Is it just us, or is this year moving ahead tentatively, nervously uncertain? A general wariness seems afoot, as if awaiting some menacing seminal event. It feels akin to walking through a night-time forest, senses heightened, expecting to be pounced on at any moment. Hardly a forward march with purpose and confidence. Hopefully, as the weeks and months of this year move ahead, boldness will return. And talking of March, welcome to the latest issue of MEA Finance where, among these pages, you will see that notwithstanding the earlier mentioned hesitancy, there are market sectors that have been advancing with some
From page 44, you can read about the increasing growth of wealth management in our region and the factors behind this positive trend, “In 2021, the region’s financial wealth grew by 20%, compared to the global average of 11%”, says Chairman of Globaleye, Tim Searle. Another area of rapid change and development activity is that of payments, “Innovation is the key, as continuing to provide the same services is no longer a viable business strategy,” insists Samer Soliman, CEO of Arab Financial Services. Read about this exciting sector from page 32.
Our cover story this month features Mehdi Manaa, CEO of Buna, the cross-border, multicurrency payment system founded by the Arab Monetary Fund. In the article, Mehdi describes Buna’s purpose and progress, pointing out that they are adopting standards at new, higher levels, ‘While we cannot discharge our
participants from such a regulatory obligation, in Buna we decided to implement an additional layer of compliance.”
From page 18 you will see coverage of our recent roundtable, hosted for this occasion by Mindgate Solutions. Taking place in Riyadh, Saudi Arabia, the lively and illuminating event debated digitisation of transaction banking in the Kingdom and how it will contribute to the aspirations of the nation, “Within the Vision 2030 framework, I have realised that there are a lot of changes, not only on the payments fronts but the digitalisation of all the government services and payments”, said Ahmed Al Ben Saleh attending the discussion for SABB.
Elsewhere in this edition, our Market Report, starting on page 10, is on Saudi Arabia, looking at the boost their economy is encountering from the governments business diversity drive and their social changes. From page 54, you can read an account of the first in a series of roundtables where MEA Finance is partnering with Fintech Surge to provide insights into the expanding presence of fintech in the region. Earlier in our line-up, from page 14 we look at how The Cloud is increasingly viewed as more than just a technology, but also as a destination for data and another layer of cybersecurity. Then jumping all the way to page 58, read about the challenges and opportunities of the Central Bank of the UAE’s Model Management Standards and Guidance Regulation, issued late last year. Finally, we round up some of the past few weeks highlights from around the region in the regular Market News section.
So, we hope that as you read your copy of MEA Finance, you will come away from this issue reassured that there are upbeat and positive areas of activity across the region, and that soon we will all be back out of the woods.
28
MEA Finance
WEB: www.mea-finance.com
MARKET NEWS
6 Edmond de Rothchild open new office in Dubai International Financial Centre (DIFC)
8 Dubai Islamic Bank successfully prices USD 1 billion Sustainable Sukuk
MARKET FOCUS
10 Powered by Purpose
CLOUD TECHNOLOGY
14 In the cloud, the sky’s the limit
ROUNDTABLE: THE ACCELERATION OF BUSINESS TO CUSTOMER IN DIGITAL TRANSACTION BANKING
18 Saudi Arabia’s Transitioning of Transaction Banking
COVER STORY
28 The Transformation of Cross-Border Payments
EVENTS AND MARKETING MANAGER Cris Balatbat crissyb@mea-finance.com
Tel: +971 58 594 4818
EVENT AND CONTENT DIRECTOR Natasha Cristi natasha@mea-finance.com
Tel: +971 50 303 4235
SENIOR DESIGNER Florante Magsakay Tel: +971 52 570 1811 design@mea-finance.com
ADMIN AND FINANCE MANAGER Marilyn Nainque marilyn@mea-finance.com Tel: +971 58 5025836
WEB ASSISTANT Marie Orayan web@mea-finance.com
FEATURE CONTRIBUTORS: Mushtak Parker, Walter Sebele editorial@mea-finance.com
Dubai office: #404, Building B, Al Saaha Offices, Old Town Island Burj Khalifa District PO Box 487177, Dubai, UAE Email: info@mea-finance.com
to access the region. Edmond de Rothschild’s conviction driven approach and actions on sustainable development align with our principles to drive the future of finance through innovation and supporting economic growth in our societies.”
With a Category 4 advisory licence regulated by Dubai Financial Services Authority (DFSA), the independent regulator of financial services conducted in or from DIFC, Edmond de Rothschild (Middle East) Ltd. will be able to locally advise clients and ensure access to the entire group’s offerings. The bank’s conviction-driven investment capabilities are designed to address the challenges facing our society and accompany the major trends that will shape the economy for several decades, giving purpose to investments across our liquid and real assets strategies.
Historically, Edmond de Rothschild has established strong relationships throughout the Middle East, serving its clientele from its main hubs in Switzerland and Europe, while leveraging its local presence through its representative office in Dubai. The UAE is already an important market for Edmond de Rothschild, and the new presence will
enhance its ability to serve the clients in the region by providing state-of-the-art services, ensuring better proximity to clients as well as capturing important market opportunities.
Ali Raza Syed, Senior Executive Officer of Edmond de Rothschild (Middle East) Ltd, will be leading the local office in DIFC, reporting to Saman Habibian, Chairman and Market Leader Middle East & Africa at Edmond de Rothschild (Middle East) Ltd. His Excellency Essa Kazim, Governor of DIFC, commented: “Dubai is the city in the Middle East with the highest concentration of wealth and has access to more than USD 3trn of private wealth within an hour’s flight, which makes DIFC the preferred choice for Wealth & Asset Management firms. We are delighted that Edmond de Rothschild has chosen DIFC as their home in the region. Growth opportunities are vast and attracting such a prestigious industry name reinforces Dubai and DIFC’s reputation as the preferred business destination
Ariane de Rothschild, Chair of the Board, Edmond de Rothschild Group, adds: “For more than 250 years, our bank has helped clients preserve and grow their assets by combining performance and sustainability, while approaching investments with a pioneering mindset. Expanding our presence in the UAE was a natural choice, given Dubai’s spectacular growth for a long time along with DIFC’s expertise and world-class services. Moreover, most of our clients in the region have family-driven business models and their success is based on innovation, strong convictions and action. We share their entrepreneurial and pioneering spirit in proactively addressing present and future needs and challenges.”
Saman Habibian, Market Leader Middle East & Africa, Edmond de Rothschild, said: “Dubai is a leading financial and economic centre offering unprecedented opportunities, and where the group has been developing its client base for the past ten years. This opening enables our clients in the region, including the expat community based in Dubai, to further capitalise on our international expertise, particularly in the private markets.”.
Edmond de Rothschild Group strengthens its investment and long-term commitment to the region with the opening of an advisory office –Edmond de Rothschild (Middle East) Ltd – in DIFC
Dr. Adnan Chilwan, Group Chief Executive Officer, DIB, commented: “Driven by our detailed and meticulously crafted balanced growth strategy as well as the bank’s commitment towards the Sustainability agenda of the UAE and the larger “Net Zero by 2050” goal of the nation, we are delighted to announce the issuance of our second Sustainable Sukuk today, the largest-ever by a Middle East Financial Institution. The success of DIB’s inaugural sukuk in 2022 strongly reflected the market’s faith in the franchise and the reputation the bank enjoys in the local and international capital markets. The investor response for this latest issuance was overwhelming with more than $3bn of orders allowing us to issue a larger size well within our pricing parameters. I would like to thank our investors for the continued trust and confidence placed in DIB. As the country prepares to host COP 28, we remain committed to play an active role in fulfilling the UAE’s long-term sustainability objectives. We hope the success of our offering will encourage other issuers from the UAE to follow suit in this format.”
The Sukuk was issued in line with DIB’s Sustainable Finance Framework which was created to facilitate financing of green and social initiatives and projects. This deal achieved several landmarks including the largest issuance by a Middle East financial institution in the international capital markets since June 2021 and the largest-ever Sustainable issuance by a Middle East Financial Institution.
This deal once again demonstrated DIB’s leadership in Islamic and
Sustainable finance, with an established and strong investor following from Europe, Asia and the Middle East. The Sukuk was priced after completing a comprehensive marketing exercise where DIB updated investors on its positive financial performance as well as its Sustainable Finance Framework. The response from investors was overwhelming and despite issuing a larger size (USD 1 billion), DIB achieved a 3x oversubscription – which itself was the largest book size seen for a GCC bank in over a year.
The Sukuk is issued under DIB Sukuk Ltd. and is listed on Euronext Dublin and NASDAQ Dubai.
Standard Chartered Bank acted as Sole Sustainability Structurer while Bank ABC, Dubai Islamic Bank, Emirates NBD Capital, First Abu Dhabi Bank, HSBC, KFH Capital, Mashreq, Sharjah Islamic Bank, Standard Chartered Bank and The Islamic Corporation for the Development of the Private Sector acted as Joint Lead Managers and Bookrunners on the transaction.
Dubai Islamic Bank rated A3 by Moody’s and A by Fitch successfully priced its second Sustainable Sukuk – a landmark USD 1 billion 5.5year senior issue with a profit rate of 4.80% per annum representing a spread of 102.4bps over 5-Year US Treasuries
Saudi Arabia is undergoing a profound change and the economy is getting a boost from the social transformation, and the government’s renewed effort to diversify the economy
There is a growing mood of optimism in Saudi Arabia as the New Year has started well for the global economy, or at least not as bad as many economists had feared. Saudi Arabia’s overall growth was estimated at 8.7% last year as the non-oil sector and positive developments in the hydrocarbon market helped the Arab world’s biggest economy to evade the global slowdown.
The estimates by the Saudi statistics authority are at par with forecasts from the
International Monetary Fund (IMF)—which show the Gulf state leading the ranks of top economies ahead of India at 6.8%. A rally in oil prices and the race by European countries to find alternatives to gas from Russia helped oil-rich Gulf Arab countries register strong twin surpluses in 2022 and will continue over the medium term.
Though growth in the non-oil sector is expected to remain robust in 2023, the IMF revised Saudi Arabia’s growth forecast to 2.6% citing lower oil production.
Saudi Arabia is undergoing a profound
transformation and the economy is getting a boost from this social transformation and the government’s renewed effort to diversify its economy away from heavy reliance on oil and gas— which accounts for 80% of its total goods exports and total revenues.
“The authorities’ continued implementation of Vision 2030 policies will help diversify and liberalise the economy and thus pave the way to more stable growth,” said the IMF.
Since 2016, Saudi Arabia has undergone a breakneck transformation unveiling a raft of ambitious programmes to expand the country’s economy including Crown Prince Mohammed bin Salman’s set of “national aspirations and priorities” for research, development and innovation (RDI) over the coming two decades.
The government’s economic diversification plan encompasses areas such as healthcare, foreign investment, tourism, technology and the financial
services sector. The country’s wealth fund, Public Investment Fund (PIF)—the driving force behind Saudi Arabia’s economic growth and diversification—plans to double its assets under management (AuM) to $1.07 trillion by 2025.
With strong supervision from the Saudi Central Bank (SAMA), the financial sector remains resilient and the positive outlooks on the Gulf state’s rated banks mirror that of the sovereign. Saudi Arabia’s financial sector industry is the linchpin of Crown Prince Mohammed’s economic diversification programme.
Banks in Saudi Arabia, like their GCC peers, recorded higher profits in 2022 on the back of improved operating conditions marked by economic recovery and the central banks’ move to tighten monetary policy. “The sector’s profit before tax increased 28% year-on-year in 9M 2022, with balance sheet growth and lower loan impairment charges offsetting the higher cost of funding,” said Fitch.
The combined profits of Saudi Arabia’s top five banks—Saudi National Bank(SNB), Al Rajhi Bank, Riyad Bank, Saudi British Bank (SABB) and Banque Saudi Fransi (BSF)—reached $10.1 billion (SAR 38 billion) in the nine months of 2022.
SNB, which last year acquired a 9.88% stake in Credit Suisse Group, reported a nearly 47% jump in 2022 net profit to $4.95 billion (SAR 18.6 billion) while Al Rajhi Bank, Saudi Arabia’s second-largest lender by assets, registered a 16.3% surge in its full-year net profit to $4.57 billion (SAR 17.2 billion).
Fitch Ratings predicted that profitability in the banking sector will remain underpinned by higher net interest margins and non-interest revenues as assets grow, and by lower loan impairment charges as economic conditions remain solid. The rating agency’s forecast is at par with S&P Global, which said that net interest income—the difference between interest revenues earned from lending activities and interest paid to depositors— at banks in the GCC region has soared
over the past year as lenders are passing rate increases on to customers.
SAMA increased its key interest rates by 25 basis points earlier in February in lockstep with the US Federal Reserve, which hiked its target interest rate by a quarter of a percentage point, as the Saudi riyal is pegged to the dollar. “The credible USD peg all but eliminates FX risk, a most valuable trait in emerging markets (EM) at a time when faltering commodity prices present a risk to the EM FX asset class,” said Credit Suisse.
and payment-related services,” Boston Consulting Group said in a report adding that 32 fintech firms are currently offering services under a regulatory sandbox.
The country’s regulators have licensed three entities since 2021. STC, which boasts eight million retail customers and more than 120,000 merchants within its network, is currently converting all its activities and functions from an e-wallet to a digital bank.
Saudi Digital Bank, which will run on cloud-native infrastructure and will focus
Despite an expected slowdown in oil-linked activities in line with OPEC+ production cuts, the Gulf state’s non-oil sector will continue to expand owing to the implementation of Vision 2030, creating opportunities for corporate lending in the process as the government is allocating large investment projects to contractors.
Pressure on small banks’ profitability, alternative delivery channels and expected competition from digitalexclusive banks will likely increase shareholders’ appetite for consolidation to enhance the resilience of banks’ financial profiles.
Saudi Arabia began publishing licensing requirements for digital-only banks in 2020 in line with its ambitious Vision 2030 and the country’s Financial Sector Development Program. “As of 2022, SAMA has licensed three digital banks and 19 fintech companies to provide consumer microfinance, digital insurance
on providing hyper-personalised financial services and products, will target both retail and small and medium-sized enterprise customers.
D360 Bank, a Shariah-compliant neobank bank backed by the Derayah Financial Company and PIF, is targeting the underserved segments, focusing on addressing customer pain points and leveraging innovation and technology to make banking convenient, accessible and fair to all.
A robust banking sector able to finance new industries is seen as key to efforts to boost the dynamism of the private sector and accelerate growth. Meantime, S&P Global cautioned that Saudi banking sector credit growth will slow as much as 12% in 2023-24, owing to a high base effect, higher interest rates and tighter liquidity.
While soaring commodity prices have put importers under pressure and raised the threat of longer-lasting inflation,
THE AUTHORITIES’ CONTINUED IMPLEMENTATION OF VISION 2030 POLICIES WILL HELP DIVERSIFY AND LIBERALISE THE ECONOMY AND THUS PAVE THE WAY TO MORE STABLE GROWTH
– The IMF
the rally in oil prices has pushed Saudi Arabia’s budget into the black for the first time since 2013. A consecutive, albeit narrower, budget surplus is forecasted this year though it remains clouded by global growth concerns and an uncertain oil demand outlook.
Saudi Arabia approved a $296 billion (SAR 1.114 trillion) budget for 2023 and the government expects a surplus of $4.3 billion (SAR 16 billion) or 0.4% of GDP. Revenues are set to reach $301 billion (SAR 1.13 trillion) this year, signalling authorities’ confidence in domestic economic growth and high global energy prices.
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 IMF urged the government to manage oil revenues
projected financing of as much as $12 billion (SAR 45 billion) this year after prefunding a larger amount in 2022. The Gulf state raised about $12.8 billion (SAR 48 billion) for 2023 financing needs in prefunding transactions in 2022.
The country tapped international debt markets with a $10 billion multi-tranche dollar-denominated bond earlier in the year and plans to continue its funding activities in domestic and international markets to repay debt maturing in 2023 and the medium term.
The current oil and gas price outlook is creating an ideal environment for Saudi Arabia to proceed with ambitious reforms under favourable macroeconomic and financing conditions while putting debt on a firm downward path.
Saudi Arabia remains largely shielded from global economic woes as high oil prices are putting the country on track to record a second year of budget surplus allowing the government to accelerate investments in new industries as part of Vision 2030.
Saudi Arabia’s $600 billion wealth fund, once a sleepy government holding company, is the vehicle for the country’s global ambitions under Vision 2030. PIF is tasked with stimulating inward investment, accessing new technologies, developing local industries and addressing widespread underemployment in the Gulf state.
The fund has snapped up stakes in sports teams including English Premier League’s Newcastle United, electric carmakers—Lucid and Ceer—and is funding a host of new cities in the desert such as the $500 billion futuristic NEOM City, Qiddiya and the Red Sea Development Company’s mega tourism project.
Saudi Arabia, the world’s top oil exporter, unveiled in 2021 plans to reach net-zero carbon emissions by 2060 by injecting more than $186 billion (SAR 700 billion) into a green economy. The country debuted the Middle East’s first carbon offset auction, offering one million credits in October 2022.
sustainably to promote fiscal sustainability and prevent a return to previous oil-driven cycles of boom and bust.
“High energy prices are positive for both Saudi Arabia‘s sovereign balance sheet and the broader domestic economy,” KPMG said adding that the kingdom’s balance sheet provides a cushion against external economic shocks amid a weakening global outlook.
Earlier in January, Saudi Arabia’s National Debt Management Centre
“Saudi Arabia’s sovereign wealth fund, the Public Investment Fund, should continue to focus on high returns and greater private sector involvement, including as it continues to implement “Giga projects”,” said the IMF.
Economists expect the kingdom’s economy to be bolstered by a significant investment program that could be worth more than a trillion dollars by 2030, including big investments planned in the renewables sector, solar plants and green hydrogen projects.
Meanwhile, Saudi Arabia’s Regional Voluntary Carbon Market Company, which is backed by PIF and Saudi Tadawul Group, allow companies to buy credits on exchanges to offset some of the emissions they produce.
Saudi Arabia plans to use the budget surplus to replenish reserves, make additional transfers to sovereign wealth funds and potentially boost spending on projects intended to help diversify the economy away from a reliance on hydrocarbon receipts. Its social and economic reforms are beginning to have a positive impact on the economy and non-oil growth is picking up.
HIGH ENERGY PRICES ARE POSITIVE FOR BOTH SAUDI ARABIA‘S SOVEREIGN BALANCE SHEET AND THE BROADER DOMESTIC ECONOMY
AS OF 2022, SAMA HAS LICENSED THREE DIGITAL BANKS AND 19 FINTECH COMPANIES TO PROVIDE CONSUMER MICROFINANCE, DIGITAL INSURANCE AND PAYMENT-RELATED SERVICES
– Boston Consulting Group
Banks today are missing scale and speed in cloud adoption - our research indicates that the full value of cloud transformation is only realized upon migrating at least 60% of your bank’s workload to cloud. Yet most banks are far from that milestone, and they lack a clear roadmap to get there.
Infosys Finacle has made huge investments and created multiple proven use cases in cloud technology. Access our latest point-of-view 'Banking on Cloud: the next lap' for a detailed roadmap of how banks can accelerate their cloud adoption journey with agility and decisiveness.
Decision makers in the financial services sector are increasingly recognising that the cloud is more than just technology, but is a destination for banks to store data and access advanced software applications, and is also becoming a key instrument of cybersecurity
With customer expectations and technology evolving at breakneck speeds, moving to the cloud is increasingly becoming a strategic priority for banks. Furthermore, the disruptions of the past three years have dispelled the perception that cloud migration is a distant proposition.
When global banks such as JPMorgan Chase unveiled plans to replace its retail technology platform with a cloud-native core banking system two years ago, it seemed like an unconventional move. But many banking professionals see the cloud as an integral part of a modern and competitive banking industry.
“Banks that are accelerating their cloud migrations are seizing the opportunity to transform not only their technology architectures but also how they operate and their relationships with their customers,” said Accenture.
Digital banking and cloud computing are changing how we bank. Most banks by now have recognised the huge potential for cloud technology to make their systems faster, nimbler and more responsive to the growing and evolving demands of their customers.
Cloud adoption is the backbone of digital innovation and it is shaping the future of the financial services sector. It gives banks access to on-demand
resources—such as networks, servers, storage and APIs—that can be rapidly provisioned and released with minimal management or service provider interaction.
The unprecedented cloud transformation in the Middle East is being driven by smart government initiatives together with favourable demographic characteristics such as the region’s young and tech-savvy population.
Technological advances are transforming every segment of the banking sector from retail banking to commercial banking to wealth management. These advances make digital transformation imperative for financial institutions to adapt to changing operating environment.
The financial services sector has struggled with performance and profitability since the 2008 global financial crisis as the average return on equity remains well below banking industry metrics while the cost-to-income ratio has improved on average but remains high.
Banks are fighting growing competition from fintech firms and Big Tech—who
have been quicker than incumbents to take advantage of the new innovative technologies, develop banking products that meet customers’ expectations, cost less to deliver and are optimised for digital channels.
To maintain a competitive edge, banks must innovate and adopt new digital platforms that are more consumeroriented with rich personalisation, new AI-powered digital tools and services that help them remain relevant.
The cloud offers several business benefits for traditional banking organisations including increased flexibility, business agility, lower cost of IT and quicker access to innovation. Banks are unlocking new ways to get closer to their customers as digitalisation is reshaping the financial services sector.
When it comes to digital transformation, Middle Eastern banks have become adept at focusing on customer journeys— the process that customers go through to meet a banking service such as opening an account, borrowing money or securing help with transactions or payments.
Though this is a great first step the financial institutions are ill-equipped to take the vital next steps that are critical to redesign and deliver a hyper-personalised value proposition that can win in the new digital age. The value-adding activities that support those customer journeys from end to end.
“Banks have been targeting customer microsegments and tailoring offers to them for decades, capabilities that until recently have been sufficient to help them differentiate their institutions, build customer engagement and gain competitive advantage,” said BCG. However, this advantage is eroding.
Traditional banks are being leapfrogged by new entrants including technology companies such as Google and Amazon that have raised the bar so much by creating engaging and compelling customer journeys that
customers are demanding the same levels of personalisation from banks.
Mambu said banking customers are clamouring for the ‘Netflix experience’— one where they are recommended a product they might love before they even know they want it, an innovative strategy that starts with banks building a personal relationship with customers.
Leading banks in the Middle East are adopting a different approach to innovation to craft and deliver hyperpersonalised products and services. This calls for banks to shift from a ‘product-centric’ view whereby they develop new products and features
more personalised, targeted offerings to address those needs.”
The successful implementation of hyper-personalisation goes beyond shiny new innovative technologies or an offthe-shelf approach. But the Middle East financial services sector has shown that the transition to the cloud needs to be founded on a strategic vision and willingness to make changes both to mindset and operations.
Front-to-back digitisation of the customer journey requires developing a data- and analytics-powered digital experience
– Accenture
and push them into the market through product bundles but instead adopt a ‘fitfor-purpose, customer-centric strategy’ which starts with understanding customer needs.
Banks need to rearticulate their value proposition to thrive in the new digital environment, bearing in mind the power of simultaneously simplifying and upgrading the customer experience and creating value through data.
“Banks need to get better at listening to their customers and becoming more customer-centric, just as leading technology and digital businesses do,” Kunal Galav, Global Head of Partnership Development Advisory at Mambu. “They need to better understand their customers, identify specific needs or pain points, and respond by providing
that provides personalised engagement, efficiency and convenience throughout the journey at low cost.
The cloud has been a vehicle of digital transformation in the financial services industry. It is an enabler of advanced analytics in banks as these computer system resources provide space to both store and analyse large quantities of data in a scalable way, including through easy connectivity to mobile applications used by customers.
Cloud technology and especially the software as a service (SaaS) and banking as a service (BaaS) models offer banks several opportunities such as easier customer data analytics and sharing, improved marketing time, cost reduction and enhanced flexibility and operational efficiency.
BANKS THAT ARE ACCELERATING THEIR CLOUD MIGRATIONS ARE SEIZING THE OPPORTUNITY TO TRANSFORM NOT ONLY THEIR TECHNOLOGY ARCHITECTURES BUT ALSO HOW THEY OPERATE AND THEIR RELATIONSHIPS WITH THEIR CUSTOMERS
Data’s worth depends on its accessibility and application as customer insight plays a critical role in product development and customer communication in the banking sector. “The cloud is the only place where customer data gains scale, agility and the power to drive reinvention so a business can soar,” said Accenture.
Technological innovations such as open APIs and cloud-native solutions enable banks to leverage data to augment their services and allow them to take action quickly when required. The hyperpersonalisation of banking products should be as granular as any other offering and through the capabilities of data insights, banking customers can get the experiences they demand from banks.
“Embracing the data economy allows banks and other service providers to adapt their products and offerings to meet the needs and feedback of the customer,” said Mambu.
With several cloud technology providers including Alibaba, Amazon Web Services, Oracle and Google bolstering their presence in the Middle East, banks are tapping into the cloud to boost operational efficiency while improving their ability to partner, source and collaborate with fintech firms.
When technology layers—including customer and frontline engagement, integration and APIs, data and analytics, security and infrastructure—are built on the cloud, new technology and application development is faster, more reliable and more easily scalable.
“Significant innovations in cloud platforms and the increasing availability of cloud-based tools provide banks with greater flexibility and speed,” said BCG.
Cloud computing can play a big role in helping banks to understand their customers more and be in a position to make business decisions in real-time including learning about a customer’s spending habits as well as enhancing the agility of financial institutions and enabling secure online payments, digital wallets and online transfers.
Cloud solutions allow incumbents to augment the accessibility of their services and products from multiple locations and streamline their operations while creating an opportunity to deliver new and enhanced digital products.
The adoption of cloud computing technologies, is at the same time, exposing financial institutions to a greater risk of cyberattacks and data breaches— which, in most cases, has attracted fines from regulators and caused reputational damage.
Cybersecurity remains a hot topic within cloud computing, though the
are concerned about the speed and scale at which financial institutions are moving critical functions and market operations onto a handful of cloud platforms.
The European Union approved the Digital Operational Resilience Act (DORA) last November which requires financial firms operating in the region to show how quickly they can recover from a cyberattack. The relationship between cloud and security is inherently complex and decision makers in Middle Eastern banks remain wary about cloud security.
Accenture said that the cloud is fundamental to financial institutions’
consensus is that previous fears may have been blown out of proportion as major players in the cloud space including Google, Amazon, IBM and Microsoft are applying encryption measures and security protocols that surpass what banks can implement.
“Public cloud providers have invested significant amounts and deploy the highest standard of security and compliance which might be extremely difficult for an individual bank to compete with,” said Finastra.
Google and Microsoft committed $10 billion and $20 billion, respectively, for five years to strengthen cybersecurity and deliver more advanced security tools— pledges that followed 2021’s high-profile cyberattacks including on US government software contractor SolarWinds.
The investments have failed to calm financial watchdogs’ nerves. Regulators
cybersecurity defence and banks that have invested in the cloud experience the least attacks and excel at stopping them, discovering breaches, fixing breaches faster as well as reducing the impact. It’s time to let go of the myth that the cloud is ‘not secure enough’ and embrace this innovative technology as an instrument of cybersecurity.
For banks in the Middle East, moving to the cloud is non-negotiable because the technology enables everything financial institutions want and require to compete with digital attackers. The region is witnessing a generational shift in the way customers are interacting with financial services providers.
The ripple effect of this has created a paradigm shift in the role financial institutions play in our daily lives but if taken together, they create a world of possibility for banks and customers alike.
SIGNIFICANT
CLOUD PLATFORMS AND THE INCREASING AVAILABILITY OF CLOUD-BASED TOOLS PROVIDE BANKS WITH GREATER FLEXIBILITY AND SPEED
– BCG
At the latest of our signature roundtable debates, held at the Four Seasons Hotel in Riyadh, Mindgate and MEA Finance hosted a discussion on the digitalisation of transaction banking in the Kingdom of Saudi Arabia, examining how this will be a key element in the modernisation and growth of the nations’ economy
The pandemic reinforced major shifts in the payments industry from declining cash usage to migration from in-store to online commerce to the adoption of instant real-time payments. The changes in the global payments landscape are creating new opportunities for incumbents and disruptors alike to win customers, develop new solutions and claim market share.
The shifts in the macro environment have created new trends in the financial service sector and it remains to be seen which ones are permanent and which
are likely to revert—at least partially—to prior trajectories as the global economy continues to battle sticky inflation and higher interest rates.
McKinsey said that in a period of ongoing macroeconomic and geopolitical upheaval, the payments ecosystem is once again demonstrating resilience. The growing demand for sustainable payments in transaction banking far exceeds supply, with only a reported 10% of demand currently being met.
Open banking is playing a significant role in the rise of the open data economy as it makes payments easier and more transparent while loosening incumbent banks’ tight control of customer data and their near-monopoly over payment services.
Meanwhile, the financial services industry is a cornerstone of Saudi Arabia’s Vision 2030 economic blueprint, an inspirational economic reform agenda with diversification at its heart. Saudi Arabia’s transaction banking landscape has evolved over the years, driven by financial institutions’ quest to build modern, efficient, scalable technology platforms that deliver a holistic, real-time view of client transactions while enabling insights and innovation to better serve customers.
The increased spending power of the kingdom’s tech-savvy young population is expected further fuel the growth in endclient digital demands. A key objective of the Financial Sector Development Program under Vision 2030 is the promotion of digital payment solutions to transform Saudi Arabia into a less-cash using society by reaching 70% non-cash payments by 2025.
MEA Finance in partnership with Mindgate Solutions hosted an exclusive roundtable themed The Acceleration of Business to Customer in Digital Transaction Banking in Riyad, Saudi Arabia.
The roundtable, which was attended by senior representatives from across the kingdom’s financial service sector, shared insights on how product innovation can help banks push new boundaries, create
new innovative ideas and breakthroughs in the country’s cash management ecosystem. It also explored how the digitalisation of transaction banking will bolster the kingdom’s digital economy towards Vision 2030.
Mindgate is an end-to-end digital payments solution provider for banks and fintech companies. The company’s payments solutions include real-time payments, payment gateway and merchant management that caters to
Saudi Arabia is undergoing a profound transformation. The Gulf state’s growing digital economy, which comprises new high-growth industries that are on the cutting edge of technology and digital connectivity, is a significant driving force of economic diversification and growth. So, the million-dollar question is how can banks in Saudi Arabia leverage data analytics to service clients better.
the needs of financial institutions globally while enhancing operational efficiencies and customer experience.
The payments solution provider has a strong presence in the Middle East, with its services available to central banks and financial institutions across the region from Egypt to the UAE. On the transaction banking front, Mindgate focus on cash management and its offerings include both digital and paperbased payments, virtual account to real account, liquidity management and reporting dashboard.
Globally, e-commerce, digitisation and geopolitics are disrupting payments, trade and traditional business models and banks in Saudi Arabia are playing a leading role by embracing innovative technologies that are revolutionising transaction banking and the entire financial industry.
Data is the asset that any financial institution possesses beyond any other physical asset that belongs to the organisation, but how can we ensure that the data is aggregated, collated and useful, Balaji Muthu, the Executive Director – MENA at Mindgate, said in his opening remarks.
Muthu said significant amounts of data are being generated when ecosystems that comprise the businessto-business-to-customer (B2B2C) chain are brought into a single rail. Banks have placed a close guard over customer data for decades. However, Muthu said it is in the interest of financial institutions to convert data generated from ecosystems such as between banks, merchants and customers into futurefocused value propositions.
He said financial institutions should determine the quality of data that is being
FINANCIAL INSTITUTIONS CAN USE DATA AS AN ASSET OR A LIABILITY AND SO AT MASTERCARD, WE SOUGHT TO DETERMINE HOW WE WORK WITH THE TREASURY TEAMS IN DIFFERENT BANKS, HOW THE ACCOUNT PAYABLES FILES COME IN, HOW WE INTEGRATE THEM WITH OUR RAILS TO ENSURE THAT THE DATA IS FLOWING TO THE END CORPORATE
– Talat Quereishi
brought into the ecosystem and data analytics technologies can be leveraged to access the type of data being generated. “Enhanced data aggregation and analysis drive actionable customer personalisation and insight,” added Muthu.
Hariraj Subramanian, the Head of Cash Management at Gulf International Bank weighed in saying that how
Subramanian also said that to ‘aggregate the data’, clients especially large corporates and multinational companies are using a lot of centralisation activity, but aggregating data remains an issue. He emphasized that corporate clients are keen on using data to develop insights, but the data is scattered, while noting the feedback Gulf International
Muthu concurred with Subramanian saying customer openness and readiness in terms of the mindset is key.
Data analytics—which can provide valuable insights into areas such as client behaviour, the competitive landscape and internal processes—is quickly establishing itself as an invaluable tool for the corporate treasurer and within cash management.
financial institutions use data to serve clients better and feed future product development, is no longer a question. But “what we have seen in the past couple of years, especially here in Saudi Arabia is a lot of changes in customer demands and preferences.”
Subramanian said there are a few issues that banks need to be aware of when dealing with data; the first one is that the technology life cycle of a client or customer is sometimes limited and the second one is concerned with the aggregation of data.
From a cash management perspective, a corporate client might have a relationship with multiple banks and aggregating data from banks in the client’s ecosystem is challenging. “Most of the time, corporate clients are aware of the data that they have but the moment it goes into the financial system, that data becomes very specific to the respective bank,” said Subramanian.
Bank received from a client asking how they can aggregate data (both client and bank data), and whether it was advisable to connect with as many as six banks and aggregate data generated from the ecosystem.
From a payments processing perspective, Talat Quereishi, Vice President of Commercial and Treasury Solutions at Mastercard said her company asked corporate clients how important is data to them because for
HAVING THE CAPACITY TO CATER FOR THE DATA AND OFFER IT TO CUSTOMERS IS NO LONGER QUESTION ANYMORE FOR BANKS BUT THE FOCUS IS HOW THEY CAN LINK PRODUCTS, UNDERSTAND CUSTOMERS’ TRANSACTION BEHAVIOURS AND BASED ON THOSE INSIGHTS FIGURE OUT WHICH PRODUCTS AND SERVICES CUSTOMERS NEED
– Ahmed Al Ben Saleh
many it is all about reconsideration and understanding when the account receivables files pop in.
Quereishi said the value of data depends on how a client uses it. “Financial institutions can use data as an asset or a liability and so at Mastercard, we sought to determine how we work with the treasury teams in different banks,
lakes, treasurers and their colleagues across the business increasingly expect real-time reporting and instant access to data rather than the end of the day or batch processing of the past.
Aeidh Al-Zahrani, the Chief Operations Officer of Arab National Bank said a client need to be self-empowered and the bank should also be strong enough
skills to provide critical intelligence. Corporations in the kingdom can then use this to improve their operational process flows and to implement the necessary new solutions required.
However, Fabio Sarao, Head of Cash Management at BNP Paribas said the biggest challenge facing banks is emanating, especially, from the changes
how the account payables files come in, how we integrate them with our rails to ensure that the data is flowing to the end corporate,” she said.
With the growing use of APIs and data analytic tools, often built on top of data
to provide a bridge between the bank, corporate and consumer.
Banks in Saudi Arabia are taking steps to enhance their capabilities to ensure that they can accept data in all formats, leverage the data and apply analytics
in the operating environment—it is the biggest challenge before moving ahead.
From a multinational bank perspective, Sarao said financial institutions possess large quantities of data, but the biggest challenge is how to translate it into individual tailor-made solutions. “Being a legacy bank, we are present in 55 countries and to digitalise the platform in all these markets is not sustainable from a cost perspective, especially in the face of the mounting competition from fintech unicorns,” he added.
Over the years, traditional banks viewed fintech firms as competitors coming into the market to take business but through collaboration and working together, financial institutions realised that fintechs need banks to scale up.
Alexis HasslerSarao said the data protection regulations in the region and across the world are another challenge. As a multinational bank, we operate in different
REGIONALLY, IF WE ARE TO TAKE AN EXAMPLE OF BAHRAIN’S BENEFITPAY AND A LOT OF CHANGES IN BEHAVIOUR’S SUCH AS THE USE OF QR CODES TO SETTLE PAYMENTS, YOU WILL REALISE THAT MERCHANTS PREFER QR CODES FOR PAYMENTS COMPARED TO DEBIT CARDS AND I BELIEVE THAT COMES DOWN TO THE ADOPTION AND THE ABILITY OF THE ECOSYSTEMS TO BRING THE SOLUTIONS TO THE CONSUMERS
–
markets and corporate clients are based in the UAE, Bahrain, or Qatar and they have shared service centers to centralise their sensitive data.
Sameer Nemazie, Director of Cash Products – MENA at Standard Chartered Bank weighed in saying as a multinational bank that operates in different markets
revolve – hence big data initiatives underway in the financial services market focus on customer analytics to provide better service to customers.
From a data optimisation perspective, Ahmed Al Ben Saleh, Head of Product Management and Saudi Fintech, Global Liquidity and Cash Management at SABB,
is how they can link products, understand customers’ transaction behaviours and based on those insights figure out which products and services customers need,” Saleh added.
Though digital transformation is not new to Saudi Arabia’s financial services industry, innovative technologies in
and has different systems just like BNP Paribas, Standard Chartered has been piling all its information into a single large database—Big Data.
Nemazie said there are two things, one is how we internally use the data and secondly, whether it has easier regulatory requirements. However, he said what banks have not seen from the corporate world is how they can monetise this Big Data.
Furthermore, Nemazie said Standard Chartered Bank has been working with some corporate clients to share some of their data with the bank, but the initiative has been met with resistance with nine out of ten clients said to be hesitant to share their data.
“The area where we can monetise the data is on the supply chain financing and where we talk to clients about where the payments are going, how we can make them more efficient and how we can improve the connectivity between various suppliers and buyers,” he said.
Today, customers are at the heart of the business around which data insights, operations, technology and systems
said five years ago data optimisation was mainly associated with technology corporates such as Amazon and IBM, now it is being offered to the SME’s sector by fintech companies.
“Having the capacity to cater for the data and offer it to customers is no longer question anymore for banks but the focus
the transaction banking segment are playing an important role and banks have invested millions of dollars in next-gen channels.
Fabio said the level of sophistication of the client plays a crucial role because for companies such as e-commerce giant Amazon working with data is their
MULTIPLE USE CASES EXISTED IN THE PAST BUT THE LACK OF THE NETWORK INFRASTRUCTURE MEANT BANKS COULD NOT MEET CUSTOMERS’ EXPECTATIONS, BUT THE INFRASTRUCTURE IS CURRENTLY BEING ENHANCED AND ALL PAYMENT RAILS ARE NOW AVAILABLE. IT IS JUST A MATTER OF PREPARING THE USE CASES, THE VALUE ADDED TO THE CUSTOMERS AND CONVINCING CLIENTS THAT THIS IS SOMETHING THEY CAN USE
– Mariam Al Arfaj
DNA but companies in other sectors such as construction do not know much about data, and banks have to guide them.
Banks in Saudi Arabia should focus on building modern, efficient, scalable technology platforms to provide a holistic, real-time view of client transactions and
Senior Consultant at Saudi Payments argued that this is the point when central infrastructure comes into the picture such as data standards offered by SWIFT ISO 20022.
“We mandated central infrastructure at Saudi Payments to ensure a level playing field. Every institution in the ecosystem
customer data in their possession so that they can provide their clients with data that can be utilised or monetised, added Shaikh.
Saudi banks are finding new ways to harness the power of big data analytics in the financial service industry – a journey of discovery that is being driven
enable insights and innovation to serve clients better.
“Data is the fuel for technological innovations. Data has been around for a long time but if banks have the right technology and leverage the data, they can make the right decisions and deliver the right services and products with the linkage between multiple products, multiple clients, that will serve their purpose, which is more like monetising the data,” Rasheed Alshaikh, Head of Wholesale Payments at JP Morgan Chase Bank – Riyadh Branch said while answering to a question about whether data is a technology.
While in theory, real-time business-tobusiness payments have been feasible for years, heading into 2023 financial regulators are putting wind in the sails of instant payments while introducing initiatives such as Project Aber and Buna to stimulate widespread adoption.
Quereishi said data standards and efficiency when dealing with several corporates with different standards and formats can be a headache. However, Krishnaswamy Sriganth,
has the same standards whereby there is a basic expectation that data is being captured and persisted predictably, in a very standard way,” Sriganth said adding that there are no data quality issues in the ecosystem.
Banks are taking steps to enhance their capabilities to ensure that they can accept data in all formats, leverage the data and apply analytics skills to provide critical intelligence to clients. Corporate clients can in turn use the insights to improve their operational process flows and to implement the necessary new solutions required.
However, Amol Bahuguna, the SVP, Head of Corporate Technology, Innovation and Change Management at Riyad Bank said only a few banks are leveraging data insights to benefit the customer in terms of figuring out their requirements because in some cases clients also do not know their real preferences.
Anwar Al-Nakhli, Team Leader – Fintech and Products at SABB concurred with Bahuguna saying it is not only about the product but also data analysis. Banks should conduct a 360-view analysis of
by technological innovation. ML and AI combine big data and automation to optimise data quality management and customer segmentation making it easier for banks to create ecosystems and review product data and clients’ preferences.
With the unprecedented adoption of open banking across the Middle East, banks are slowly losing their tight control of customer data and total dominancy in the payment service sector – which has seen a growing number of financial institutions carving out their payments portfolios to allow for a more flexible approach to growth.
Open Banking was introduced as part of the EU’s second Payments Services Directive (PSD2) in 2018 but it is now having a revolutionary effect on the way people pay, enabling banks, merchants and others to dramatically expand the payment options offered while making payments more secure, faster and easier. It is democratising financial services by placing consumers at the centre of where and how their data is used to provide the services they need.
Financial institutions, payment gateways and fintechs in Saudi Arabia are using this consumer permissioned data to provide more rapid and inclusive access to credit, personal financial management, digital wallets and payments services.
“To succeed in open banking, banks in Saudi Arabia should start thinking like platform companies, flexing their
ability or the capabilities to start getting benefits out of their data using TPP services,” said El-Sayed.
Saudi Arabia unveiled plans to launch open banking last year and the country’s central bank introduced an ‘Open Banking Lab’ in December to speed up the development of open banking in the kingdom. The ‘Lab’ constitutes a
customisation here. Maybe for banking as a service, I agree because each bank has its standard format,” El-Sayed added.
Open banking and payments are driving the ongoing transformation in transaction banking and Standard Chartereds’ Nemazie said the bank is still at the Account Information Service Provider (AISP) stage where it is just giving
business models to connect people and processes with assets and backing that up with technology infrastructure that can manage interactions from internal and external users,” said Accenture.
Over the years, Saudi Arabia has emerged as the region’s open-banking microcosm. The kingdom is implementing a market-driven strategy but its approach is inclined toward a more formal regulatory framework that requires the opening up of APIs to facilitate data sharing or mandating security standards.
Ahmed Darwish El-Sayed, Head of Digital at Bilad Bank said as open banking is becoming a regulation by Saudi Central Bank (SAMA) banks are required to make their data accessible to the whole ecosystem because data belongs to the customer and “we have to empower the customer”.
“With the initial stage of open banking in Saudi Arabia, we opened the transactions and transaction history to third-party providers (TPPs) and as many as four use cases are coming out from SAMA to give these companies the
‘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.
“Saudi Arabia’s standard is one for all, it’s not one for each. I mean if a TPP wants to integrate with seven banks, the API format is the same. There’s no
account aggregation information to TPP.
“But when the bank starts availing payments in the future, triggering the payment on behalf of the customers as a Payment Initiation Service Provider (PISP), I believe we will solve a lot of challenges in the market and I am expecting an increase in transaction volumes. We experienced it 10 years ago when we solved some
WITHIN THE VISION 2030 FRAMEWORK, I HAVE REALISED THAT THERE ARE A LOT OF CHANGES, NOT ONLY ON THE PAYMENTS FRONTS BUT THE DIGITALISATION OF ALL THE GOVERNMENT SERVICES AND PAYMENTS, ENHANCEMENT OF INTERNET SPEED AND UPGRADING OF PAYMENTS INFRASTRUCTURE TO MAKE SURE IT IS READY FOR THE FUTURE OF THE INDUSTRY
– Ahmed Al Ben Saleh
malfunctions with customers using automated payments,” said Nemazie.
Open banking has the potential to help banks know much more about their customers’ patterns of behaviour, financial health, investment plans and goals; the challenge for banks will be in convincing their customers of the value of sharing their data.
format to aggregate their treasury management system and with open banking, “though I am a bit sceptical”, it will give them a bit of an edge.
Responding to a question on whether fintech companies are a threat to incumbents, Alshaikh said the relationship between fintechs and banks is a competitive one as big corporates, that’s
While linking big data to open banking, Esraa Fouad, the Digital Payment Senior Manager at SABB said banks are not fully appreciated for the innovation they are bringing to the market instead fintech companies are taking all the credit but unlike startups, incumbents require regulatory approval from the government to proceed with certain services or products.
Bahuguna said before the arrival of open banking, corporates used the SWIFT MT101 format but the new innovative technology is opening banking to nonfinancial institutions allowing them to offer banking services.
From a corporate perspective, Bahuguna said corporate clients are struggling to get a simple SWIFT MT940
the markets for financial institutions, are not relying on small entities to do business as a third party with the banks.
Meanwhile, Saleh said fintechs are aggregators and with open banking, “we see the technology at least as inclusion tool for small to middle enterprises (SMEs) and mid-size corporates to be at the same level as large corporates.”
Banks are expanding their ecosystems to better serve customers and the big question facing most banking executives is how they can prepare for the inevitability and opportunities that come with open banking. The ability of banks to quickly and effectively connect to partners, data and systems is key to ensuring organisational agility.
Cash is no longer king in Saudi Arabia as digital payments are increasingly becoming the preferred mode of settling payments in the country. A study by SAMA stated that electronic transactions surged in 2021 to 57% from 36% in 2019 while in terms of volume, the percentage of digital payments increased to 62% in all the sectors in 2021.
Bilad Bank’s El-Sayed projected that the use cases that are being introduced by Saudi Payment and the Central Bank Digital Currency (CBDC) initiatives by SAMA will make collection easier in the future using digital currencies.
ON THE REAL-TIME PAYMENTS FRONT, MINDGATE IS JOINTLY WORKING WITH CENTRAL BANKS AND INCUMBENTS ACROSS THE MIDDLE EAST AND OUR SERVICES ARE AVAILABLE FROM EGYPT TO UAE WHILE ON THE TRANSACTION BANKING SIDE, WE OFFER CASH MANAGEMENT SERVICES
– Balaji Muthu
Oleksandr Savchenko, the Director – Head of Trade, Working Capital & Transaction Banking at Standard Chartered Bank said it’s not the collection that is the challenge but reconciliation as well. Savchenko noted that cheques take up to five days to clear while cash takes a day within larger financial centres.
Meanwhile, global payments giant Visa projected that the adoption of digital payments could bring up to $6.7 billion (SAR 25.1 billion) annually in net benefit to consumers, businesses and the Saudi Arabian government.
From a digitalisation perspective, Mariam Al Arfaj, Senior Director of Technology at Saudi Payments said the digitisation of payments ushered in the creation of new platforms such as mada and sarie that are expected to boost the kingdom’s economy by offering an ecosystem that supports multiple use cases that were previously not available in the country.
“Multiple use cases existed in the past but the lack of the network infrastructure meant banks could not meet customers’ expectations, but the infrastructure is currently being enhanced and all payment rails are now available. It is just a matter of preparing the use cases, the value added to the customers and convincing clients that this is something they can use,” added Al Arfaj.
Saudi Arabia has a young and techsavvy population with a strong appetite for digital services. This group of digital natives is expected to drive 40% of total
spending power across all generations – baby boomers, generation X, Y and Z – in the future. Large corporates and businesses operating in the kingdom as well as the government are quickly catching on to the wave of digitisation to meet clients’ digital demands.
Saleh said Vision 2030 is a blueprint for the kingdom’s economic transformation programme and it cuts across all verticals in Saudi Arabia. “Digital payments are directly or indirectly linked to each one of these verticals from logistics and trade to entertainment to tourism. The kingdom targets to increase the SMEs’ contribution to GDP from 20% to 35% by 2030 and to achieve that growth level, Saudi Payment and other digital payments enablers such as Mastercard and Visa will have to support
banks in digitalising transactions,” he added.
Digital payments started as an option, but the pandemic accelerated adoption trends globally, particularly to support e-commerce as customers were confined to their homes. Alexis Hassler, Senior Products at ACI Worldwide said that when it comes to digital payments it is not just about having the technology but about the adoption.
“Regionally, if we are to take an example of Bahrain’s BenefitPay and a lot of changes in behaviours that just mentioned such as paying using QR codes, you will realise that merchants prefer QR codes to settle payments compared to debit cards and I believe that comes down to the adoption and the ability of the ecosystems to bring
WHAT WE ARE SEEING IN TERMS OF DIGITAL PAYMENTS ADOPTION IN SAUDI ARABIA, PROBABLY FINTECH COMPANIES WILL DOMINATE THAT SPACE BECAUSE FROM WHAT WE ARE WITNESSING THEY ARE LEADING THE DEVELOPMENT OF PAYMENT INITIATION SERVICE PROVIDER (PISP) IN THE KSA CONTEXT. THE WAY THAT FINTECH COMPANIES HAVE CAPTURED THE MARKET SHARE IS TREMENDOUS
– Hariraj SubramanianROUNDTABLE: THE ACCELERATION OF BUSINESS TO CUSTOMER IN DIGITAL TRANSACTION BANKING
the solutions to the consumers,” Hassler said while noting that adoption is still a challenge in Saudi Arabia.
SAMA said while innovation and development in the digital payments space have accelerated the use of digital payments as the preferred method of settling payments, cash will remain a significant feature in the overall payments ecosystem in Saudi Arabia.
For companies in countries that had traditionally relied heavily on cash or manual payment methods such as cheques, the use of digital channels saw major changes to processes and cash and liquidity management dynamics.
Sensing a quick shift in the client’s growing demand for technological capabilities, both incumbents and fintech firms – have significantly transformed the face of Saudi Arabia’s financial sector by revamping offerings and solutions in the new digital landscape. Fintech companies are creating sustainable disruption practices while traditional banks are investing to empower their clients to do more with less.
In attendance at the roundtable were:
• Aiedh Al- Zahrani , COO, Arab National Bank
• Ahmed Darwish El-Sayed, Head of Digital Delivery, Bilad Bank
• Fabio Sarao , Head Cash Management MEA, BNP Paribas
• Harir aj Subramanian , Head of Cash Management, Gulf International Bank
• Shawki Abousaleh , General Manager, Innovative Corner
• R asheed Alshaikh , Head of Wholesale Payments, JP Morgan Chase Bank - Riyadh Branch
• Talat Qureishi , Vice President, Commercial & Treasury Solutions, Mastercard
• Amol Bahuguna , SVP Head of Corporate Technology, Innovation and Change Management, Riyad Bank
• Ahmed Al Ben Saleh , Head of Product Management and Fintech Global Liquidity and Cash Management, SABB
• An war Al-Nakhli , Team LeaderFintech and Products, SABB
• Krishnaswamy Sriganth , Senior Consultant, Saudi Payments
• Hana Bin Saedan , Programme Manager IPS, Saudi Payments
• Mariam Al Ar faj , Senior Director Technology, Saudi Payments
• Sameer Nemazie , Director Cash Products MENA, Standard Chartered Bank
• O leksandr Savchenko , Director
– Head of Trade, Working Capital & Transaction Banking, Standard Chartered Bank
• Alexis Hassler , Senior Products, ACI Worldwide
• Mohamed Kashkari , Consultant, Saudi Payments
• E sraa Fouad , Digital Payment Senior Manager, SABB
• Mohammed Albugami , Head of Products, Riyad Bank
• Mohammad Roushdy , Founder, Fintech Bazaar
• Andr ew Cover , MEA Finance (Moderator)
Mehdi Manaa CEO of Buna, the cross-border and multi-currency payment system founded by the Arab Monetary Fund, tells MEA Finance how the organisation will support regional financial integration, how they met their objectives and that their approach to innovation places them ahead of current trends and developments
the Arab Monetary Fund (AMF), has led to delivering the cross-border payment system, Buna, and establishing the separate legal entity that operates it, the Arab Regional Payments Clearing and Settlement Organisation “ARPCSO”, now fully owned by the AMF. In brief, Buna aims at enhancing cross-border payments in the Arab region and beyond. However, meeting this objective has very large implications, as payments are the fuel of all economic activities and have direct impact on the lives of citizens and corporates alike.
Buna has been making headlines with its achievements in the past months, what is behind such a success?
Thank you very much for considering Buna already a success first of all. Well, I think that Buna provides a sound and tangible
response to a very important challenge, and this is what makes it successful.
To answer your question in more details, it is very important in my view to start by reminding that Buna results from an initiative of the Arab Central Banks and Monetary Authorities Governors. Their decision, which has been executed by
As a matter of fact, the Council of Arab Central Banks and Monetary Authorities Governors had initiated Buna based on the strong belief that an efficient market infrastructure for cross-border payments is essential to a solid and effective financial ecosystem and that such a market infrastructure will support further economic and financial integration between Arab countries and expand trade and investment activities with the
global trading partners, in addition to facilitating greater financial inclusion. It was clear at the time of their decision that the state of cross-border payments was hampering achieving these objectives and obstructing opportunities for further economic growth and development.
Compared to what can generally be achieved with payments at a domestic level, cross-border payments lack transparency and speed, in addition to being more costly and not easy to access by everyone needing them. Many factors explain such a situation: distance makes technical challenges more important, and diversity of jurisdictions significantly increases the complexity of legal and compliance matters. That explains to some extent why cross-border payments are more difficult to process than domestic payments. However, the main reason in my view lies in the solutions that were in place and which evolved very little in the past decades to become over time less and less fit for a globalised world where goods, services and people know very little borders and move at a continuously increasing pace, while cross-border payments continued to be slow, uncertain, and costly. So, there was an obvious need for new and innovative approaches, if we wanted to change the situation.
Buna eliminates all the frictions at once because it is a streamlined solution that relies on a centralised system to process cross-border payments, in multi-currency, directly between its participating financial institutions. The central architecture and the technology chosen by Buna allows for the delivering of payments between commercial banks, central banks and other financial institutions in real-time and at a very effective cost. In setting up Buna, a particular attention has been given to facilitate access and eliminate barriers to entry: we have
defined transparent eligibility criteria and a streamlined legal framework; we have opted for standard connectivity and messaging formats; and we have excluded upfront, recurring and all type of fixed costs to follow a simple “Pay as you go” model where participants are charged only for the actual use of Buna to process their payments. Last but not least, delivering a service that is safe from a technical, operational, legal and
roadmap recommends although it has started a few years earlier than the work of the G20. The fact that independent analyses, at different points in time, lead to the same conclusions on the inefficiencies of cross-border payments and the solutions to tackle them confirms that the frictions in cross-border payments are largely of the same nature all around the globe.
compliance perspective has always been and will remain at the very top of our priorities. This is why we have been very cautious to put in place a sound legal construction and decided to follow the highest international standards in terms of compliance and information security requirements.
The problem is certainly global! This has been recognised by the Group of 20 (G20), which has defined a specific roadmap for enhancing cross-border payments and addressing the key challenges of high cost, low speed, limited access and reduced transparency.
It is worth noticing in this context that Buna is fully aligned with what the G20
Accordingly, Buna and the G20 aligned on the same perspective that efficiency is needed to provide added value to the economies on a global scale and remove the challenges affecting the end users. To each of the 19 building blocks that are defined to structure the G20 roadmap, Buna provides a tangible contribution. I can mention in particular our work with other payment system operators to implement interoperability between Buna and their system and allow participants in one of the networks to send and receive payments from participants in the other network. This falls perfectly under building block 13 of the G20 roadmap, which seeks to enhance the existing payment ecosystem by pursuing interlinking between systems. Buna is creating a global network to implement this interoperability and again, contribute to building bridges with our partners. Key regions like Africa and India, for instance, are already engaged with us in the process and others should join them soon. To add to that, we are also continuously extending our operating hours and supporting the global effort towards reaching a round-clock global settlement window, which covers building block 12, and we will very soon launch our Payment vs. Payment (PvP) service that provides a safer settlement mechanism for FX transactions, which falls under building block 9.
All the above and many other examples position Buna as a benchmark for the G20 roadmap. We should not undermine what it means. Although the diagnosis was straightforward, as I mentioned earlier, designing the right solution to the problem, and bringing that solution
WHILE WE CANNOT DISCHARGE OUR PARTICIPANTS FROM SUCH A REGULATORY OBLIGATION, IN BUNA WE DECIDED TO IMPLEMENT AN ADDITIONAL LAYER OF COMPLIANCE
to life, is a challenge that only very few have managed to achieve so far. I think that we can all be very proud of bringing Buna to reality, as professionals and as individuals, residents and citizens of the Arab region.
You mentioned earlier the specific challenges relating to compliance, how is Buna navigating Financial Crime Compliance (FCC)?
My first response is that we have put this question at the heart of each single piece of Buna.
When dealing with cross-border payments, we are confronted with the challenge of differences and variations in compliance from one country to another: differences in legal systems and standards, differences in practices,
cultures, requirements, etc. Each of these differences makes FCC even more complex than what it inherently is, especially if you add a multi-currency dimension to the cross-border one, as it is the case in Buna. The equation wasn’t easy, and we had to find a convincing response to it. Eventually, we decided to set our own FCC standard.
In doing so, we have aligned our FCC standard on the highest expectations at international level, and we have implemented all the required tools and processes to ensure that our broad ecosystem aligns with our objective to raise the bar of compliance in the whole region.
To achieve this high ambition, we decided to go beyond the boundaries of the strict obligations of payment
systems, which leave matters such as transaction monitoring with the participating financial institutions rather than with the system operator. While we cannot discharge our participants from such a regulatory obligation, in Buna we decided to implement an additional layer of compliance. We have teams, tools and processes in place to monitor all the transactions that we receive with pre and post settlement checks. In addition, we engage in continuous KYC and Due Diligence checks to ensure the safety and resiliency of our environment. Our framework is continuously being enriched, as we are now also providing training and setting up working groups to, step by step, build a centre of excellence on FCC matters. We now have in place what is needed to ensure meeting the high standard that we have promised to the different regulators of the currencies that we offer, throughout the dialogue that we have engaged in with them since the inception of Buna.
In early 2020, we set a four-year plan that had a key objective assigned to each year. With the strong support from the central banks, a lot of hard work and certainly some luck, so far we have not only been able to meet each of the objectives, but also to anticipate some of the next one.
In line with that plan, 2020 witnessed the going live of our platform, which was the primary objective that year, and we also initiated the onboarding of the first currencies. During 2021, we continued with the onboarding of the currencies to now reach a list of six that includes AED, EGP, SAR, USD, JOD and EUR. Also in 2021, we onboarded a good number of participants. 2022 was focused on the increase of the network of participants and that was also achieved when we touched the milestone of 100 participants by the end of the year. Banks continue their onboarding to Buna and our objective is to double the size of our network and reach 200 participants very soon. Now, with six currencies that
represent more than 90% of the intraArab cross-border payments flows and more than 100 participants already, we dedicate 2023 to reaching a sustained volume of payment transactions that gives us better visibility on how quickly we will recover our costs. Fortunately, in 2022 we already have seen our volumes following an increasingly consistent trend from one week to another, which gives us reasonable confidence we will meet our 2023 objective.
I would also like to share that in 2023, we additionally aim to bring to reality some of the interlinking initiatives with other payments systems. We have announced that we were considering a number of those in the past couple of years. These are complex arrangements that require a lot of attention, but we are counting on the very high level of commitment from some of our partners to achieve tangible results in 2023 and contribute to one of our goals to build bridges and strengthen ties with our major global partners.
Remember the key aims that I mentioned earlier, and which relate to economic regional integration and financial inclusion among other aspects; we have been very happy to see that behind all the numbers that I just shared; Buna is achieving concrete steps toward these eminent objectives as well.
A joint Arab initiative that involves the Central Bank of Iraq, the Central Bank of Jordan, the Central Bank of Egypt and Buna, has been announced in December 2022. This initial phase will enable Iraqi pensioners residing in Jordan and Egypt to receive their monthly salaries faster and more efficiently. With the addition of other countries soon, Buna is preparing to facilitate retirees’ lives, allowing them to receive their pension in the place where they are living rather than in the country where they had been working. By attaining that, being in one country rather than
another does not affect anymore the way people receive or spend their money and only being part of a region matters. This positions Buna as a key instrument in supporting economic integration and strong collaboration between Arab countries.
In the future, this initiative will unlock new opportunities for improving the efficiency of cross-border payments in various other use cases such as scholarship payments, students’ allowances, healthcare payments and more, contributing also to better financial inclusion in addition to economic integration at regional level.
As we have been claiming, Buna is not just about payment. This initiative that is now a reality serves Arab countries on equal basis, brings them closer to each other and allows them to better collaborate to achieve higher growth and development in the whole region. This is again something that we must collectively be very proud of, and I look forward to seeing the same being replicated in areas other than payment.
Buna’s agenda is clear. We are introducing additional products to our existing offering, in line with our objective to be the payment system that transforms
the financial landscape in the Arab region and beyond. For example, we are in the process of rolling out the Instant Payment System, or IPS, that supports various use cases, and enhances the experience for individuals in their transfer of funds, whether they are sending money to family or friends, paying school fees, e-commerce, or even in their bill payments. Therefore, at a societal level, IPS will act as a key enabler for greater financial inclusion as well.
Buna’s innovative approach to product development puts us ahead of current trends. Bringing Instant Payments to the cross-border level is one aspect of that and we will continue in the same direction with additional payment products.
As I mentioned earlier, we have high ambitions in terms of number of participants, also with banks joining from outside the Arab region, and we have an equal ambition to continue growing the lists of eligible currencies and interlinking initiatives with payment systems from outside the region.
To achieve all that and continue enhancing cross-border payments, we keep believing in the instrumental dimension of collaboration, with our participants first of all, with the central banks as always and with our many partners on the different initiatives. I cannot conclude this interview without thanking all of them for their trust and support.
Changes in the lively regional payments market are being driven by the new innovative technologies and evolving customer expectations that have shattered the status quo and opened the window for new entrants
The Middle East payments market has expanded over the years to include fintech and Big Tech firms and telecom companies alongside traditional banks—a shift that is being driven by regulatory changes such as those introduced in Saudi Arabia in late 2019 and the UAE in 2021.
Globally, the payments market is one of the most disrupted domains within the financial services industry. Despite macroeconomic headwinds, there is likely no stopping the exponential growth of instant real-time payments as financial institutions are expected to continue implementing initiatives to modernise the sector throughout the year.
Composable architecture accelerates the ability of banks and payment providers to implement
change quickly based on customer response. Capgemini likened composable architecture to LEGO construction toys saying in payments the architecture “allows firms to select and assemble building blocks in various combinations to satisfy customer requirements.”
Gartner forecasts that organisations adopting composable architecture will be able to implement new features 80% faster than the others to fuel go-to-market strategies.
The changes in the payments space are also being accelerated by the advancements in innovative technologies and evolving customer expectations that have shattered the status quo and opened the window for new players that are challenging legacy banks.
Cash is no longer king. Payments are becoming increasingly cashless and the sector’s role in fostering inclusion has become a significant priority. The rolling out of real-time payment platforms such as the UAE’s Instant Payment Instruction System (IPI) is expected to boost the annual GDP of
countries shifting digital payments by as much as 3%.
The MENA region payments sector has evolved dramatically over the last three years driven by the technological innovations in the financial services sector industry that are expected to continue driving disruptive business models in the payments space.
The chessboard is being rearranged and understanding these market innovations and acting is critical for financial institutions seeking to grow and prevent disruption. McKinsey said that the changes in the payments market are creating new opportunities for incumbents and disruptors alike to win customers, develop new solutions and claim market share.
Tech-savvy customers in the Middle East 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.
“Payments industry revenue grew by 11% in 2021, the highest since 2017, leading to a record $2.1 trillion globally and growth was healthy across all regions. Our fiveyear revenue outlook now exceeds prepandemic expectations, topping $3 trillion by 2026,” said McKinsey.
The new government and regulatory initiatives coupled with the entry of new local, regional and global players are bringing rapid change in the Middle East payments space. Countries are introducing instant payment schemes one after another such as Bahrain’s Fawri+, Saudi Arabia’s SARIE and the UAE’s instant payments platform (IPP)— which is expected to go live in 2023.
Banks in the Gulf region are carving out payments businesses to form separate entities that can act like fintech companies and compete more nimbly in a bid to remain relevant in an evolving market. Treating payments as a stand-alone entity such as in the case of First Abu Dhabi Bank’s (FAB)
Magnati and Mashreq Bank’s NEOPAY allows for the expansion of services across the financial services sector.
The carving out and scaling up of payments business units also opens the service to a broader array of customers, thereby driving scale and improving profitability. The MENA’s payments industry appears ripe for new consolidations due to rising competition and the race to scale as payment incumbents are pursuing mergers and acquisitions to gain complementary capabilities and expand into new markets.
Emirates NBD-backed Network International is reportedly in advanced talks to acquire NEOPAY in a deal that could value Mashreq Bank’s payments business unit at around $700 million. FAB agreed to sell a 60% stake in Magnati to Brookfield Business Partners for $1.15 billion in February 2022.
The Middle East is on the cusp of a payments revolution and the industry is an integral part of the financial services sector’s digital transformation journey.
Cross-border payments are important in the Middle East, with two of the world’s three largest remittance corridors located in the UAE and Saudi Arabia. The two Gulf states handled $78 billion in payments in 2020 which is equivalent to 7% of their combined GDP.
Three major initiatives have already been launched in the region including Project Aber, a common digital currency between Saudi Arabia and the UAE: the Buna payment platform supporting multicurrency payments among members of the Arab Monetary Fund and the AFAQ system connecting the real-time gross settlement systems of the six nation-bloc Gulf Cooperation Council.
Six currencies account for 90% of Buna’s clearing and settlement services for payments including the Emirati Dirham, the Saudi Riyal, the Egyptian Pound, the Jordanian Dinar the US Dollar and the Euro.
Globalisation, digitalisation and the rise of e-commerce have changed the way consumers around the world shop, creating a truly global marketplace and cross-border payments revenues are on track for solid growth over both a five-year and a ten-year horizon despite economic headwinds.
The signing of bilateral arrangements between countries for real-time settlement and the scaling up of digital money-transfer operators will be key drivers in cross-border transactions over the next five years. A promising path is multilateral cross-border payment platforms that combine new forms of Central Bank Digital Currencies (CBDC) with new innovative technologies.
The International Monetary Fund said that these platforms could shorten
GREW BY 11% IN 2021, THE HIGHEST SINCE 2017, LEADING TO A RECORD $2.1 TRILLION GLOBALLY AND GROWTH WAS HEALTHY ACROSS ALL REGIONS. OUR FIVE-YEAR REVENUE OUTLOOK NOW EXCEEDS PREPANDEMIC EXPECTATIONS, TOPPING $3 TRILLION BY 2026
– McKinsey
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.
Customer preferences have evolved to a digital-first mindset and their expectations are anchored on seamless, real-time, integrated and personalised banking experiences. “Ride-hailing apps, instant food delivery and voice-command musical and cinematic playlists, in 2023, customers everywhere are expecting real-time conveniences,” said Capgemini.
Banks and payment providers are staying in the game by moving to realtime, cross-border payments after years of refining efficiencies in domestic payments processes. The demand for more sophisticated payment infrastructure continues to increase as businesses drive digital transformation.
Middle Eastern companies of all types and sizes are grappling with how to meet the need for faster, transparent and flexible payments as they develop a new online presence or expand existing digital channels. Digital commerce platforms and merchants that provide access to multiple ways to shop and pay are best aligned to meet consumer expectations from embedded finance to flawless guest checkout experiences that allow oneclick seamless checkouts.
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.
The radical transformation in the financial services industry is partially being driven by the advancement in digital technology as previously closed industrial systems have become networked and open,
providing ideal conditions for open banking to flourish.
Open banking is playing a significant role in the rise of the open data economy as it makes payments easier and more transparent while loosening incumbent banks’ tight control of customer data and their near-monopoly over payment services.
PwC said that open banking has the potential to reshape the financial services landscape and several financial centres in the emerging markets, the GCC region included, are making considerable moves in this space.
Bahrain issued open-banking rules in 2018, followed by a framework with guidelines on data sharing and governance in late 2020. The Gulf state is implementing a European-style regulation-driven approach and the UAE has adopted an American-style marketdriven approach under the guidance of the Abu Dhabi Global Market and Dubai Financial Services Authority.
Saudi Arabia unveiled plans to launch open banking in early 2022 and its central bank introduced an ‘Open Banking Lab’ last December to speed up the development of open banking in the kingdom. 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.
“To succeed in open banking, banks in Saudi Arabia and the UAE should start thinking like platform companies, flexing their business models to connect people
and processes with assets and backing that up with technology infrastructure that can manage interactions from internal and external users,” said Accenture.
By leveraging APIs, a set of communication protocols used to develop computer applications, open banking platforms authorise retail and enterprise clients to access consumers’ financial data in real-time and share account information and transaction history with external parties such as vendors, suppliers, business partners and other banks.
“Outside of payments, open banking will further evolve, unlocking more economic data that businesses can take advantage of – for example using insights from open data to improve payment success rates, detect fraud, and provide more tailored lending options,” said Grace Sorrell, Product Manager at Mastercard. The Gulf region is one example of an emerging global openbanking microcosm and PwC expects the innovative technology to reshape the financial services landscape.
There has been a concerted effort by global payment networks to modernise infrastructures to support the clearing and settlement of irrevocable real-time payments using global messaging standards. Banks in the Middle East are aggressively modernising their core systems to real-time, third-generation cores and updating their payment infrastructures, largely in response to the continued rise of instant payments, open-banking requirements and cloud technology.
DELIVERY AND VOICE-COMMAND
AND CINEMATIC PLAYLISTS, IN 2023, CUSTOMERS EVERYWHERE ARE EXPECTING REAL-TIME CONVENIENCES
–
The new standard in low-value international payments.
swift.com/go
Samer Soliman CEO of Arab Financial Services talks with MEA Finance about the essential requirements that banks need to meet to stay ahead in todays’ competitive and fast changing payments environment
In today’s modern payments environment, what must be achieved for banks to generate revenues?
Banks can adopt several strategies to future-proof their operating models and generate greater revenues. Payments revenue in the Middle East and Africa stood at USD$60 billion in 2020 and is forecast to reach USD$84 billion by 2025, according to recent statista.com data.
Tapping into this requires a necessary transformation across the banking sector, an agility, and a keen awareness of what customers want from their banking experiences in order to diversify from traditional core banking products.
Across the payments landscape, understanding the market and setting profitable collaborations is key to growth. AFS continues to study the market before investing in strategic partnerships
towards the creation of new payment solutions, and this is what has helped us launch several revenue-generating products and services for our regional clients. Innovation is the key, as continuing to provide the same services is no longer a viable business strategy. Banks will
benefit from providing convenience and accessibility to customers by leveraging data / analytics and collaborating with fintechs, while ensuring robust security and fraud prevention measures.
AFS’s innovation-led partnership models have seen us deliver a range of exciting products and services for our bank clients in the past year: digital banking, open banking, APIs, digital wallets, acquiring services for businesses and processing solutions for the future. The AFS-owned proprietary BPay digital wallet and super app offering brings seamless and tailored payment services to customers in Bahrain and will soon offer this across the MEA region. Our partnership with the National Bank of Kuwait – Bahrain provides their corporate clients with state-of-the-art payments technology services. A strategic collaboration with Brankas, a Singapore-based fintech, delivers new and improved open finance infrastructure across the region. Our processing services to Al Wafa Bank, Libya provides prepaid card processing services and a range of digital payments value-added services to the Bank. AFS’s Regional Partner Program, a program committed to providing a platform for new and existing Fintechs to launch, expand and scale their products across the region, saw AFS partner with Aafaq Islamic Finance whereby jointly, AFS and Aafaq will support aspiring fintech startups to launch their products and services in the UAE. Our longstanding collaboration with Bahrain’s first cloud-based digital, mobile-only bank, ila, supports our client with payments technology co-innovation. Today, AFS has successfully rolled out ila Bank’s ATM enabling, debit and credit card processing and mobile application integration and services. As the preferred partner for banks, challenger banks, financial institutions, fintechs and other payment players who are looking to digitally disrupt the traditional financial services model, AFS is committed to providing leading, technology-driven
financial payment solutions to its clients that support their journey to revenue growth.
In the digital era, banking services are being reshaped by the use of Cloud technology. Public cloud is a key enabler of transformative change. For banks, it offers the ability to scale up quickly and safely, respond to a rapidly evolving market by streamlining integration and deployments while offering new digital features to end-users. It eliminates high
Agility is no longer a nice to have but an imperative to survival. The Cloud facilitates this and makes it a reality in many ways.
The payments sector is, by nature, rapid and agile. Its processes, in turn, are consistently being innovated for further speed and efficiency because that is what customers demand today. At AFS, we have taken process automation to the next level by introducing robotics for timely deliverables of projects and to eliminate
costs of legacy technology that are both costly to maintain and operate, and unable to support rapid innovation. Cloud technology offers a cost effective and flexible solution for banks and financial institutions which can provide on-demand resources that can scale up or down based on transaction volume. This also provides a more secure environment for financial data, with advanced security features and compliance certifications. Cloud-based platforms can help smaller banks and financial institutions to rapidly deploy new products and services, reduce time-to-market, and offer better customer experiences. New technology is kickstarting a real-time payments revolution that is changing customer demands and expectations when it comes to banking convenience and accessibility. Faster payments are changing the landscape entirely and accelerating growth and innovation.
any errors during the implementation phase. This is one of many elements in the payment process that has been transformed by us for greater speed and efficiency. Cloud banking has and will continue to be a major force in helping to transform the financial services industry and replace legacy banking systems. We anticipate digitisation and consolidation will continue at a record pace. Financial institutions will continue to adopt new technology – particularly Cloud solutions that enable them to not only streamline their operations but seamlessly address regulatory compliance as well. AI adoption also enhances payment processing, regulatory compliance and anti-money laundering, and creates efficiencies for customer service and fraud detection. AI in payments can significantly benefit financial consumers and market participants with the enhancement of speed, efficiencies, security and
INNOVATION IS THE KEY, AS CONTINUING TO PROVIDE THE SAME SERVICES IS NO LONGER A VIABLE BUSINESS STRATEGY
innovation when it comes to payments products and services.
On the other hand, there are some payment requirements which may require additional steps for security or compliance reasons and this can slow down the payments process and add to its complexity, such as anti-money laundering (AML) and know your customers (KYC) checks. Another challenge is that payments involve multiple parties, each with their own processes and system. Interoperability between different payment systems and networks can be complex and time-consuming to implement. This can result in delays and errors in the payments process, particularly for cross-border payments. In addition, regulatory and compliance requirements can add complexity to the payments process, particularly for international transactions. These requirements can vary by country, adding to the complexity of the process and potentially slowing it down. While technology can streamline some of these processes, they cannot be completely eliminated.
Payments drive innovation. That is why payments modernisation has become such a crucial component of the digital transformation that we see across the regional and global banking landscape. It is a simple yet significant equation with long term impact. Technology fosters efficiencies, agility and allows for seamless processes in the payments space. These superior efficiencies in turn deliver enhanced customer experiences, amongst countless other things, which help drive economic growth. People, business leaders and governments all recognise this today. Governments around the world are making digital transformation a main pillar in their economic vision because they see the value that exponential technologies and automation give towards becoming more
sustainable, competitive and accelerated economies, across markets. The Kingdom of Bahrain has led the way regionally, as part of its Vision 2030 goal to become a cashless society, while The Kingdom of Saudi Arabia has set an ambitious target in its financial sector development to achieve 70% non-cash transactions by 2030. In line with this we see The Central Bank of the UAE’s National Payment Systems Strategy aims to bring universal interoperability to payment systems and transform the country into a cashless society. AFS is innovation led, we have been since
and better adherence to compliance regulations, along with bringing improved data analytics and insights. This makes for enhanced customer experiences through efficiency gains, reduced friction and the ability to offer new value-added products and services based on a wave of innovation. Momentum towards adoption of ISO 20022 is picking up and we are seeing alignment and cooperations within the sector and across payments stakeholders which will help us realise true interoperability. Moving to ISO 20022 is a significant undertaking, it represents a
our inception, and our vision to be the leading enabler for digital transaction transformation encapsulates our drive to embed technology in payments and thereby drive growth across the board.
ISO 20022, (the global standardisation for communicating financial information) goes live from 20th March this year. Do you expect to see immediate impacts or a gradual change in conditions as a result?
With ISO 20022 creating a common and structured language for payments, the quality and richness of data in domestic and cross-border payments will be greatly improved. ISO 20022 will boost operational efficiencies and improve straight-through processing (STP) rates. It also facilitates interoperability end to end, which supports automation. It can help increase transparency and visibility, leading to a reduction in risk
real foundation for the future of payments, and it impacts the entire end-to-end chain. Fundamentally, financial institutions must transition in a way that suits them and their customers, enabling them to unlock the business benefits and deliver a transformative impact on banks and payments, enabling greater efficiency, interoperability and transparency across the financial industry. We are here to support AFS clients’ transition and ensure it is seamless and fully integrated and that our partners have the benefit of robust and future-proof payment infrastructures. The adoption of ISO 20022 will require significant investment in technology and infrastructure by banks and financial institutions to ensure that their systems can support the new standard. As an agile company that works hand in hand with our clients to give them the speed, efficiency and tech-enabled solutions they need, we believe adapting sooner rather than later is key to being better prepared for future changes.
WITH ISO 20022 CREATING A COMMON AND STRUCTURED LANGUAGE FOR PAYMENTS, THE QUALITY AND RICHNESS OF DATA IN DOMESTIC AND CROSS-BORDER PAYMENTS WILL BE GREATLY IMPROVED
view of the changing world of payments in the Middle East
What are Verifone’s key projects and plans in the region for FY 2023?
Built on a 40 year history and more than 35 million installed devices, Verifone has operations in more than 150 countries, collaborating with world’s best-known retail brands, financial institutions and payment providers. We are a global business partner that enables merchants to securely accept all forms of digital payments through our dynamic and flexible devices wherever customers are in the store. We provide businesses with cloud-based digital services that turn the point-of-sale into a point of interaction with their customers. We transform daily payment transactions into new business opportunities for enterprises and create a bond between consumers and merchants on our next-generation digital platform.
With regulatory advancements, technological growth and generational forces constantly changing the landscape, it is a challenge for merchants of all sizes to succeed and better serve their customers through the checkout experience. Verifone is committed to helping our clients navigate these market forces and drive growth by creating more next-generation POS touch points with high personalisation and accept payments in multiple formats.
Vice President and General Manager, Verifone MENA and Turkey
In the year 2023 we will remain fully operational and acurately focused on helping our clients run and grow their business. Empowering our customers with a more robust omnichannel experience will be our major focus this year as well. We know there will be challenges for all of our business but we look forward to working together with our partners,
clients to achieve even greater success in the year ahead.
Are there any aspects to payments in the Middle East that distinguish it from the rest of the world?
Straddling both developed and emerging worlds, the Middle East is something of a paradox for e-payments. Despite its young tech-savvy population and mobile and internet proliferation, cash has remained the dominant option due to deep-rooted payment habits. Even as ecommerce has thrived cash has retained a stronghold with COD (cash on delivery) still a popular payment option. To combat this, Governments and banks in the region have collaborated closely to improve payment systems. Probably more so than elsewhere in the world. Regulatory sandboxes and proximity of capital sources have further helped promote a thriving FinTech ecosystem with a strong focus on transforming regional cross-border as well as domestic payments. The ability to come together as a region, to join the payments dots and remove barriers makes it stand out from the rest of the world.
How do you foresee the future of payments in the region?
COVID was a watershed moment for cashless payments in the Middle East. It provided the impetus for consumers to make use of new e-payment infrastructure and switch to cash alternatives. We believe the future for in-person payments is now contactless, whether that’s in the form of NFC enabled cards, mobile wallets or payment apps. The adoption of innovative payment and commerce technologies in-store will prove to be the catalyst for broader acceptance of cashless transactions, benefiting retailers and enriching the shopping experience for consumers. With instant
real-time payments and stable bitcoins on the horizon, there is no going back.
The adoption of innovative payment and commerce technologies in-store will prove to be the catalyst for broader acceptance of cashless transactions, benefiting retailers and enriching the shopping experience for consumers. For younger generations, the purchasing experience tends to supersede the purchase itself- rather than trips to just make purchases, shoppers are drawn to in-store experiences that are digitallyconnected and personal. Merchants are seeing success by making the in-store experience worthy to write home about redefining the in-store experience by blending online with in-store. A successful customer experience is secure, personalised and engaging.
In Verifone we combine real shopping experiences with the digital world by connecting payments to cloud-based platforms. We create a bond between consumers and merchants on our nextgeneration digital platform. We are like a business partner that stands by our clients.
In the Middle East and North Africa region, we are managing dozens of countries such as Nigeria, Egypt, Pakistan, Morocco, Tunisia, United Arab Emirates, Algeria, Saudi Arabia, Kuwait, Qatar, Lebanon etc. We offer products, services and innovative solutions to our partners and customers. By offering the most effective solutions and services for the changing needs and expectations of these different markets, we continue to maintain a leading position in the market. As a global player, we serve a diverse market, both advanced and emerging. We need to keep up with local market regulations and introduce solutions that enable merchants to meet these regulations and accept different types of payments in the most secure manner possible.
Verifone’s innovation is focused on improving payment security and
consumer experience. We enable the acceptance of new alternative payment types like digital wallets, Bluetooth, barcode and others. The biometric authentication offers higher levels of security seamlessly. The contactless payments have been increased during the pandemic whether in the form of NFC enabled cards, mobile wallets or payment apps. Banks are upgrading to enable contactless solutions, and third party providers are developing solutions to keep up. We have offered contactless payment-enabled terminals since 2008 – the first in the industry to do so – and now, nearly all of our products are able to
payment types like digital wallets, Bluetooth, barcodes and even crypto payments. And advanced technologies like biometric authentication for superior, seamless security. As Middle Eastern nations move towards more sophisticated payment solutions, they can trust Verifone to keep them optimised now and ready for the future.
Please tell us about Verifone’s recent successes in the region. We are like a global business partner that enables merchants to securely accept all forms of digital payments through our dynamic and flexible devices
receive contactless payments. We are a pioneer in the world by always redefining the customer journey anywhere, anyway.
Our leadership is based on the combination of world class technology, unrivalled regional expertise and strong local partner support. It enables us to work with Middle Eastern partners and merchants to deliver payment solutions that precisely fit their market and customer needs. Our innovation is focused on improving payment security and the consumer experience, while empowering merchants to optimise resources and take more sales revenue. We are champions of change and enable the acceptance of new alternative
wherever customers are in the store. We provide businesses with cloudbased digital services that turn the point-of-sale into a point of interaction with their customers. We transform daily payment transactions into new business opportunities for enterprises and create a bond between consumers and merchants on our next-generation digital platform. We are supporting and enabling businesses to grow. Enabling clients to focus on their core business, Verifone and our partners will handle the full scope of payment solutions installment and ongoing service directly with their merchant clients. Payment services including software, warranty and logistics. This means delivering a turnkey solution to merchants so that they can unpack their complete POS system, set up and begin accepting card payments in a timely manner.
STRADDLING BOTH DEVELOPED AND EMERGING WORLDS, THE MIDDLE EAST IS SOMETHING OF A PARADOX FOR E-PAYMENTS
Peter Hainz Global Head of Strategic Initiatives –Cybersecurity, Cloud, AI at SmartStream Innovation Lab, underlining the importance of Cybersecurity in the banking environment, provides his view of oncoming changes and the roles we can expect AI to take in the not so far future
In your opinion, what are some issues important to the chief information security officers (CISO) in 2023?
I foresee the following security and compliance topics in 2023:
Cloud Security: Banks are increasingly moving data and applications to the cloud. Therefore, banks need to ensure their cloud infrastructure is configured
securely to protect their organisations from potential breaches.
Artificial Intelligence (AI) and Machine Learning (ML) security: Today financial institutions are collecting unprecedented amounts of data and are using AI and ML to analyse the results. The security of these systems will become increasingly important as the need to prevent attackers from manipulating the result increases.
Incident response and disaster recovery: Financial institutions need to have a well-defined incident response plan in place, and they must test it regularly to ensure they are prepared to respond quickly and effectively to any security incident.
Cybersecurity and IT work shortage: Today financial institutions are experiencing a shortage of skilled IT and cybersecurity professionals. This coupled with the difficulty in retaining their existing professionals will continue to be a concern.
Compliance and regulations: Financial institutions and bank service providers need to stay up to date on standards, such as PCI-DSS, ISO 27001 and SOC 1-3 to ensure they are in compliance.
Unencrypted data: Should hackers seize a bank’s unencrypted data it can present an immediate operational and reputational risk.
Social engineering attacks: Cybercrimes are becoming more sophisticated. Employee training and awareness are vital when looking to avoid such attacks.
Advanced persistent threats (APTs) and targeted attacks: An APT is a constant, often stealthy, threat which can disrupt operations in the short and/ or long term. Banks need to fully realise
the threat and be prepared to defend against it.
You mentioned cloud and AI, which are continuing trends. Why are cloud and AI so interrelated? Without the cloud, AI would be confined to data centers, which would greatly prohibit the ability to scale and develop solutions. A perfect example is SmartStream’s development of its Artificial Intelligence Reconciliations (AIR) solution. This state-of-theart application would have been impossible were it not for the highly elastic microservices environment the cloud provides.
According to Garnter by 2028 AI-driven machines will account for 20% of the global workforce and 40% of all economic activity. Banks are increasingly looking to replace manualintensive work with AI. SmartStream’s AI-powered Affinity solution observes how back-office users work along with
Under an MS agreement, banks do not have to concern themselves with environmental recovery strategies. The MS provider handles the setup and ensures that the applications and infrastructure are running smoothly and efficiently.
Which compliance and standards do you see gaining importance in the banking world?
Increasingly banks require vendors to be Payment Card Industry (PCI) and Data Security Standard (DSS)
reconciliation management- Affinity then, over time, understands the bank›s reconciliation workflow.
Increasingly banks are outsourcing their BC and DR operations and applications management. In recognition of the bank’s staffing shortages and operations problems it provides, SmartStream offers a wide array of Managed Services (MS) as an alternative for its banking applications.
certified. PCI DSS is governed by the PCI Security Standards Council, which was founded by five major card brands: Visa, MasterCard, Discover, American Express and JCB.
PCI security requirements include several industry-standard practices, such as firewalls, encryption and anti-virus software. For example, SmartStream had to demonstrate high levels of security across their entire organisation to achieve the PCI-DSS version 3.2.1, level 1 certification. It included physical security, personnel security, fraud control mechanisms, IT & data security, and privacy - on a fully monitored business environment.
BANKS ARE INCREASINGLY LOOKING TO REPLACE MANUAL-INTENSIVE WORK WITH AI
ACCORDING TO GARTNER BY 2028 AIDRIVEN MACHINES WILL ACCOUNT FOR 20% OF THE GLOBAL WORKFORCE AND 40% OF ALL ECONOMIC ACTIVITY
The private banking and wealth management sectors are entering uncharted territory in 2023 and the Middle East market is no exception. The region is adapting to the new realities of a changed global macro environment while looking ahead to new horizons created by its impressive fundamentals.
The pandemic ushered in new ways of doing business—remote service for clients and working at a distance for most bank
functions. The new operating environment is forcing financial institutions to rethink their strategies, digitalisation plans, raise spending levels and accelerate the adoption of advanced methodologies. McKinsey said that the need to realign operating models to this superior level of technology has intersected with a reversal in wealth management and private banking economics. The banking sector has evolved in numerous ways. The changes in demographics,
technology, environment and social behaviours have set the ground for rapid transformation in the private banking and wealth management industry. The Middle East’s mass-affluent and affluent segments are growing fast and their demand for wealth management is evolving.
The region is experiencing a substantial shift in customer segments and value propositions, with women and younger investors having an increasingly larger role in wealth managers’ discussions. “Stereotypical” millennials, once thought to be indulgent and unprepared financially for the future have in recent years outgrown that reputation and instead grown into their wealth.
After decades of considerable wealth accumulation, the majority of high-networth (HNW) families in the Middle East are implementing succession plans that future-proof their wealth transfer to the next generation.
As new client segments are emerging, a growing number of wealthy families consider environmental, social and governance (ESG) to be an important factor in investment decisions. To date, wealth managers’ primary focus has been developing and launching ESG products to satisfy the burgeoning demand for sustainable investments.
Meanwhile, the shift to digitisation in the financial services sector is inevitable and industry experts expect it to radically transform private banking and wealth management in the coming decade. The growth of “automated wealth managers” or Robo-advisors are revolutionising wealth management with unprecedented force.
Private banking and wealth management are among the most attractive segments of the banking industry owing to the business’ greater growth prospects, lower capital requirements and a higher return on equity (ROE).
The push for digitalisation in the financial services sector gained additional momentum following the outbreak pandemic. Growing and evolving client expectations, innovative technologies and new entrants present banks with significant challenges. To maintain a competitive edge, incumbents should fundamentally question their legacy business models.
Building and strengthening client relationships is every wealth manager’s most coveted asset. With the shifting demographics in client segments and the ongoing wealth transfer in the Middle East, next-gen HNWIs are not satisfied by the traditional periodic face-to-face meetings and hefty printed reports.
The younger clientele, instead, expect a proposition that is more reliant on innovative technologies including access to real-time information and transactional capability. However, some private banks’ unfounded concerns that digitalisation will lead to the disintermediation of the relationship manager by robo-advisors
risk accelerating the departure of their millennial clients.
Deloitte said that wealth managers are mainly digitising their traditional business model to reduce their cost base while fintech firms are either offering digital solutions to support wealth managers or to compete for tech-savvy private clients.
Once a laggard in the adoption of technology, wealth management is accelerating digitalisation, deploying AI, Big Data, robotics and new innovative technologies to enhance client’s experience and trust—which is central to private banking relationships.
one that customers carry with them all the time, where they can see the realtime value of their portfolio 24/7, where insights are requested and delivered instantly and where interaction with their wealth advisor is supported digitally and augmented by interactive interfaces.
Global banks are strengthening their presence in the GCC region and are attractive to HNWIs owing to their global capabilities and access to international markets and products. These banks, in return, are expected to increase their
– Deloitte
The growth of ‘automated wealth managers’ or Robo-advisors is revolutionising the industry with unprecedented force. By leveraging algorithms to offer financial advice for a fraction of the price of a real-life client advisor, robo-advisors such as Commercial Bank of Dubai’s CBD Investr are growing at a rapid pace, doubling their assets under management every few months.
Digitalisation in private banking and wealth management is being credited for the reduced client retention costs and improved access to their capital while clients with low amounts of investment capital—a segment once not considered highly important by wealth managers—now collectively form a key potential market.
The private bank of the future is
focus on private banking and wealth management and seek to scale up and expand to neighbouring markets in the Middle East region.
Large international banks including Nomura Holdings, Goldman Sachs and Deutsche Bank are vying to capture a bigger slice of the wealth management market in the Middle East—home to a large number of ultra-wealthy families, entrepreneurs and royals.
Japanese financial powerhouse
Nomura said it is bringing its global wealth management services to the Middle East through a branch in Dubai as it seeks to tap a growing pool of rich clients and flow of funds to the region. HSBC is expanding its private banking business in the UAE to cater to a fast-growing HNW investor base in the Gulf state.
WEALTH MANAGERS ARE MAINLY DIGITISING THEIR TRADITIONAL BUSINESS MODEL TO REDUCE THEIR COST BASE WHILE FINTECH FIRMS ARE EITHER OFFERING DIGITAL SOLUTIONS TO SUPPORT WEALTH MANAGERS OR TO COMPETE FOR TECH-SAVVY PRIVATE CLIENTS
Nomura is targeting clients with $25 million of investable assets and an initial investment of about $5 million while HSBC caters to the needs of internationallyminded clients with investable assets of over $2 million.
Other banks including Rothschild, UBS Group and Credit Suisse and boutique firms such as Moelis & Company and Lazard are growing their presence in oil-rich Middle East, especially Riyadh and Dubai, to tap into a growing pool of affluent clients flocking to the region from Europe, Hong Kong, Russia and Ukraine.
Henley & Partners projected last June that the UAE will lead the world in attracting private wealth to its economy over the next five years as Russian and Ukrainian millionaires seek new homes. The Emirates is expected to welcome 4,000 millionaires as Russia and Ukraine are likely to suffer a net outflow of 15,000 and 2,800 HNWIs, respectively.
The Dubai International Financial Centre’s Authority Board approved the opening of a Global Family Business and Private Wealth Centre in the UAE last August, part of a broader strategy to welcome more wealthy families to its shorelines.
The private banking and wealth management industry is undoubtedly one of the high-growth engines in the broader financial services landscape, but PwC cautioned that this is not a time for complacency. The industry is undergoing significant transformation led by intergenerational wealth transfers, evolving client preferences and shifting investment preferences.
It’s no secret that young HNWIs are vital to the future of wealth management. However, what makes wealthy millennials tick, how will the influx of young HNWIs shape the wealth management landscape in the Middle East and are wealth managers fully equipped to handle the complexities that come with younger investors?
“Younger investors in the region are positive on values-based assets such
as Shariah-compliant and Islamic investments, alongside those taking sustainability factors into account,” said Lombard Odier.
Today, wealthy millennials and affluent youths are focused on investment solutions that support the UN Sustainable Development Goals, investments that meet ESG values and climate- and sustainability-focused initiatives such as low-carbon investments.
The increasingly growing demand for sustainable investing from the new generation of HNWIs is driving wealth managers to develop sustainable investing solutions as public attention toward the global sustainability agenda has increased significantly in the region.
Family wealth, the source of millennials’ windfall, makes up a sizeable proportion
of the Middle East’s non-oil economy. In these times of economic uncertainty, the need for adaptability and action to ensure that potential is not wasted, and the future is secured has never been paramount.
The largest intergenerational wealth transfer is currently underway among the world’s wealthiest families with $8.6 trillion of global high net-worth wealth expected to change hands between generations over the next decade.
Succession planning continues to be a challenge for wealthier families globally as research shows that not all are prepared for a smooth hand-off. Earlier this year, Sheikh Mohammed bin Rashid, the Vice President of the UAE and Ruler of Dubai, established a Family Business Centre within the organisational structure of Dubai Chambers to provide technical and administrative support to ensure smooth generational succession.
Building a central mission statement based on shared family values can be vital to a sustainable legacy. RBC Wealth Management said that a family mission statement is a foundation on which current and future generations can make decisions together, understand their roles and provides a framework to understand what it means to be a member of that family.
– McKinsey
Wealthy families in the Middle East are also turning to foundations owing to how they provide a dynamic option that can accommodate a family’s transformation priorities and values. The immense contribution of family businesses to Middle East economies calls for stronger family governance for the region’s continued success.
SUCH AS SHARIAH-COMPLIANT
INVESTMENTS,
THE NEED TO REALIGN OPERATING MODELS TO THIS SUPERIOR LEVEL OF TECHNOLOGY HAS INTERSECTED WITH A REVERSAL IN WEALTH MANAGEMENT AND PRIVATE BANKING ECONOMICS
– Royalty, circa 1644
Is your bank changing with the times? With our cloud Payments as a Service, you can modernize 6x faster than the competition, so you’ll be up to date and future ready.
Owen Young Managing Director, Regional Head, Affluent & Wealth Management for Africa, Middle East & Europe at Standard Chartered Bank, describes the factors placing the region on the wealth management map
What is leading the increase in many of the world’s HNW and UHNW families to explore options for managing their wealth in the region?
The region has emerged as an attractive destination for many of the world›s highnet-worth (HNW) and ultra-high-net-worth (UHNW) families seeking to manage their wealth. It′s growing economic and political stability, along with stable currencies pegged to the USD, free capital movement across borders and the availability of skilled wealth management professionals, are a few of the key reasons why the Middle East is increasingly appealing. Additionally, many of these families are looking to diversify their investments regionally and globally. The plethora of investment options denominated in different currencies here, including various alternative asset classes, enable this segment to maximise its wealth growth and return potential. With the increased number of wealth management firms and private banks in the region, these families can access a broader range of options for managing their wealth.
How are GCC wealth management services changing to meet growing demand?
We see local and international banks enhancing their wealth management services to meet growing demands in the region. These enhancements include utilising and upgrading technology to
provide more efficient and personalised services, offering deeper, richer insights to provide clients with more tailored services; integrating more customised content to better meet their needs; and exploring innovative methods of delivering their services to capture growth in the sector.
Are regional wealth management centers moving toward parity with established global wealth hubs?
Yes, regional wealth management centres are keeping up the game to be on par with established global wealth management hubs. There are several factors driving this, including increasing demand for professional wealth management services, the growing sophistication of local financial markets and the influx of global capital. Regional wealth management centres are also adopting best practices from international wealth management hubs, such as the use of data-driven analytics and automated decision-making processes.
Additionally, they are leveraging cuttingedge technology solutions to improve service delivery capabilities and provide better customer experience.
How are clients’ needs or values changing as newer generations settle into HNW brackets?
As newer generations settle into higher net worth segments, their needs and values change in several ways. For example, younger generations are more likely to prioritise experiences over material possessions and invest in socially responsible businesses. They are more digitally savvy; hence, the sophistication of digital capabilities is essential to manage their investments. Additionally, younger generations may be more motivated to make an impact with their investments and more willing to take on risks to achieve higher returns.
What do you think have been the top benefits of technology and digitisation in regional wealth management and private banking?
Technology and digitisation in regional wealth management and private banking have benefited the industry across different parts of the business – from operations, customer service, security and governance, to name a few. The integration of technology and digitisation has allowed wealth managers to provide clients with timely and more profound insights, and automate processes resulting in faster and more accurate execution of transactions. Additionally, customers have benefited from improved customer service quality, as technology has enabled wealth managers to deliver more personalised and real-time services. Furthermore, technology has allowed wealth managers to strengthen their security and compliance measures and increase their scalability and ability to reach out to more customers.
HNW investors across the Middle East are demanding more from their wealth advisors but is the industry responding? For Christophe Lalandre, Senior Executive Officer, Bank Lombard Odier & Co Ltd - Abu Dhabi Global Market Branch, the wealth industry is evolving rapidly in response, but advisors need to blend global expertise with a local presence
well-regulated and effective wealth management industry. Meanwhile, central banks, regulators and financial authorities are increasingly collaborating to create a dynamic ecosystem that is providing investors with ever more flexible wealth solutions.
At the same time, the next generation of HNW investors are more sophisticated, technologically literate and are inclined to challenge received wisdom. They want to leverage more tools in the investor toolkit to diversify their investments in the face of increasing market volatility. Over the last two years, we have seen ongoing investment in both traditional and alternative growth assets such as private equity, as well as more riskcontrolled strategies such as ETFs and tracker funds. Investors are also exploiting the full spectrum of sectors and geographies, including emerging markets and sustainability-focused opportunities.
Finally, digital tools are empowering clients to take greater participation in their investments. Investors can gain a deep understanding of their portfolio positioning with ease. For example, our ‘My LO’ banking app allows clients to view and manage their assets across multiple accounts and countries. Clients can also access the most recent research and engage directly with their wealth advisors. Moreover, financial modelling tools such as our MyWealthOutlook allow clients to co-create truly personalised, forwardlooking wealth solutions structured around their particular goals.
What is driving many of the world’s HNW and UHNW families across the Middle East to explore different options for managing their wealth?
At Lombard Odier, we are seeing a
virtuous circle of political, demographic and technological developments combining to drive greater choice and flexibility for HNW investors across the region.
The Gulf Cooperation Council (GCC) countries have taken great strides to implement initiatives that foster a
The wealth management industry is adapting rapidly to meet growing demand, both in terms of expertise and proximity. Until recently, financial advisors based in either the West or Asia would travel
to the region to service their clients. Today, investors are choosing advisors based in the region who are closer to their contacts, more agile in the way they interact with investors and who have a deeper understanding of their clients’ needs and values.
Wealth management is becoming an increasingly integral part of the financial ecosystem of GCC countries, and this trend is accelerating exponentially. More and more wealth management firms are registering locally. In the UAE, the number of new firms registered in both financial centres – the ADGM and DIFC - increased significantly in 2022.
Local wealth advisors are also growing in their expertise, adding global value to the service offered to investors in the region. Both the ADGM and DIFC have introduced innovative measures to provide investors with diversifying opportunities and greater liquidity, from new, alternative assets and securities to green finance. An evolving regulatory framework is also facilitating access to emerging investment opportunities such as tech, fintech and more recently, virtual assets. Wealth managers with a local presence and a global investment expertise will be able to leverage these developments, offering clients the benefits of both scale and a highly personalised client service.
It takes time to create a luxury brand. However, regional wealth management centres in the region are moving in the right direction to achieve parity in terms of service quality and regulation relative to their established counterparts.
Indeed, it’s likely that some GCC financial hubs will become even more attractive than their international peers. This is due to the high degree of flexibility that they have demonstrated in recent years, as well as a positive mindset, nimble decision making, financial strength and a business-oriented approach.
This positive trend is moving in lockstep with a rigorous approach to regulatory matters. This will also help GCC hubs to gain an international reputation and expand even further in the years to come.
How are clients’ needs or values changing as newer generations settle into HNW brackets?
We are finding that interest for Islamic investments is as high among younger HNW investors in the region as their older counterparts. Indeed, our recent survey of 300 HNW business owners across the region confirms that allocations
wealth and investments, with a greater focus on improving their lifestyle and remaining wealthy compared to older investors who are more interested in their financial and reputational legacy.
How frequently do clients ask you to factor ESG considerations into their investments?
Interest in sustainability is increasing fast for both younger and more established HNW investors, and our survey highlights that the vast majority are planning to rapidly increase their exposures to sustainable investments. Investors want to express their
to Islamic equities and sukuk are set to rise. Most continue to identify with their Middle Eastern heritage and still adhere to a formal system of familial governance. Most also have a strong regional focus and intend to keep their assets in the region.
As a result, we are seeing increasing demand for our Islamic services, which we have offered to our clients in the region for more than ten years. Our Shariahcompliant discretionary mandate falls within our long tradition of social responsibility and the resulting ability to develop sustainable and responsible investment solutions.
However, we are also seeing that young investors are more influenced by western values. We are seeing greater appetite for technology, global equities and private market investments. Younger investors also prioritise different outcomes for their
values and their sense of responsibility to the environment and society, but they also understand that sustainability factors will become an increasingly important performance driver. As a result, many investors are looking to integrate ESG factors into their portfolios, receive regular investment research and sustainability investment ideas.
At Lombard Odier, our views are entirely in line with respondents. For us, sustainability is not just a priority, it is an investment conviction. We offer clients a broad range of high conviction sustainability and impact portfolios across asset classes. We also offer a ground-breaking Shariah-compliant ESG equity portfolio for Islamic investors that want to drive positive change, like the great majority of GCC investors, we share the unwavering conviction that nature is our capital.
WEALTH MANAGEMENT IS BECOMING AN INCREASINGLY INTEGRAL PART OF THE FINANCIAL ECOSYSTEM OF GCC COUNTRIES, AND THIS TREND IS ACCELERATING EXPONENTIALLY
Discussing the growth of the regional wealth management sector, Tim Searle Chairman of Globaleye describes the influences and trends that make the Middle East an increasingly attractive investment prospect in the HNW and UHNW space
What is leading the increase in many of the world’s HNW and UHNW families to explore options for managing their wealth in the region?
The GCC region has seen significant economic growth over the past few decades, with many countries diversifying their economies away from oil and investing in infrastructure, education
and healthcare. This has led to new investment opportunities and a more stable business environment, attracting many HNW and UHNW families to the region. Additionally, the GCC region has a favourable tax environment, making it an attractive destination for wealthy individuals seeking to optimise their tax liabilities. Another significant reason for the influx of HNWs in the region is its strategic location between Europe, Asia
and Africa, making it an ideal hub for global citizens, investments and trade.
How are GCC wealth management services changing to meet growing demand?
Wealth management services in the Middle East are changing rapidly to meet growing demand for clientcentric, advanced solutions in several ways. There is an increased focus on digital transformation, with many firms investing in technology to streamline their operations and improve client centricity. We embrace technology to enhance the experience, increase efficiencies, reduce costs, and to prove this point have launched our own platform to boot. Furthermore, there has also been a greater emphasis on offering a broader range of investment opportunities, including alternative investments such as private equity, ESG investing, hedge funds and real estate, especially in the HNW and UHNW space.
Are regional wealth management centres moving toward parity with established global wealth hubs?
Regional wealth management centers are moving towards parity with established global wealth hubs in terms of services offered, expertise, and reputation. While there is still some way to go before the region can match the depth and breadth of services offered by established global wealth hubs such as London, Zurich and New York, the GCC has made significant progress in recent years. This is due increased investment in talent development, technology and infrastructure, as well as a growing focus on improving regulatory standards and client experience.
The UAE in particular has been a key player in shaping the wealth hub in the Middle East. In 2021, the region’s financial wealth grew by 20%, compared to the global average of 11%. UHNWIs and Family Offices accounted for approximately 41% of this wealth, with projections indicating that this figure is expected to rise to 46% by 2026. As more UHNW families consider the UAE as a potential home for their Family Offices, this trend is expected to continue, with a significant surge in wealth anticipated in the near future. This has been reinforced by innovative developments to support this trend in the DIFC and ADGM.
These clients are used to the convenience and personalisation offered by technology and expect the same level of service from their wealth managers. According to a report by Capgemini, 59% of HNW clients under the age of 40 expect
What do you think have been the top benefits of technology and digitisation in regional wealth management and private banking?
are
One of the biggest changes that younger HNW clients are driving is a focus on sustainability and social impact. A UBS report found that 69% of wealthy millennials prioritise investing in companies that are making a positive social or environmental impact, compared to just 23% of baby boomers. This shift towards sustainable and impact investing is also reflected in the growth of ESG investing, which is becoming increasingly popular among younger HNW clients. Another area where younger HNW clients are driving change is in bespoke services.
personalised services from their wealth managers, compared to just 33% of those over 60. As the next generation of wealthy clients become increasingly important, it is important for wealth management firms to stay ahead of the curve and provide the services and products that their clients demand.
Digital platforms have made it easier for wealth managers and private banks to collect data on their clients and provide tailored advice, recommendations, onboarding and AML/KYC. This helps improve client satisfaction and retention rates, as well as increase the likelihood of cross-selling (i.e., investments, insurance, legal, trust etc.) Abilit y to provide access to a wider range of global investment options. This allows clients to diversify their portfolios and reduce their exposure to regional and correlating risks. A utomation of processes such as account opening, document management, and transaction processing has reduced manual errors and increased productivity. This has also allowed for lower fees and charges, making wealth management and private banking services more accessible to a wider range of clients.
IN 2021, THE REGION’S FINANCIAL WEALTH GREW BY 20%, COMPARED TO THE GLOBAL AVERAGE OF 11%
At the first in a series of exclusive roundtables led by Fintech Surge and in partnership with MEA Finance, we explored priorities for scaling fintech ecosystems in Saudi Arabia and the Gulf
ecision time.
It’s an exciting time for fintech in Saudi Arabia. Despite the global economic slowdown, the Gulf expects to be relatively insulated from it. At the same time, longer-term investment and economic transformation plans like those of Saudi Arabia and the UAE are putting the region in the spotlight, attracting the attention of global investors and entrepreneurs in the process.
Against this backdrop, Fintech Saudi, and Fintech Surge in partnership with MEA Finance, hosted a roundtable chaired by Simon Hardie of findexable, to assess the region’s fintech progress and discuss the priorities for the Kingdom to build an innovation dividend.
If the pandemic fuelled adoption of fintech services, the momentum created by the Vision 2030 plan and initiatives by the country’s two main regulatorsthe Capital Market Authority (CMA) and the Saudi Central Bank (SAMA) - gave the sector credibility while incentivising innovation and entrepreneurship.
So far so good. Riyadh was the world’s fastest growing fintech ecosystem in 2021. Fintech Saudi, the local ecosystem body, counts more than 140 locally founded fintech companies and recorded over $400 million in venture investment in Saudi-based fintech in 2021 - double the 2020 total - and accounting for around one third of all venture investment in the country.
But if fintech’s ‘proof of concept phase’ is over, it is the next period where decisions by ecosystem stakeholders will have the most direct impact on the future of fintech. As experience in global innovation
hubs from Singapore to Silicon Valley shows - ecosystems respond best when regulators, capital and talent can align.
Often it comes down to deciding what kind of impact the sector should have. Is the emphasis on company formation, creating new industries, jobs? Or about the quality of those jobs and the companies that are being created or their contribution to the economy?
It does not have to be binary. On the first set of questions Saudi Arabia’s fintech market has already deliveredover 140 companies created with around 6,000 jobs in the country and offshore.
But building an ecosystem with measurable impact requires putting the incentives in place, collecting the data for measurement to stay on course, and smoothing some regulations so the ecosystem can ‘get to work.’
So far, it is early. Venture investment in inclusion-focused fintech in MENA is smaller than Europe or Africa as a whole. But the fundamentals are strong.
As MENA’s largest economy Saudi Arabia’s young population and financially underserved consumers make a good business case with plenty of opportunity for innovation. And direct support from
AFRICA
Local regulation is top of the list of challenges, “there are times when it feels like regulations between different parts of the market could be more coordinated,” says Mr Rennier Lemmens, Group CEO of geidea, highlighting limitations on the use of cloud services as one area that adds complexity and costs to doing business in the region, adding, “there would be great benefit to countries in the region collaborating to establish a common regulatory regime.”
Complaints by financial services businesses about the burden of regulation are commonplace in every region. But with Gulf governments looking to kickstart the digital economy, there are areas where regulation could be relaxed without compromising consumer protections, which would help accelerate ecosystem growth.
organisations like Fintech Saudi is helping smooth the road to setting up.
“If you are solving for local problems, there is enormous opportunity here. Consumers are underbanked relative to peers in Europe. In lending [for example] bank lending rates are high - fintechs that can access customers digitally and maximise efficiencies can do very well with the right proposition,” says Nezar AlHaidar, director of Fintech Saudi.
Maintaining growth means addressing roadblocks faced by entrepreneurs. “The first thing most VCs in the region will ask [before deciding whether to invest] is ‘do you have a European or Western VC investor? Local firms tend to be followers not leaders when it comes to early-stage companies,” says Mehdi Fichtali, founder of UAE-based Finamaze.
“We are encouraged by the enthusiasm we see for fintech from the ecosystem.” adds Mr AlHaidar, “but some challenges are bigger than fintech. Until recently Saudi Arabia wasn’t open to international investors, so a lot of work has been done to make this possible and with some success. But there is still more to do.”
Opportunities for better on and off-ramps for fintech firms - to encourage more investment and availability of capitalare two areas where Saudi Arabia could regulate in a way that would incentivise a bigger fintech industry and enable more homegrown, scale up successes.
If the question is ‘how do we create local fintech unicorns or decacorns?’ There are challenges to scaling fintech regionally that need to be addressed to attract more international capital. The route to exit for technology companies in Saudi Arabia is one area,” says Mr Lemmens.
Tadawul is at an early stage of development so options for entrepreneurs are more limited. [They] can be excited about the potential but they must have line of sight on viable paths to monetise their investment,” he adds.
between Tadawul and the Hong Kong Stock Exchange to encourage dual listings of local companies could add much needed capital access to firms seeking to IPO.
Agreeing common standards between GCC economies is another. For scaling firms, the need to ‘start over’ if they want to start operating in another country in the bloc slows the creation of regional scale players.
Many of the concerns expressed are symptomatic of growing ecosystems. In the longer term it is momentum that matters. And at the moment momentum is building.
The first services launched under Saudi Arabia’s 2022 Open Banking regulations are expected to launch early in 2023; local banks like SABB, stress the importance of fintech partnerships for their digital roadmaps; and development institutions such as the Social Development Bank are making more finance available for tech-focused SMEs.
While an admirable goal, it’s one in a sea of priorities. As the roundtable participants underlined, they need to be able to get on with the business of building companies that scale - the first step to growing the size of the fintech prize.
Keystone priorities for scaling fintech
That makes it harder to raise funds from international investors, “Because of the size of individual markets MENA is lower down the list compared to other regions for international investors. This could change if countries worked together so firms could scale across the region more easily,” says Abdulmajeed Alsukhan, founder of buy-now-pay-later fintech Tamara.
The Gulf would benefit massively from a principles-based approach to rule-setting, says Mr Lemmens, “every market is different, and regulation has to reflect that - but there are areas where common standards, such as rules for data storage and data sharing, could be designed to apply across the region. Progress here would make it easier for investors to see the potential to scale across MENA, which would encourage more investment, and make it more attractive for entrepreneurs.”
Regulators are also helping. Fintech Saudi is expanding the support it offers fintechs and its Riyadh Hub and SAMA has launched a new sandbox, the Open Banking Lab and updated its regulatory sandbox from a cohort based to an Always Open approach to make it easier for fintechs to trial innovations.
The final piece of the puzzle is talent. An area all sides can agree on. From data scientists and developers to the financial literacy of customers, hard and soft skills are needed for Saudi Arabia to scale its ecosystem vision - building homegrown innovations and creating much needed opportunities for the nation’s youth.
“Talent is a challenge. Competition for talent is global. And we have to compete at a global level. From an engineering or product perspective you have to look outside the country,” says Mr Alsukhan.
Regulators, educational institutions, and government are pivotal to addressing the skills gap. Fintechs and financial institutions can also play a role. Fintech Saudi hosts careers days and runs fintech tours for the ecosystem to learn as it grows.
Regional fintech needs access to talent. Ecosystems that focus on talent development and bridge the gap between academic and vocational training programmes will deliver outsize returns - for both the ecosystem and individual businesses.
Competition for investment and innovation is global. Make it easier for innovators to get access to capital and corporate innovation budgets and facilitate exit routes in the form of open capital markets to accelerate ecosystem growth.
No regulator is an island. And scaling fintechs need access to cross border opportunities. While some financial services rules should be local in nature some standards are universal - as open finance rules show. Ecosystems that help regulators build common standards frameworks between regional markets contribute massively to building more homegrown successes.
Fintech Surge is the conference, exhibition and meeting point for the entire Fintech ecosystem taking place from 15-18 Oct at Dubai Harbour. Roundtable in partnership with: Fintech Saudi • geidea • findexable
frequently to ensure senior management have visibility of the model lifecycle and model risks, and to be acknowledged and to address the remediation defects plan to assure a continuous improvement in Model Risk Management.
The new Model Management standards (MMS) and Model Management Guidance (MMG) are bringing additional focus to Model Risk Management, as the banks in UAE are evolving and expanding their use of models in decisions and to drive automation across their business.
Though there were several table discussions with the banks and UAE Banking Federation (UBF) before the final release of the regulation, the requirements will bring challenges to all UAE financial institutions, particularly to the Chief Risk Officer who is integral to the implementation of the standards. The challenges are functional, operational, technical and perhaps the biggest challenge, the looming deadline of MidMay 2023 to complete and submit the Gap Analysis to the Central Bank of UAE (CBUAE). Despite the challenges, this is an opportunity for all banks in UAE to enhance Model Risk Management in line with international best practices.
The challenges seen from a functional perspective are related to the identification of models (considering the standards definition). How models are developed and validated, how models are used in decision making, in the policies, procedures and the reporting framework of how model
risks are managed, and how those model observations and remediation activities are effectively managed and prioritised by severity and tier and related due dates, will all be critical.
There are likely to be many operational changes required related to the implementation of Model Management Standards and Guidance and the gap assessment that is required to be completed by mid-May 2023. This means new teams will be in place (internal or third-party as vendors are indeed required), new committees (called “Model Oversight Committee”) may have to be designed, or the terms of reference of existing committees updated and held
New technology will have to be embraced and integrated with existing software in order to assure that the models’ inventory and all related details (such as model owner, data management, model qualitative and quantitative aspects, model lifecycle dates and the identity of those responsible for the lifecycle steps) will always be tracked and kept up to date. Workflows covering all stages of the lifecycle will need to be implemented to send on time notifications which will be sent to interested stakeholders and capture details of all the steps completed, to ensure a correct implementation of the standards and the guidance that banks will have in place.
Last but not least, time is ticking already towards the first reporting to the CBUAE regarding the gap assessment of each banks existing model risk management implementation and compliance with the regulations, having as a deadline 6 months from regulation issuing date.
All these challenges provide the biggest ever opportunity for a bank to relook at their end-to-end process and fill the gaps. They will bring together stakeholders from different departments including risk, infrastructure, IT, compliance, finance and even HR (as organisational charts might need to be updated, relevant training will need to be included into employees’ yearly programmes) for brainstorming sessions to identify the remediations to be implemented and reported at senior management level.
This will be another successful regulation roll-out and implementation in UAE banking sector and as an outcome, it will bring better models that will facilitate quicker credit decisions. These benefits may also see finance houses and smaller financial institutions adopt the standards as best practice, though at the moment are not mandated to adhere.
an opportunity for
enhance
We keep our promises. So you can keep yours.
Your family is your greatest wealth, and time with them is invaluable. With our diversified portfolio of investments across a range of markets and sectors, we can focus on making the right investment choices that safeguard your family’s future so you can focus on being by their side.
Realize your promise at gfh.com
