features that is designed to maximise cash on hand whilst minimising borrowings, which is one of the most important elements for corporate treasurers. This solution provides a complete front to back liquidity management suite incorporating real time sweeps and pooling with highly flexible features to benefit individual treasurers’ requirements.
At the beginning of this year, BNY Mellon/Pershing announced the integration of Real Time Payments (RTP) into its NetXInvestor platform, an investor portal used by broker dealers and registered advisor firms. The RTP integration is giving these clients 24/7/365 on demand access and secure funds.
2023 will be the year where regional banks are poised for growth and transformation due to Open Banking. The growing significance of regional fintechs supports this. However, for Open
Banking to be successful there will need to be a proactive approach to risk and compliance. Governments in the region are starting to shape of the markets approach to risk and compliance with the new data and cybersecurity rules and regulations that are evolving.
Cen tral to our function is to safeguard our clients’ assets and data. Our focus and investment in resilience and recoverability is essential. The outcome of this discipline and the processes of continuous improvement that are associated with it include live dashboards operating as commandand-control centres, fed by APIs with source data centres, critical business applications, communications lines and processes that have taken us years of investment. And these dashboards that we use to run and control the business
model that BNY Mellon is able to provide innovation and efficiency at scale for clients and other market participants. Our focus is on three main drivers of value: accelerating new product development, bolstering our own and our clients’ operational resiliency and efficiency, and enhancing the client experience. This open mindset has allowed us to participate in meaningful collaborations and strategic investments that ultimately help drive improvement across the industry.
Could the commonplace use of Open Banking and API’s bring additional new benefits to regional economies?
The impact of the global investment and focus on Open Banking on regional economies cannot be underestimated.
draw on the same foundations that are the source of data, both big and small, that we make available to clients in the form of actionable information and insights that can be consumed to make much faster, better-informed decisions.
Is Open Banking and the use of API’s expanding into more
The thriving fintech ecosystem alongside the benefits of Open Banking from client satisfaction and increased transparency to name but a few, show innovation and digitalisation at its best. The financial sector needs reliable, resilient and safe global infrastructure. It is through this
With the UAE and Saudi implementing regulations to enable fintechs interoperability with financial institutions, we expect the whole region looking to capitalise on the opportunity that comes from data. The region has a vibrant fintech and innovation community and we are already seeing the rise of the middle-class investor in the Gulf region driven by access to financial technology that has been driven in part by Open Banking. We are proud to be helping to deliver a future-ready market infrastructure in the Gulf Cooperation Council based upon a common data management platform that connects market participants.
THE IMPACT OF THE GLOBAL INVESTMENT AND FOCUS ON OPEN
ON REGIONAL ECONOMIES CANNOT BE UNDERESTIMATED
For many years, artificial intelligence (AI) was perceived to be a nascent technology – one that has demonstrated incredible feats and holds immense potential and possibilities, but still has a long way to go.
That was until Chat Generative PreTrained Transformer, more popularly known as ChatGPT, took the industry by storm. Overnight, AI has become a mainstream technology accessible to teams at every level of an organisation.
Launched by OpenAI – a United Statesbased AI research and deployment company founded by influential and prominent figures such as Elon Musk – ChatGPT set a new benchmark for generative AI by successfully engaging users in meaningful conversations and
providing human-like responses based on user prompts.
According to OpenAI, the revolutionary chatbot can “answer follow-up questions, admit its mistakes, challenge incorrect premises and reject inappropriate requests” – such humanquality behaviour that makes ChatGPT a cut above the rest.
ChatGPT quickly amassed one million users less than a week after opening to the public on November 30th , 2022, and by the end of 2023, ChatGPT is expected to have one billion users.
The AI-powered chatbot uses natural language processing (NLP) to simulate human conversations and produce
reasonable-sounding answers. After exhibiting such high-level intelligence, experts believe ChatGPT can pass the Turing Test, an assessment designed by renowned computer scientist Alan Turing to gauge a machine’s ability to think like a human being.
These breakthroughs have impressed not only ChatGPT users worldwide, but also huge investors, such as Microsoft, which recently announced its plans to invest USD 10 billion in OpenAI, following a USD 1 billion investment it made in the company in 2019.
O pe nAI is also in talks with other venture capital firms, whose investment may catapult OpenAI’s value to USD 29 billion and establish it as one of the most lucrative start-ups in the U.S.
Giving us a glimpse into the near future, Geoff Rapp Co-Founder, Virtuzone describes the rise and abilities of ChatGPT, explaining how it will become key to businesses and economies
With ChatGPT leaving a positive impact in the market, OpenAI co-founder and CEO Sam Altman reportedly anticipates the company to generate USD 200 million in revenue this year and USD 1 billion in 2024.
One evident area where ChatGPT can significantly make a difference is customer service, specifically live chat support.
According to research by Zendesk, an award-winning customer service software company, live chat ranks second to phone support in terms of customer satisfaction ratings. However, it takes more than a quick response to deliver customer satisfaction – the quality of the answers matters too.
A separate study made by Comm100, a global provider of omnichannel customer engagement software, found a link between higher wait times and higher customer satisfaction ratings, suggesting that customers were more appreciative of companies that took a bit longer to respond but provided topquality answers.
By integrating ChatGPT into a company’s live chat support system, it can drastically expand the capacity of its customer service team, while enhancing the quality of responses and automating the process of collecting customer data. ChatGPT also presents companies with the opportunity to be more cost-efficient and redirect their resources to other growth areas.
Leveraging 570 gigabytes of text data, which includes web pages, books, articles and forum posts, ChatGPT is an excellent content creator that can add value to a company’s content strategy. It can be trained to produce content that is relevant, engaging and in line with a target audience’s specific interests and queries.
Harnessing ChatGPT’s content creation ability enables small businesses to accelerate and augment their content production,
thus allowing them to divert their team’s focus to optimising processes, strategy and product or service quality. Consequently, this can help increase content performance, boost leads and sales and improve customer retention.
From igniting new ideas for content to instantly generating copy for social media, blogs and emails, ChatGPT offers a wide range of disruptive uses that can easily supplement a business’s
provide outdated information since its knowledge base covers events only until 2021.
Still, ChatGPT’s ground-breaking features undoubtedly hold a myriad of opportunities for businesses across different sectors to innovate and offer their customers more targeted solutions.
For one, global corporate service providers such as Virtuzone have started to adopt AI to formulate customer-oriented digital tools that address the unique needs of their customer base. One such tool is an automated business plan builder, powered by ChatGPT.
With ChatGPT’s swift rise to popularity, the next obvious step for OpenAI is to capitalise on the chatbot’s extraordinary growth and continue to refine its functionalities based on user feedback. The company is also reportedly looking to roll out a paid version of ChatGPT, which will be called ChatGPT Professional.
ChatGPT’s overnight success has brought AI closer to the public and increased their awareness of AI trends and tools currently accessible or being developed in the market.
activities while reducing the time and resources needed to produce their desired results.
While ChatGPT’s potential seems unprecedented, it also has its share of limitations. OpenAI has disclosed that ChatGPT may sometimes respond with incorrect or non-sensical answers, display biased behaviour, or
According to research done by PricewaterhouseCoopers, the AI sector can contribute USD 15.7 trillion to the global economy by 2030, USD 6.6 trillion of which will likely come from increased productivity due to AI technologies and USD 9.1 trillion from the subsequent increase in consumer demand for AI products
CHATGPT’S OVERNIGHT SUCCESS HAS BROUGHT AI CLOSER TO THE PUBLIC AND INCREASED THEIR AWARENESS OF AI TRENDS AND TOOLS CURRENTLY ACCESSIBLE OR BEING DEVELOPED IN THE MARKETGeoff Rapp, Co-Founder, Virtuzone
Digital transformation in the Middle East and Africa (MEA) region has accelerated over the past few years, bringing new opportunities to the banking sector. In the Middle East, for example, digital banking is finding appeal with both conventional and Islamic banks
Thriving economies, diverse, young populations and the availability of skilled labour characterise the MEA region. These are driving the demand for modern banking solutions, including fintech services that are seamlessly woven into customer transactions. Since incumbent banks have tended to focus on wealthier communities, there is an opportunity for neo-banks to tap into the unbanked and underserved
segments such as blue-collar workers or laborers. Banks and fintechs are working to reduce operational costs with the help of technology and plugging the gaps to prepare the path ahead for banking.
Here, are the top 3 banking trends to be on the lookout of in the MEA region:
1. Recomposing Business Models
Traditional banks have to recompose
legacy business models and technology systems to remain relevant and viable and compete with new-age banks by offering digital-first solutions, embedded finance services and Banking-as-a-
Service (BaaS). In 2023, we expect greater adoption of these emerging models.
Brands and fintechs are anticipated to collaborate with banks to establish frictionless contextual banking for customers on top of commoditised financial offerings and derive significant returns from BaaS. In the MEA region, brands can reshape banking experiences in the coming year, through embedded payments, cards, lending, insurance and more. Banks are also expected to scale their business growth at affordable costs.
Since the pandemic, financial institutions are under pressure to improve margins and cut costs by adopting new-age utilities. APIs, event-driven architectures, blockchain and cloud are advanced technologies that have already helped lower the cost of leveraging infrastructure utilities in the region. Morocco, for instance, is emulating the India Stack example to build a modular, open-source identity platform that provides public utilities with innovation capabilities at population scale. This trend is expected to strengthen further in 2023.
The role of banks has evolved to facilitate seamless transactions rather than controlling the whole financial
transaction lifecycle. Embedded finance is an emerging trend that enables banks to tie up with digital platforms and extend their customer base, without adding extra costs for distribution. In the MEA region, embedded finance revenues are expected to grow to USD 39.82billion by 2029.
We are also witnessing the rise of decentralised finance (DeFi), which involves a set of financial applications, including lending platforms and exchanges, built on decentralised financial networks. Through communitydriven financing, trading of digital assets and financial tools, and insurance for digital currencies, DeFi applications promise speedier, more secure and more cost-effective peer-to-peer transactions.
What is more, there is growing interest in central bank digital currency (CBDC), with several African central banks showing keen interest in issuing their own digital currencies. The trend of adoption of CBDCs can improve financial inclusion, make transactions faster and cheaper, streamline cross-border transactions and revive economies.
Escalating numbers of digital channels, transaction volumes and the critical need for resilience are overtaking concerns around security, compliance and skilling as banks sense a greater urgency for cloud adoption. Businesses are increasingly adopting a poly-cloud strategy that enables them to cherry-pick services from multiple cloud providers
and achieve an optimal combination best suited to their needs.
In 2023, a cloud-neutral hybrid approach is expected to build higher availability and resilience in banks’ system designs, while addressing data residency requirements based on geography. Hyperscales offering native-managed services optionally on cloud-ready CPUs, allowing banks to immediately capitalise on the cloud-native hardware and interoperability of the managed services interfaces and SLAs is expected to boom in 2023.
Containers and service meshes have entered the mainstream with more than 60% of organisations globally, reportedly employing Kubernetes to manage, scale and automate computer application deployment. UAE’s leading bank (Emirates NBD) utilised Kubernetes container orchestration, integration and management to build their private cloud with technology on par with cloud-native companies.
As the banking world prepares for future opportunities, trends gaining traction in the industry, such as immersive experiences, modern customer engagement strategies, AI adoption and more are expected to transform the landscape of the banking industry for the better.
For deeper
insights on these trends, get a copy of Infosys Finacle’s latest report “The Future of Banking: Trends For 2023.”
EMBEDDED FINANCE IS AN EMERGING TREND THAT ENABLES BANKS TO TIE UP WITH DIGITAL PLATFORMS AND EXTEND THEIR CUSTOMER BASE, WITHOUT ADDING EXTRA COSTS FOR DISTRIBUTION
BUSINESSES ARE INCREASINGLY ADOPTING A POLY-CLOUD STRATEGY THAT ENABLES THEM TO CHERRY-PICK SERVICES FROM MULTIPLE CLOUD PROVIDERS AND ACHIEVE AN OPTIMAL COMBINATION BEST SUITED TO THEIR NEEDS
Central banks in the Gulf region followed the US Federal Reserve in lifting key interest rates by half a percentage point last December. The monetary policy will continue to be a key driver of asset valuation in 2023. Meanwhile, valuations in Saudi Arabia and the UAE have eased substantially over the past quarter with other Gulf countries slightly above average, a positive development according to Credit Suisse.
GCC countries remain resilient relative to other emerging markets (EM) economies amid mounting global uncertainties. The confluence of a materially slowing economy, last year’s surge in inflation and the subsequent tightening of the monetary policy by central banks weakened asset prices across all markets.
Morgan Stanley said that rarely have investors had to grapple with the kind of lessons imparted by an economy just emerging from the pandemic while dealing with an aggressive monetary policy and geopolitical tensions.
The turbulence from 2022 is weighing heavily on the global investment outlook with implications ranging from earnings, valuations, investor sentiment and other key metrics. Further adverse shocks are expected to tip the global economy into recession this year.
However, GCC countries’ growth story is underpinned by high oil prices, robust balance sheets and a steady growth
outlook—inflationary pressures and growth prospects remain well-balanced in the region. Credit Suisse projected that oil prices will likely remain above $60 per barrel in 2023 even in the face of a global recession, resulting in manageable fiscal deficits for GCC countries.
EM institutional investors’ exposure to GCC equity markets is projected to grow from the current 2%, driven by a healthy IPO pipeline and the potential for further increases in foreign ownership limits, which will provide a long-term structural bid to GCC equities from foreign investors.
The IPO frenzy is expected to drive a relatively strong performance in UAE and Saudi Arabia equity markets despite equity prices being caught up in global market uncertainty. It will continue a trend that made the Middle East a bright spot in an otherwise gloomy year for new share sales.
GCC currencies’ credible pegging to the US dollar together with transformation programs that are being implemented across the region should also provide strong support to economic activities.
Meanwhile, earnings are expected to plunge this year bringing the stock market down with them. Earnings momentum continues to roll over with the momentum in Saudi Arabia and the UAE remaining well above emerging and developed markets—approximately the same as the rest of the GCC. Credit Suisse said that there are early signs of a ‘trough forming’ in EM earnings momentum while projecting a similar pattern in Saudi Arabia and the UAE.
Global risk appetite has rebounded strongly on the marked equity rally, though the index remains firmly in neutral territory overall with geopolitical risks in Saudi Arabia and the UAE, the Arab World’s biggest economies, seen easing month-on-month this year.
The strategic rivalry between the US and China has intensified over the years as a trade war between the world’s two largest economies has widened to include greater geopolitical tensions as well as a technological and ideological rivalry. The effects of climate change, the shift towards multilateral free trade agreements, cyberattacks and the prolonged pandemic have all compounded global risk.
The turbulence from 2022 is weighing heavily on the global investment outlook with implications ranging from earnings, valuations, investor sentiment and other key metrics, though GCC nations have shown resilience in the face of the stresses with emerging markets institutional investors expected to increase their exposure to regional equity markets.
Growth has largely remained robust across the GCC region with real GDP growth expected to moderate from 6.1% in 2022 to 3.4% in 2023
GCC countries have so far withstood global inflationary pressures as the US Federal Reserve and central banks worldwide have signalled that the fight to wrestle inflation back to manageable levels is far from over.
Central banks have been preoccupied with fighting inflation perhaps more than the growth of the real economy mostly after the disruptions to trade and production as a result of the war in Ukraine triggered a surge in global commodity prices including oil, gas, wheat and industrial metals.
Credit Suisse said that inflation in most GCC countries has already stabilised with signs of disinflation already appearing—largely against the investment bank’s expectations for inflation to peak in Q1 2023.
While soaring commodity prices have put importers under pressure and raised the threat of longer-lasting inflation, the rally in oil prices has pushed the budgets of GCC countries into the black for the first time in years.
Global benchmark Brent mostly traded above the $90 mark in 2022 and is expected to remain above $60 this year despite a looming recession. The current oil boom has limited the fallout from the conflict in Europe and the impact of tighter monetary policy—allowing for a more positive outlook for GCC economies.
The International Monetary Fund projected that GCC countries will have an overall fiscal surplus of over $100 billion in 2022 alone as reforms have allowed governments to save far more resources than in previous growth periods. Growth has largely remained robust across the region with real GDP growth expected to moderate from 6.1% in 2022 to 3.4% in 2023.
Similarly, the UAE enjoyed a strong finish to 2022 and its non-oil sectors are holding up against the headwinds of higher inflation and interest rates. Growth in the non-oil private sector in the UAE eased further in December bringing the PMI index to 54.2, a slight decrease from the previous month. However, the headline index has remained above the 50-mark that separates growth from contraction for over two years.
The country’s property market continues to perform strongly while growth in the tourism industry received an additional boost from the FIFA World Cup in Qatar.
Beyond a rebound in non-oil domestic activity, the UAE has bucked a global slump in stock market listings with deals on the Abu Dhabi Securities Exchange (ADX) and Dubai Financial Markets (DFM) attracting solid investor demand in 2022. More companies are scheduled to list on the ADX and DFM this year.
The IPO frenzy is expected to drive a relatively strong performance in UAE equity markets despite equity prices being caught up in global market uncertainty. It will continue a trend that has made the Middle East a bright spot in an otherwise gloomy market for new share sales.
The performance and resilience of the equity markets can be attributed to government policy support that is stimulating investments while increasing the competitiveness of the UAE’s economy.
GCC countries are entering 2023 on solid footing compared to their peers in the emerging markets as fiscal balances have been substantially upgraded across the board. Though risks to growth remain on the downside and the GCC looks set to weather the expected global recession, the region is not immune to fragile economic conditions.
Experts, leaders, and decisionmakers will join eye-opening discussions about trend topics such as the future of decentralised finance security. A recent study from Cybersecurity Ventures revealed that the global cost of cryptocrimes can top US$30 billion annually by 2025.
The banking sector will also take the stage with pertinent talks, from innovations in security mechanisms to shadow banking – the ecosystem of entities providing banking services but not under the same regulations – and how they impact the industry.
The future of decentralised finance security among key topics to be explored at threeday event’s power-packed conference programme
Cyber threats to financial institutions have skyrocketed in the post-pandemic landscape. As the accelerated digitisation of traditional industries enhanced the consumer experience allowing fast payment transactions as never seen before, the risk of cyber-attacks on public and private companies increased exponentially.
According to the International Monetary Fund, it’s not a matter of “if” but “when” an individual will become the next victim. The IMF report states that the world has reached a critical level that calls for a community effort to protect the global financial system.
The issue intensified this year’s discussions at the World Economic Forum’s Annual Meeting in Davos, Switzerland, as experts labelled 2023 as a “consequential year” from the cybersecurity perspective, where threats are increasing in number and complexity.
Aware of the high demand for a platform to solidify the region’s efforts and support all entities in the sector, GISEC Global, the largest cybersecurity event in the Middle East and Africa, returns to the Dubai World Trade Centre (DWTC) from 14-16 March 2023.
Organised by DWTC, the exhibition is designed for key industry leaders to come together, discover innovative strategies, and remain secure from major disruptions.
International speakers and worldclass finance organisations will join the conference programme, which comprises 13 tracks and +180 hours of content tackling the challenges and innovations in the cybersecurity environment
The annual three-day show will feature more than 400 exhibitors from 42 countries, revealing the latest technologies to avert cybercrimes in multiple industries. This 11th edition comprises an extensive conference programme under the theme “Connecting minds, boosting cyber resilience,” with 13 tracks tackling the evolving cyber environment.
The show will bring back to Dubai the world-class hacker and author Jayson E.Street, who built a successful career being paid by notorious institutions, including banks and even the US Department of Treasury, to break into their systems and find vulnerabilities that can improve their security operation.
Amongst the headline of international speakers, Stéphane Nappo, VP, Cybersecurity Director, and Global CISO at Group SEB, the world’s largest kitchenware manufacturer, will bring an insightful discussion about the Scalable Warning and Resilience Model (Swarm), taking the cybersecurity approach beyond the IT scope.
GISEC Global 2023 will comprise over 180 hours of content with talks and panels from some of the world’s most influential finance companies and organisations, such as the International Labour Organization (Switzerland), European Investment Bank (Luxembourg), WIO Bank (UAE), Bank Muscat (Oman), National Bank of Egypt, Habib Bank (Pakistan), Bank ABC (Jordan), and Al Maryah Community Bank (UAE).
More information is available at: www. gisec.ae.
Economies and businesses are becoming proactively prudent about managing data, but your personal information is still vulnerable. Despite the increased awareness and collective intent to safeguard data, inadequate, ambiguous or poor data security management systems have led to a rise in data breaches recently.
According to a report by IBM and Ponemon Institute, the average cost of a data breach touched a record high of US$4.35 million in 2022. The researchers arrived at the staggering number based on several cost factors such as legal, regulatory, and technical activities, loss of brand equity, customer turnover and drain on employee productivity. More than financial losses, data privacy breach or non-compliance could have an irreparable toll on an organisation’s reputation and erode stakeholder trust.
Given the rise in cybercrimes, organisations need a two-pronged strategy. First, however robust your security systems may be, it is imperative to keep updating them. More essentially, the leadership should focus on strengthening their defences by looking ahead, predicting the emergence of future cyberthreats and comprehending the wealth of new defensive capabilities that businesses can use both now and in the future. Here are five industry trends on data privacy this year:
Greater emphasis on privacy by design: In the past, privacy was often an afterthought when it came to the development of new products and services. However, this is beginning to change. More and more companies are realising that building privacy into their products and services is not just the right thing to do, but it can be immensely rewarding for business. In 2023 we’ll see a shift towards a “privacy by design” approach, where companies prioritise user privacy at every stage of the development process.
Rise of privacy-focused tech: As consumers become more concerned about their online privacy, there will be a surge in demand for technologies prioritising privacy. This includes everything from secure messaging apps and browsers to virtual private networks (VPNs) and encrypted email services. It’s important to note that while these tools can certainly help to protect your data, organisations still need to take steps to secure their information.
Increase in regulations: Governments are taking notice of the growing concern over data privacy
and are acting. Since the General Data Protection Regulation (GDPR) of the European Union went into force in 2018, there has been a steady rise in these restrictions. This trend is likely to continue as more countries look to implement their data protection regulations. The United States is currently considering passing a federal data privacy law like the GDPR. Other countries such as Canada, Australia, Japan and India have also introduced or are in the process of introducing new data privacy laws. Companies must implement stricter data privacy policies and procedures to ensure compliance with these regulations and protect the personal information of their customers.
Greater transparency: T he trend towards transparency in data privacy is driven by the increasing awareness of the importance of protecting personal information and the need for organisations to be more accountable for their data collection and usages. Organisations will begin to be more transparent about their data practices by providing individuals with more control over their data. This includes the ability to access, correct or delete their personal information, and the ability to opt-out of certain types of data collection.
As fir st-party data becomes more significant and consumers more conscious of their data, third-party cookies will soon become obsolete. Many companies and organisations are now looking to move towards a cookie less future by implementing new technologies and methods for tracking and targeting users. Some companies are exploring the use of browser fingerprints - unique identifiers used to track a user without cookies. Other companies are experimenting with the use of privacy-enhancing technologies to provide a more secure and private way of tracking users.
