May 2024

Getting The Message Getting The Message

Onur Ozan Managing Director, Middle East, North Africa and Türkiye at Swift

ROADMAP TO EMBARK ON THE GLOBAL HORIZONS

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Technology Transfer

Welcome to the May 2024 issue of MEA Finance magazine.

The heading of this letter, Technology Transfer, is a term that when looked up is explained as the spreading, disseminating or transferring of technology from an individual or organisation to other individuals or organisations, or the process thereof. Here it serves to sum up of the main themes of this month’s coverage in the magazine. Inside you will encounter ample coverage of the deepening role of technology across wider parts of the regional banking sector as well as content covering the movement and transfer of finance in the processes of settling transactions. Both being vital to the health and growth of regional economies and both, very much mingling in their commission.

Our cover story for this month features an interview with Onur Ozan, Managing Director for the Middle East, North Africa and Türkiye at Swift. Onur describes how Swift is enabling regional growth and focusing on innovative new products and services that will be a key part of the dynamically changing payments landscape of the region, “Our instant and frictionless strategy is closely aligned with the G20’s goals to enhance the speed, cost, transparency, choice and access of cross-border payments”.

In keeping with the theme, we look into the central importance of Transaction Banking. This important banking function, key to client relationships and essential to the health of economies is in the in the throes of an evolution

that will witness this essential but slow to modernise banking sector develop in ways that will create new opportunities for incumbents and disrupters, “transactional banking holds a critical status within regional banks as it fosters a robust relationship with clients,” says Kyle Boag Managing Director, Regional Head of Global Payments Solutions, Middle East, North Africa and Türkiye at HSBC.

Our examination of banking technology throughout this issue is extensive, much like the impact it is making across the sector. Technology is effectively changing the fundamental identity of banks, bringing welcome efficiencies, growth and opportunity, as well as encouraging inclusivity. We hear from a large selection of regionally active businesses, discussing the current technology priorities of the banking sector and what is top of mind for the region’s CIOs and CTOs.

SMEs, often held up as the backbone of regional economies, are also given an airing in this issue. We look at their role in markets and how, recognising their importance and latent potential, authorities are mandating initiatives to encourage their growth and smooth their paths, “The UAE government has actively implemented several initiatives to bolster the SME sector,” says Emad Ahmed, EVP and Head of Commercial Banking at RAKBANK.

Our perennial market focus this month is on Bahrain, whose economy though linked to the fluctuations in oil prices, experiences narrower effects from them when compared with other GCC countries, due to well-established alternative revenue generating sectors and numerous economic diversification initiatives.

So, once again, it is our privilege that you transfer some of your valuable time in the reading of this issue, whether in the form of the traditional paper product or via your personal technology.

Significant fluctuations in online payment transactions across various sectors following recent severe weather conditions in the UAE

47% increase in airline online payment transactions and 11% increase in hotel and accommodation bookings

In the aftermath of recent severe weather conditions the UAE witnessed, global payments solution provider

Checkout.com has conducted a comprehensive analysis revealing significant shifts in transaction volumes across various sectors. The data sheds light on the profound impact of adverse weather on consumer online shopping behaviour and purchasing patterns.

Key findings underscore notable changes in transaction volumes particularly in sectors such as Supermarkets, Food & Drink, Vehicle Hire and the Motoring industry as a whole. The adverse weather conditions led to a significant decrease in online payment transactions, indicating a notable shift in purchasing patterns.

Supermarkets, a vital component of daily life, experienced a marked decline of 24% in transaction volumes. Disruptions in supply chains and reduced traffic movement, attributed to individuals staying indoors during the storm period, contributed to this decline.

The food & drink sector similarly witnessed a notable decrease in transaction volumes, with online payments declining by around 11%. Furthermore, sectors such as vehicle hire and the motoring industry also

Consumers in the UAE turn to online training and education as a method of self-development amidst severe weather conditions, as the sector sees 31% increase in transaction

experienced a 14% decline in online transaction volumes, reflecting the broader impact of severe weather on consumer behaviour and economic activity. This decline is consistent with the overall trend of decreased mobility and outdoor activities during adverse weather conditions.

Contrary to the downward trend observed in several industries, the clothing sector experienced a notable surge of 13% in online payment transactions. This increase can be attributed to consumers opting for the convenience and safety of

online shopping from the comfort of their homes during the storm period.

Additionally, the hotels & accommodation sector emerged as another domain witnessing an uptick in transactions, reaching as high as 11%.

This sector was directly affected by the severe weather conditions as stranded individuals had to seek alternative accommodation solutions, while others were forced to make amends as a response to their changed travel plans.

Checkout.com also uncovered a significant surge in online payment transactions within the training & education sector. The data reflects a 31% increase within this sector, a trend that underscores the growing demand for accessible and flexible learning options, particularly during periods of disruption caused by adverse weather.

Furthermore, flight tickets witnessed a significant increase in online payments amidst the severe weather conditions, reaching a remarkable 47%. This data suggested that travellers turned to online platforms to reschedule their flights or make new bookings in response to disruptions caused by the storm.

Commenting on these trends, Remo Giovanni Abbondandolo, MENA General Manager at Checkout.com, stated:

“The fluctuations in online payment transactions following the recent unprecedented weather conditions highlight the dynamic nature of consumer behaviour and market conditions. Our data-driven insights enable businesses to adapt and thrive in such challenging environments.”

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Arab Monetary Fund sees growth potential in Takaful market

The fund projects a continued annual growth of 5-8% for the Takaful sector

The Arab Monetary Fund (AMF) said that the Takaful sector, a Shariah-compliant form of insurance, remains a small player within Islamic finance, accounting for less than 2% of the total market.

Though the sector accounts for less than 2% of the Islamic finance market, it surpassed $30 billion in 2023.

A report that was released by the fund projects a continued annual growth of 5-8% for the Takaful sector in the

in the coming years

coming years, which is considered robust growth compared to conventional insurance market.

The AMF attributes this positive outlook to rising consumer awareness of Islamic finance, supportive government policies in many countries, and ongoing technological advancements.

However, the report also acknowledges the challenges facing the Takaful industry. Internal hurdles include difficulty in pricing risks, the potential for adverse

selection due to limited information, and the need for a standardised framework for governance and risk management.

External challenges arise from economic slowdowns caused by monetary tightening policies. This puts pressure on the entire insurance sector, including Takaful, due to factors like increased claims from business losses, lower investment returns and limited Sharia-compliant investment options.

The AMF emphasises the need for regulatory and supervisory authorities in Arab countries to actively support the Takaful sector. This includes providing effective oversight, identifying key legal and technical challenges, and fostering a conducive business environment.

Though the Takaful sector accounts for less than 2% of the Islamic finance market, it surpassed $30 billion in 2023. Image credit: WAM

Getting In Shape

Bahrain’s economy, though linked to the fluctuation in global crude oil prices, experiences narrower effects from this when compared with other GCC countries, due to well-established alternative revenue generating sectors and numerous economic diversification initiatives

Bahrain’s economic growth is expected to pick up in 2024 after slowing last year on the back of buoyant activity in the non-oil sector, as the Gulf state makes a push toward a sustainable and more diversified economic future.

The country’s economy moderated to 2.7% in 2023, driven by a 3.3% expansion in non-oil GDP, which was attributed to fiscal consolidation, increased interest rates and a base effect from strong growth in 2022.

Going forward, the International Monetary Fund (IMF) projected that GDP growth will recover to 3.6% in 2024 and

3.2% the following year, on the back of higher energy prices, easing monetary policy and stronger export growth.

“Bahraini economic growth in 2024 is expected to retain the firmness of 2023, supported by higher energy prices, easing monetary policy as a consequence of the peg to the dollar and stronger export growth,” French credit insurance firm Coface said last October.

Though oil accounts for 18% of the GDP and 75% of government revenues, Bahrain has taken significant strides to diversify its economy over the past two decades. The urgency of transitioning

to a greener economy cannot be over emphasised as the kingdom’s public finances deteriorate and a sustainable future beckons.

The country boasts of a relatively diversified economy, a beautifully regulated financial sector, a welleducated workforce and a friendly investment climate. Bahrain also has friends in high places.

Meanwhile, banks in the Gulf state have enjoyed steady growth over the past year, thanks to diversified business models and supportive domestic economic conditions.

Moody’s maintained its stable outlook on the domestically focused onshore Bahraini banking sector, citing growth in the non-oil economy and supportive operating conditions. The country is a highly banked economy that serves as a regional financial hub with a banking assets-to-GDP ratio above 600%.

Diversification drive

Bahrain, often seen as one of the weakest links among oil-rich Gulf nations, has the most diversified economy in the region with more than 83% of its GDP stemming

from the non-oil sector, according to the Bahrain Economic Development Board (Bahrain EDB).

The government in Manama has been implementing a series of reforms including increasing its standard valueadded tax (VAT), offering permanent residence to some foreigners and privatising some state-owned assets, as the country seeks to boost its public finances, balance its budget and trim its public debt levels.

“The authorities remain strongly committed to their fiscal and structural reform agenda as outlined in the Fiscal Balance Program (FBP) and Economic Recovery Plan with a focus on reducing the fiscal deficit, public debt and advancing diversification efforts,” said the IMF.

Bahrain’s golden license initiative has attracted $2.4 billion in investment since its launch in April 2023, contributing to economic diversification and growth, Bahrain EDB said in March. The longerterm business licenses offer benefits to companies bringing large-scale investment projects to the Gulf state.

Major investment and strategic projects that will create more than 500 jobs in the country or whose value exceeds $50 million will be eligible for the license.

Furthermore, Bahrain EDB said in February that it attracted $1.7 billion in direct investment in 2023 stemming from 85 projects across priority sectors including financial services, information and communication technology as well as oil and gas.

Bahrain also unveiled a permanent residency visa scheme in February 2022 to attract talent and investment, part of a growing trend in the region as states are offering more flexible and longerduration visas.

The golden residency visa will be renewed indefinitely and gives the holder the right to work in Bahrain, unlimited entry and exit and residency for close family members.

The Gulf state is reportedly considering selling stakes in state-backed entities

BAHRAINI ECONOMIC GROWTH IN 2024 IS EXPECTED TO RETAIN THE FIRMNESS OF 2023, SUPPORTED BY HIGHER ENERGY PRICES, EASING MONETARY POLICY AS A CONSEQUENCE OF THE PEG TO THE DOLLAR AND STRONGER EXPORT GROWTH

– Coface

including Nogaholding, which owns the country’s oil and gas assets, as the government in Manama is opening onceclosed industries to foreign investors.

The strategy mirrors initiatives that are being implemented by Saudi Aramco and UAE state-owned energy firm ADNOC Group.

Bahrain’s economy is closely linked to the fluctuation in global crude oil prices. However, the impact is much narrower compared to other GCC states due to the relatively diverse nature of the country’s economy.

Fitch Rating estimates that the breakeven fiscal price needed to balance the kingdom’s budget remains well above the budgeted target of $60 per barrel (bbl) in 2024, at $113/bbl.

Sustainable growth

Bahrain is taking threats to its longterm prospects head-on by encouraging high-value-added business sectors and leveraging its financial hub status to drive the next stage of economic growth.

Many analysts expect Bahraini firms to also benefit from large infrastructure and development projects taking place across the GCC, particularly in Saudi Arabia and the UAE, as contracts ripple across the region.

Coface said stronger economic growth in Bahrain’s key export markets –Saudi Arabia and the UAE – will sustain the contribution of net goods and services exports to the growth performance. The country is one of the world’s largest producers and exporters of aluminium,

which accounts for around 20% of the country’s total exports.

Bahrain unveiled its strategic projects plan two years ago. The initiative seeks to catalyse more than $30 billion of investments and a regulatory reform package designed to support $2.5 billion of foreign direct investment.

The Gulf state’s Vision 2030 economic blueprint is aimed at bolstering domestic employment and attracting investments in strategic non-oil sectors including tourism, housing as well as transport and logistics and energy. The projects include the building of five offshore cities, the country’s metro train and the expansion of Bapco’s oil refining capacity.

Meanwhile, the upgrade of the Bapco refinery, which will see production rise from the current level of around 240,000 barrels per day (bpd) to around 400,000 bpd by early 2025, is also expected to fill the government’s coffers.

Fiscal challenges persist

Bahrain’s public finances are in poor shape. The country pushed back a target of balancing the budget by two years to 2024 in response to the economic impact of the COVID-19 pandemic.

S&P Global Ratings revised the country’s outlook to ‘stable’ from ‘positive’ last November, citing spending pressures that could push its fiscal deficit wider than previously expected.

“Bahrain updated and extended its FBP in October 2021, changing the target date for a balanced budget to 2024 from 2022 (assuming an oil price of $60 per

barrel in all years),” the global rating agency said.

Bahrain’s budget deficit is projected to remain wide at 8.2% of GDP in 2024 and 2025, from an estimated 7.8% last year, according to Fitch Ratings, despite the country’s ongoing efforts to cut costs and control expenditure.

Though the authorities’ efforts to cut further both current and capital spending within the FBP will support the narrowing of the deficit, it will not be enough to reduce the debt burden.

Paris-based Allianz Trade projected that public debt would remain well above 100% of GDP in 2024, putting pressure on the government as interest rates stay high.

“We do not expect the government will achieve its fiscal balance target by 2024 but believe it will continue pursuing fiscal and structural reforms to strengthen its non-oil revenue. This will allow for continued, albeit slower, fiscal consolidation over our forecast horizon,” said S&P Global.

However, despite the reversal in some previous progress in narrowing the fiscal deficit, the National Bank of Kuwait (NBK) forecasted limited spending growth and the government’s commitment to its FBP remains intact.

Bahrain secured a $10.2 billion financial lifeline from its rich Gulf neighbours, the UAE, Saudi Arabia and Kuwait, in October 2018 to help cope with high debt levels and budget deficits. S&P Global said that though several billion of the GCC’s $10 billion zero-interest loan package remain to be disbursed by Kuwait, the fund might not be forthcoming in that form before the end of 2024.

However, the ratings agency said Bahrain’s wealthy neighbours remain committed to providing support through various channels including cheap loans from sovereign funds, capex grants and investment cooperation programmes.

Saudi Arabia’s Public Investment Fund (PIF) recently earmarked $5 billion in a specialised investment vehicle for Bahrain, focusing on tourism, transportation,

WITH DEBT ISSUANCE PICKING UP IN 2023-2024 TO COVER A LARGER FISCAL DEFICIT, BAHRAIN’S DEBT-TO-GDP RATIO

COULD

EDGE BACK UP SLIGHTLY

National Bank of Kuwait

–

infrastructure and the environment. Earlier in March, the Saudi wealth fund signed an MoU with Bahrain’s Mumtalakat to boost cooperation and investment in strategic sectors.

Bahrain’s relationship with its Gulf allies remains strong. The kingdom is likely to receive full disbursements under the GCC Support Package and there remains room for additional financial support beyond the program’s expiration in 2024.

“With debt issuance picking up in 2023-2024 to cover a larger fiscal deficit, Bahrain’s debt-to-GDP ratio could edge back up slightly,” NBK said in a report earlier in January.

Bahrain faces external debt redemptions of between $2 billion to $2.5 billion (5% of GDP) annually from Eurobond and Sukuk issuances. Its sale of $2 billion of debt in February was met by strong investor demand, as the country is taking advantage of a drop in US yields to help fund fiscal deficits.

A robust banking sector

Bahrain’s financial sector plays a preeminent role among GCC countries and contributes significantly to the local economy. The country’s financial services sector contributes 18.08% to the real GDP, according to official governmental figures.

The banking sector remains resilient with ample buffers and has so far withstood the phasing out of COVID19 measures and tightening financial conditions. Bahrain’s banking sector experienced a landmark year in 2023 and remains on a strong footing.

Banks in the Gulf state, like their GCC peers, continue to benefit from significant

noninterest-bearing deposits and despite some migration to time deposits, margins continued to strengthen over 2023.

“Net profit improved to 1.4% of tangible assets in the first nine months of 2023 as higher interest rates boosted net interest income. We expect net interest margins to remain at high levels, driving further growth in net interest income, until the cycle of rising interest rates begins to reverse, likely in H2 2024,” Moody’s said in a report in March.

Digital transformation is the future of Bahrain’s banking sector. The island nation has been actively trying to expand its fintech and finance industry to diversify and strengthen its nonoil economy.

Singapore’s Whampoa Group unveiled plans to set up the headquarters of its new digital bank in Bahrain in May 2023. Singapore Gulf Bank, as the digital bank is known, secured an investment from Mumtalakat in February, which is expected to enable the neobank to launch and grow its business after receiving a banking license from the Central Bank of Bahrain.

Banks in Bahrain are leveraging artificial intelligence to develop new customer experience initiatives aimed at shifting competition away from products to lifestyle banking.

Bahrain maintains business-friendly regulatory and legal frameworks and the government has taken significant strides to diversify the economy away from heavy reliance on oil revenues. However, the IMF emphasised the importance of implementing a mediumterm fiscal adjustment plan, safeguarding financial stability and accelerating structural reforms.

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The Birth of an Era

The impact of multiple new technologies is changing the fundamental identity of banks, bringing new growth opportunities and opening a door to innovative in-service delivery and new entrants to the market, but also to new threats and vulnerabilities

The global banking sector stands on the verge of transformational change. The adoption of artificial intelligence (AI), data processing and storage and cloud computing is creating a generational explosion of opportunities in banking.

“New-age players, emerging technologies and expanding regulatory compliance are transforming the banking landscape,” global consultancy firm Capgemini said while emphasising that innovations such as generative AI (GenAI) and Open banking will distinguish competitive frontrunners.

Banks in the Middle East region understand the critical importance of digital transformation. Incumbent banks face existential threats without modernisation as fintech disruptors and big tech firms are luring away customers with superior digital experiences.

From an institutional perspective, digitalisation is reinventing business processes and models while creating new compelling value propositions by leveraging Big Data, AI and other innovative technologies such as the cloud.

Industry experts expect AI to replace or at least lend a hand in tasks that take

up almost three-quarters of the time bank employees now spend working. Some of the region’s biggest banks have been experimenting with GenAI, spurred by the promise that the technology will boost staffers’ productivity and cut costs.

“The financial sector’s high density of data and communications makes it ripe for both improvement and attack by AI tools,” the World Economic Forum said in January, adding that greater transformation in the sector is coming with the fusion of AI and quantum technologies.

Furthermore, Open banking has gained momentum in the Middle East in the recent past – especially in the GCC region – making it a core element in the digitalisation of financial services.

By embracing Open Banking frameworks and APIs, the region’s banking system can create ecosystems that enable seamless integration of services, advance customer experiences and drive innovation.

Open banking drives improved collaboration between financial services providers, greater innovation and better products and services for customers,

global consultancy firm EY said in a report, as banking customers expect more convenience and flexible access to services.

Meanwhile, the cloud and other innovative technologies have opened up opportunities for banks to embrace an open banking strategy. Cloud computing provides banks with an opportunity to enhance their information technology (IT) services, acting as a powerful engine for business model innovation.

Banks in the GCC region are pushing full steam ahead with the transition to an agile culture, removing barriers to cross-functional collaboration and creating semiautonomous teams that can deliver solutions quickly in alignment with enterprise strategy.

The new operating environment calls for financial institutions that can identify and swiftly respond to customer demands.

Open banking

Open banking can seem a threat to traditional financial institutions, but the implementation of PSD2 in Europe demonstrated that the most forwardlooking banks see open banking for what it truly is – an opportunity.

Saudi Arabia, Bahrain and the UAE have been at the forefront of open banking implementation in the Middle East. PwC projected 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.

NEW-AGE PLAYERS, EMERGING TECHNOLOGIES AND EXPANDING REGULATORY COMPLIANCE ARE TRANSFORMING THE BANKING LANDSCAPE

– Capgemini

Bahrain was the first to mandate open banking and the UAE and Saudi Arabia are now making moves to follow their neighbour’s example. The kingdom issued its open-banking rules in 2018, followed by a framework with guidelines on data sharing and governance in late 2020. The government is implementing a Europeanstyle regulation-driven approach.

Following the issuance of its open banking policy in January 2021, the Saudi Central Bank (SAMA) published its full open banking framework in November 2022, with an initial focus on account information services to be followed in the second phase by a focus on payment initiation services.

SAMA introduced an ‘Open Banking Lab’ in December 2022 to speed up the development of open banking in Saudi Arabia. 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

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

– PwC

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, 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. However, the proliferation of advanced technologies is exposing banks to risks that they may have never grappled with in the past.

Open banking and the increase in partnerships with technology partners can open banks to new vulnerabilities and cyberattacks. Similarly, fourth-party risks are becoming more of a threat as banks engage in more partnerships with service providers that have their vendors.

The GCC is one example of an emerging global Open banking microcosm and PwC expects the innovative technology to reshape the financial services landscape. The region’s varying levels of open banking implementation and regulation present distinct opportunities for the financial service sector.

Banking on AI

Financial institutions are leveraging data and AI in a variety of ways, though many current use cases are still focused on risk management and cost savings rather than advanced customer engagement. McKinsey forecasted that GenAI could have a significant impact on the banking sector, boosting productivity by between 2.8% and 4.7% of annual

turnover, representing an additional gain of between $200 billion and $340 billion.

“The emergence of AI is disrupting the physics of the banking industry, weakening the bonds that have held together the components of the traditional financial institutions and opening the door to more innovations and new operating models,” said Deloitte.

GenAI is making remarkable progress in a wide array of industries, the financial services sector included, as demonstrated by the rollout of OpenAI’s GPT-4 and Google parent Alphabet’s Bard.

“GenAI offers CEOs the chance to reshape their bank, empower customers, amplify their productivity and increase profitability,” Accenture said in a report earlier in 2024. However, the global consultancy firm highlighted that many banking executives recognise that to realise the full potential of the innovative technology it should work in tandem with human ingenuity.

“The banking industry is highly digitalised, data-driven and its staffing costs are high. All these factors position it well for broad efficiency gains from AI,” said Moody’s. The innovative technology can help banks reduce costs and increase profitability, maintain a competitive edge in a rapidly changing financial ecosystem and improve operational efficiency across front-to-back-office functions.

The use of AI will allow banks to transition from reacting to queries to proactively solving problems, thereby improving the customer experience even more. Hyper customisation is a big trend within the banking sector as customers are looking for a personalised, tailored service rather than a one-size-fitsall approach.

“Traditional AI and predictive analytics will decide on the prompts and the messages to deliver to the customer while GenAI will deliver those prompts and messages in a nonintrusive, human-like and personalised manner,” according to Boston Consulting Group (BCG).

Banks have unique issues that require unique solutions. AI allows

banks to identify actionable insights by analysing customer data and providing personalised services.

The emergence of GenAI technology, capable of creating and predicting based on massive amounts of data, is a huge change that promises to further transform banking operations and strategy.

Cloud banking

The cloud is the backbone of digital innovation, and it is shaping the future of the banking sector. The transformative technology 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.

unavoidable with on-premises systems,” according to PwC.

Data analytics and the cloud have become essential pillars of the GCC region’s banking sector, revolutionising traditional banking practices and ushering in a new era of innovation and customer-centricity.

The innovative technology especially the Software as a Service (SaaS) and Banking as a service (BaaS) models offers banks several opportunities such as easier customer data analytics and sharing, improved marketing time, cost reduction and enhanced flexibility and operational efficiency.

Deloitte said the cloud delivers an array of innovative ‘products-as-a-service’ that can help banks implement business and

GENAI OFFERS CEOS THE CHANCE TO RESHAPE THEIR BANK, EMPOWER CUSTOMERS, AMPLIFY THEIR PRODUCTIVITY AND INCREASE PROFITABILITY

– Accenture

BCG said in a report last October that the cloud can help banks remain competitive in a rapidly digitalising world, enabling them to adopt new functionalities and solutions efficiently and rapidly in a cost-effective manner without the time and cost-intensive need for significant internal investment.

Banks are unlocking new ways to get closer to their customers as digitalisation is reshaping the financial services sector. The cloud offers several business benefits for incumbent banks including increased flexibility, business agility, lower cost of IT and quicker access to innovation.

“Cloud computing has opened countless doors for financial services firms, giving them the freedom and flexibility to innovate, without the time and resource commitments that are

operating models to augment revenue generation, increase customer insights, cut costs and deliver market-relevant products quickly and efficiently.

The shift toward digitalisation, accomplishing tasks digitally instead of on paper or in person, has accelerated rapidly over the years.

Digital transformation in the banking sector is more than just a trending topic but is a necessity for institutions to cope with regulatory requirements in order to identify and mitigate potential risks, empower customers and provide them with personalised services and products. Going forward, investment in digital transformation across the Middle East is expected to continue as banks seek to further accelerate the modernisation of their technology platforms.

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BANKING TECHNOLOGY

The Trajectory of Technology

Murali Rajagopalan Banking & Financial Services Leader at GBM Dubai explains the accomplishments, the priorities, the development paths and the top concerns of bankers as the technological driven momentum continues

What are the current technological priorities or essentials for banks in the region?

The banking industry is experiencing rapid transformation and continues to lead in implementing digital initiatives across the region. According to IDC, banks in the META region are poised to increase technology investments by 6% this year, focusing on critical areas such as security, data modernisation, big data analytics and AI and machine learning solutions.

These changes are driven by the evolving technology landscape, shifting customer expectations and the need for banks to grow their customer base and enhance profitability. As a result, banks are prioritising embracing various emerging technologies in their digital transformation journey, to offer secure and innovative digital services, streamline operations and enhance customer engagement.

Within this, cloud migration and security are a key focus for improving trust, agility, scalability and cost-efficiency. Adoption of intelligent platforms utilising automation and GenAI are also a focus for enhancing customer experiences. This is specifically to cater to “Digitally Native” consumers who demand convenient

mobile-based financial transactions. Furthermore, the rise of Neobanks, or digital-only banks, is also noteworthy, leveraging cloud-based technologies to deliver fully digital services.

How do you see Open Banking developing over the next few years?

Open Banking is poised to undergo significant developments over the next few years, shaping the future of the financial industry. APIs are enabling banks to experiment with cutting-edge technologies and novel use cases,

creating new business opportunities and microservices, particularly in enhancing customer experiences and establishing digital ecosystems. Some regional banks are providing API sandbox environments, allowing Fintechs to experiment and develop real-world applications and services. Ultimately, these collaborations between traditional banks, FinTechs and other third-party providers will further drive competition and open up new avenues for innovation, creating diversified financial solutions for consumers.

One major trend that will continue to gain traction is embedded finance, where we see financial services increasingly integrate into everyday applications, offering consumers greater accessibility and convenience. We will also see GenAI and predictive analytics play a bigger role in Open Banking, offering personalised experiences, tailored products and recommendations.

Moreover, Banking as a Service (BaaS) and Variable Recurring Payments (VRP) are two other trends that we’ll also see in the future of Open Banking. BaaS allows nonbanking entities to offer financial services, erasing the boundaries between traditional banking and other industries. VRP, on the other hand, enables flexible and variable payment schedules, offering consumers greater control over their finances.

Furthermore, as Open Banking expands, there will be a heightened emphasis on security measures. To address expanding attack surfaces, comprehensive and innovative security approaches including proactive API security and governance will continue to be crucial.

Are we now seeing tangible instances where the use of AI has brought enhanced benefits to banks?

Conversational, personalised banking experiences are becoming the norm, where banks are now able to reach out to customers proactively with timely advice and offers. This is made possible through

Muralidharan Rajagopalan, Banking & Financial Services Leader at GBM Dubai

enhanced online and mobile banking, as well as AI and ML-based customer service tools like chatbots and smart branches.

Using AI and automation, banks are also deriving invaluable benefits through realtime and contextual customer experience and centricity. These applications are transforming banking by offering more personalised experiences through the analysis of customer behaviors, trends and patterns, and by customising online and mobile banking services. The introduction of voice and facial recognition, along with other biometric data, is further refining personalised and secure offerings in banking.

AI is also enabling banks to achieve more with less, increasing productivity and consistency by optimising business processes and automating timeconsuming, mundane tasks. This shift is freeing employees from repetitive work, allowing them to focus on highervalue tasks.

Do you foresee any limits to the abilities of or to the usage of AI in banking?

AI is already proving to be a versatile technology that can be applied across a wide range of business functions, and there are various opportunities for banks to re-imagine how AI can improve their operations.

However, although most banks are undergoing digital transformation, they are not all at the same level of maturity when it comes to AI implementation and deriving meaning out of their data. To navigate this journey effectively, banks must address organisational and technological barriers and have a clear vision for the future. These include concerns around data privacy and security, regulatory compliance, ethical considerations and the potential for algorithmic bias. Upskilling employees with necessary tools and abilities is crucial, as is effective data management to ensure efficient use of the right data. Thus, working with technology partners who possess the right capabilities and industry understanding is crucial.

HAVING THE RIGHT CLOUD STRATEGY AND MAKING THE RIGHT DECISIONS ON CLOUD INFRASTRUCTUREAND WORKLOADS, ARE VITAL TO KEEPING BUSINESS COMPETITIVE

Looking ahead, banks should aim to leverage the potential of cognitive computing, positioning themselves at the forefront of technology with AI platforms that enable innovations like image recognition and new customer experiences. This approach can lead to faster time-to-value, supported by lightning-fast infrastructure and efficient AI tools that handle larger data models and deliver faster insights.

Which cloud use preferences are emerging amongst regional banks – Public, Hybrid, Private or a combination?

When it comes to cloud, there are many different solutions available, offering various levels of performance, scalability and efficiency. Having the right cloud strategy and making the right decisions on cloud infrastructure and workloads, are vital to keeping business competitive. With this, regional banks have fast-tracked their adoption and use of cloud and are increasingly adopting a combination of cloud use preferences, often leaning towards hybrid and private cloud models. While public clouds offer scalability and cost-efficiency, concerns about data security and regulatory compliance drive banks to prefer private or hybrid clouds.

This trend is highlighted by forecasts from Gartner, indicating that in 2024, the MENA region is expected to see the highest growth rate in spending on data privacy, with a projected increase of 24% year-over-year. Additionally, Gartner predicts a 17.4% increase in spending on cloud security for the current year. Hybrid clouds, combining on-premises infrastructure with public and private

clouds, allow banks to maintain sensitive data in a secure on-premises environment while utilising the scalability of public clouds for less sensitive operations. This approach offers flexibility and cost savings, making it an attractive option.

What currently keeps the region’s bank CTO’s and CIO’s up at night?

Cybersecurity remains a top concern for CTOs and CIOs in the banking sector, given the industry’s monetary nature and the increasing complexity of digital threats. There is a growing urgency for Zero-Trust architecture to take center stage and guarantee more robust security from all angles. Ensuring the 24/7 security and availability of applications and data is paramount to meet customer expectations. This include striking a balance between maintaining safety and accessibility, while still implementing new technologies around AI, blockchain, and cloud computing to enhance customer experiences and competitiveness. Accelerating efforts to bring digital resiliency and innovation to the heart of the digital transformation journey, while managing legacy systems alongside these new technologies adds to the complexity faced by CTOs and CIOs. Regulatory compliance is another significant challenge, requiring banks to navigate a complex regulatory landscape while maintaining operational efficiency. Success hinges on a strategic, longterm approach to technology adoption, prioritising initiatives that align with core business goals and avoiding the pitfalls of deploying multiple new technologies without clear alignment to business objectives.

BANKING TECHNOLOGY

Unrelenting Innovation

Muhammad Ameer Hasan Solutions Engineer, Backbase, explains that the GCC banking sector stands at the threshold of a revolutionary transformation shaped by the advent of generative artificial intelligence (GenAI), a cloud-first approach to digitalisation and the relentless pursuit to augment customer experience

What are the current technological priorities or essentials for banks in the region?

Banks in the GCC are proactively integrating emerging technologies into their operations, yet they recognise the crucial need to prioritise foundational improvements as well. This balancing act is essential as they strive to not only keep pace but to lead in a fiercely competitive market. Key focus areas include forging a future-proof operating model and enhancing digitalisation and automation to ensure seamless customer journeys.

As part of foundational improvements, banks are focusing on delivering use cases such as instant loans, alternative payments, digital account opening for Retail and SME, investing and more which have become essential in the region. Additionally, banks are also investing significant effort into emerging technologies like Open Banking, AI-driven chatbots, Blockchain and Super Apps to extend these capabilities for their customer base.

At Backbase, our current product and future roadmap is aligned with these priorities, with exciting out of the box offerings that include account aggregation, transaction enrichment, personalised financial insights, robo advisory, digital investing, super apps and more, all designed to enhance the customer banking experience.

How do you see Open Banking developing over the next few years?

Open Banking will play a pivotal role in reshaping the financial sector in the coming

years. Previously, financial institutions were cautious about sharing sensitive customer data, largely due to concerns over regulatory compliance and losing potential competitive advantages. However, with the advancement of Open Banking technologies, supported by robust regulatory frameworks and propelled by fintech innovation, we are witnessing a significant shift in this mindset. The IBSi forecasts that the Open Banking market in the Middle East will expand by 25% annually over the next five years, potentially hitting $1.17 billion. This growth indicates a strong, region-wide adoption as banks begin to realise the substantial benefits Open Banking offers—aligning perfectly with their strategic goals and performance metrics. Through the strategic application of Open Banking technology, banks are poised to introduce compelling use cases aimed at bolstering both customer acquisition and retention. These offerings encompass a spectrum of services, ranging from seamless account opening and account aggregation to transaction enrichment, credit scoring and beyond. These examples merely scratch the surface of the diverse array of use cases available in the market. Open Banking’s primary objective is to facilitate the unrestricted flow of valuable customer data. By harnessing this data, both banks and fintechs can further build exciting use cases that resonate with customers. The future of Open Banking remains promising, with ample opportunities for continued growth and advancement.

Are we now seeing tangible instances where the use of AI has brought enhanced benefits to banks?

Absolutely. Artificial Intelligence is not just enhancing but revolutionising banking operations, particularly in the Middle East where banks are pioneers in adopting AI-driven innovations. These solutions are significantly changing how banks operate, delivering profound efficiency improvements and superior customer experiences.

Muhammad Ameer Hasan, Solutions Engineer, Backbase

Examples include AI-driven chatbots, advanced credit scoring, personalised banking experiences and robo-advisory services. These use cases showcase AI’s versatility across different banking domains, from credit assessment to fraud detection and customer support, delivering extensive advantages. To optimise AI’s performance, my advice to banks is that they must first eliminate fragmented IT architecture and instead consolidate operations into a unified platform. This approach seamlessly aggregates data from various customer touchpoints, enhancing process efficiency and enabling AI-driven insights to identify critical events and uncover customer opportunities.

Which cloud use preferences are emerging amongst regional banks – Public, Hybrid, Private or a combination?

Lately, there has been a noticeable increase in interest towards cloud-only or hybrid deployment models. Banks are recognising that to remain competitive in a constantly evolving market, fostering rapid innovation is imperative. Hosting in an environment that offers flexibility, scalability and reliability is considered one of the most effective methods to drive innovation forward. However, from a bank’s standpoint, it’s understandable that not all systems and data can transition seamlessly to the cloud due to compliance, legacy systems and regulatory constraints. This is precisely where the hybrid model comes into play. Companies like Backbase remain entirely agnostic regarding deployment methods, thereby accommodating all potential models.

Within the realm of cloud offerings, the Software as a Service (SaaS) model is emerging as a particularly favored option, particularly among banks with smaller IT teams striving to compete with digital frontrunners. For such banks, a SaaS solution proves optimal, as it transfers the responsibility of hosting, maintenance and the development

of new capabilities entirely to the software provider, allowing the bank to concentrate on its core competency of customer service.

What currently keeps the region’s bank CTO’s and CIO’s up at night?

Bank CTOs and CIOs in the region face a relentless array of challenges, from escalating cybersecurity threats to the crucial tasks of developing internal talent and fostering an innovative culture. Attracting skilled professionals also remains an important priority. Furthermore, the pressing demand for rapid digital transformation initiatives cannot be overstated. This involves not merely modernising legacy systems, but also strategically harnessing data for actionable insights and integrating cutting-edge technologies like AI and blockchain into their operations.

Among these, two challenges particularly dominate the landscape: Fintech distribution: The emergence of non-traditional players such as

banks. The days of relying on physical branches for services or enduring lengthy application response times are swiftly fading into obsolescence.

Legacy Systems: Legacy systems in banking pose significant challenges to innovation. These systems, often outdated and inflexible, hinder banks’ ability to adapt to rapidly changing market dynamics and customer expectations. Additionally, maintaining and upgrading legacy systems can be time-consuming and costly, diverting resources away from innovation initiatives. As a result, banks end up losing market to nontraditional players mentioned above. To address these challenges, banks must commit to modernising their IT infrastructure. However, the complexity of transformation projects often weigh heavily on the minds of CIOs and CTOs. My advice to these banks is to adopt a progressive modernisation approach and prioritise the layers that will produce maximum impact. For instance, by focusing on transforming the

THE FUTURE OF OPEN BANKING REMAINS

PROMISING, WITH AMPLE OPPORTUNITIES FOR CONTINUED GROWTH AND ADVANCEMENT

neobanks and embedded finance use cases are steadily claiming market share. While various factors contribute to their success, one pivotal element warrants attention: their modern IT architecture. This infrastructure empowers them to thrive in innovation by swiftly developing new capabilities or seamlessly integrating with relevant systems to deliver tailored services to customers. Equipped with such a flexible platform, non-traditional players surpass customer expectations by providing personalised, seamless experiences and extending beyond traditional banking services. Consequently, customers now anticipate higher standards from their

engagement layer, banks can enhance all customer touchpoints, streamline operations through automation, and achieve a comprehensive 360-degree view of customers for more effective support. Looking ahead, the engagement layer will become the main driver for innovation, with other downstream modules serving primarily as systems of record for storing and sharing data.

At Backbase, we expedite Digital transformation projects by providing outof-the-box apps, configurable journeys, core, CRM and fintech connectors and more, empowering banks to accelerate their journey towards a modernised and customer-centric banking experience.

LEADING SAUDI ARABIA’S DIGITAL

BANKING REVOLUTION:

Arab National Bank’s Journey with Infosys Finacle

Naif Alharbi Chief Information Officer at Arab National Bank talks with Sriranga Sampathkumar Vice President and General Manager, Middle East and Africa and Infosys Finacle about their digital vision and strategy to lead in the market

In the shifting sands of Saudi Arabia, where the winds of change blow with the force of Vision 2030, Arab National Bank (ANB) stands as a beacon of digital transformation in the Kingdom’s financial landscape. As the Kingdom charts its course towards a tech-forward future, ANB emerges not just as a participant but as a leader, actively shaping the contours of digital banking in the region.

In a conversation with Naif Alharbi, the bank’s Chief Information Officer, Sriranga Sampathkumar, Vice President and General Manager – Middle East and Africa, Infosys delves into ANB’s visionary strategy, meticulously designed to navigate the digital terrain and emerge victorious. With an unwavering focus on

Naif Alharbi, Chief Information Officer, Arab National Bank

Sriranga Sampathkumar, Vice President and General Manager – Middle East and Africa, Infosys Finacle

innovation and customer-centricity, ANB is poised to redefine the banking experience, leveraging advanced technologies and strategic partnerships to drive unprecedented growth and success.

Sriranga: I sincerely thank you, Mr. Naif Alharbi, for generously dedicating your time to this interview. I’m thrilled about having an insightful discussion ahead. To start with, tell us about your vision for ANB and how do you plan to succeed with scaling digital transformations?

Naif: Before delving into our vision, let’s zoom out and examine how we’ve been bolstering our digital banking initiatives. In early 2021, our focus shifted towards accelerating growth and making a significant impact in line with Vision 2030. Our mission is not only to keep pace but to lead in several critical areas.

To achieve corporate leadership, our goal is to become the preferred bank for large and mid-corporates. As an SME champion, we aim to emerge as the premier bank for SMEs in KSA. Targeting mass market growth, we’re expanding to cater to broader segments. To achieve affluent market dominance, our aim is to lead in serving KSA’s affluent customers. Being a capital market player, we strive to be top contenders in capital markets with ANBC.

It’s essential to note that technology isn’t just part of our strategy; it’s the foundation of everything we do. We’ve developed an evolving tech ecosystem that’s as dynamic as the market itself. To this effect, the bank has a three-pronged strategy: one, to embrace modern tech architecture and open systems that adapt swiftly; two, smart tech delivery, refining our approach to implementing tech solutions for effectiveness and timeliness; and three, to attract and retain the best IT talent to maintain our competitive edge.

Looking ahead, we envision ANB becoming a transformative leader in banking innovation. By leveraging advanced technologies such as AI, Cloud and big data analytics, we enhance service levels and operational efficiency.

This tech-driven approach not only enhances customer experiences but also positions us as pivotal players in the banking industry’s transformation.

Sriranga : How are the evolving demands of customers in Saudi shaping ANB’s digital strategy to meet their needs?

Naif: It’s no exaggeration to say that Saudi Arabia is sprinting ahead in the global digital banking race. As reinforced under Saudi’s Vision 2030 program, the country aims for cashless payments to make up 70 percent of the total by 2025 — effectively leading the charge in the Middle East for digital banking adoption. Saudi Arabia is all about digital. Indeed,

Naif: As highlighted in my response regarding our vision, we are committed to leading in digital transformation. A crucial part of this commitment has been modernising our legacy systems to not only achieve our business goals but to drive the industry forward. The core of this transformation is adopting a modern, flexible and open architecture. That’s exactly why we chose Finacle Core Banking. Its latest version offers a componentised, API-driven architecture that aligns perfectly with our needs.

Our IT transformation strategy was clear from the start: integrate Finacle seamlessly to enhance our service delivery and operational efficiency. By

SAUDI

IT’S

NO EXAGGERATION TO SAY THAT

ARABIA IS SPRINTING AHEAD IN THE GLOBAL DIGITAL BANKING RACE

with over three-quarters of the kingdom’s banking customers already embracing online and mobile platforms for their financial transactions, the bar is set high for meeting the expectations of our techsavvy customers.

In alignment with Saudi Arabia’s vision for a cashless society by 2030, we at ANB are pushing the boundaries just as aggressively. We’re not just keeping pace; we’re setting the pace. Our digital banking isn’t static—it’s dynamic. We recently gave our mobility solution a major facelift and continue to roll out new features almost monthly. This relentless innovation underscores our commitment to transforming our digital services to not only meet but exceed the growing needs of our digitallyadvanced customers.

Sriranga: What factors influenced your decision to adopt Finacle Core Banking and what was your IT transformation strategy to make this a success?

leveraging its advanced features, we’ve been able to innovate faster, deliver services more efficiently and provide a superior customer experience that keeps us at the forefront of the banking sector.

Sriranga : In what way was the adoption of an open, API-driven, and componentised architecture help power your business?

Naif : In my previous response, I touched upon our strategic shift towards a modern, flexible and open architecture at ANB. This isn’t merely an upgrade; it’s revolutionising how we operate. Here’s why this open, API-driven and componentised architecture is a gamechanger for us:

Innov ative Front-Ends: We’ve reimagined our customer interfaces to be more vibrant and user-friendly. Our open tech stack allows for an intuitive banking experience that evolves with customer needs, ensuring every interaction is seamless.

Efficien t Back-Ends: We’ve overhauled our legacy systems, drastically reducing the time to launch new digital features. This efficiency boost means we can speed products to market faster than ever, staying ahead in a competitive landscape.

Expanded Third-Party Ecosystem: Our new architecture facilitates smoother connections with third-party services, significantly broadening our ecosystem. This not only enhances our service offerings but also adds incredible value for our clients.

Data-Driven Insights: Our robust data architecture goes beyond mere data collection; it transforms data into actionable insights. This strategic use of data drives smarter business decisions and ramps up our operational efficiency.

BY LEVERAGING ADVANCED TECHNOLOGIES SUCH AS AI, CLOUD AND BIG DATA ANALYTICS, WE ENHANCE SERVICE

LEVELS AND OPERATIONAL EFFICIENCY.

the charge as we pivot towards a cashless economy. We’re not merely joining the digital payment revolution; we’re spearheading it. Our strategy? Offering a diverse and robust range of payment options that cater to our clients’ needs, from real-time settlements to a comprehensive suite of payment products.

With Saudi payment transactions poised to grow at over 8% annually and digital commerce projected to exceed USD 40 billion by 2025, the opportunity

operations—we’re revolutionising the way these integrations improve their experiences. This strategic move boosts both the scalability and resilience of our payment systems and places us in an ideal position to seize the growing opportunities in digital payments, ensuring ANB remains at the cutting edge of this dynamic field.

Sriranga: What were the reasons for choosing Infosys Finacle as a partner and how do you see this partnership evolving?

WITH SAUDI PAYMENT TRANSACTIONS POISED TO GROW AT OVER 8% ANNUALLY AND DIGITAL COMMERCE PROJECTED TO EXCEED USD 40 BILLION BY 2025, THE OPPORTUNITY FOR ANB TO STRENGTHEN OUR MARKET PRESENCE IS TREMENDOUS

Naif: Choosing Infosys as our partner was a strategic decision, influenced by their extensive experience in delivering innovative banking solutions. Our longstanding relationship with Infosys has fostered a deep understanding between our teams. This mutual comprehension has been crucial as they align well with our goals and overall vision.

Overall, this architectural transformation empowers us to respond dynamically to market demands, innovate continuously and maintain a competitive edge in the digital banking era.

Sriranga : How do you intend to enhance scalability and resilience of your bank to capitalise on opportunities in digital payments?

Naif : Payment innovation isn’t just on our agenda at ANB—it’s leading

for ANB to strengthen our market presence is tremendous. We’re dedicated to delivering payment solutions that are not just reliable but also scalable and resilient.

Our tactical approach harnesses the latest in Open Banking and Bankingas-a-Service (BaaS) innovations. By enhancing our platform and broadening our ecosystem, we’re doing more than just integrating our solutions into client

Through this partnership, we leverage their technological expertise, which includes componentised and APIdriven architectures, enhancing our operational scalability and our ability to serve our clients effectively. As we move forward, I anticipate this partnership will continue to evolve, adapting to new technological advancements and further enriching our service offerings, ensuring that ANB remains at the forefront of banking innovation.

Sriranga: As we conclude our insightful discussion, I want to extend my heartfelt gratitude to Naif for his valuable insights and vision. It’s been a pleasure exploring the innovative strides ANB is taking in the digital banking realm. I eagerly anticipate our continued collaboration and the achievement of more milestones together.

Supercharging the Economy’s Engine

The vital role of SMEs in drivng economic diversity and performance is a given, and now regional governments are further strengthening this vital sector by developing supporting initiatives and unlocking financing opportunities

Middle East countries are diversifying their economies away from reliance on oil revenues and the small and medium-sized enterprises (SMEs) sector is the engine of growth that is contributing to National Visions such as Saudi Vision 2030 and the UAE’s Operation 300bn.

“SMEs contribute significantly to GDP and provide jobs for the majority of private sector employees, an important asset in

the GCC where most countries have employee nationalisation programs,” according to Deloitte.

The Middle East is home to millions of SMEs, including startups, that see the region as a strong place to start and grow a business.

Within the region, the GCC scaleups segment – SMEs with proven business models that are undergoing a rapid growth phase – contribute between 15 to 30% of the GDP.

The success of the sector is being driven by a range of dedicated support initiatives, regulatory changes and a robust financial services sector.

Banks in the Gulf region, through their cautious lending approach, are increasingly focusing on lending to SMEs as the sector forms a booming market and provides an opportunity to diversify from concentrated lending.

However, SMEs still face challenges that are general with other entities within the economy and particular to their size and nature, especially in the wake of a slowing global economy, stickier-thanexpected inflation and higher-for-longer interest rates.

GCC countries recognise the importance of SMEs and startups as key to economic growth and governments are implementing an array of initiatives and programs to support and nourish them.

This support starts from the initial creation of SMEs or startups and expands to providing technical assistance, financial lines and access to local and global markets. “With the right support, small and medium-sized enterprises could significantly boost economic growth. Governments can help capture this opportunity,” said McKinsey & Co.

Though global shocks might have a ‘limited impact’ on oil-rich GCC countries, governments are creating enabling environments to ensure the resilience of SMEs to future shocks while fostering their ability to drive sustainable growth.

A cornerstone of GCC economies

Despite warnings of economic uncertainty due to geopolitical and OPECled oil production cuts, the Middle East region’s oil exporters are seen faring better, with the International Monetary Fund projecting 2.9% GDP growth in 2024, up one percentage point from the previous year.

The SME sector is a key pillar of GCC economies and the main driver of employment and economic growth. Small businesses in the region remain positive about the sector’s growth prospects, driven by state support for entrepreneurs and investors.

Both the public and private sectors in the Gulf region have been developing programs to catalyse the growth of SMEs, including startups.

“Governments and development organisations in the GCC region recognise the important role that SMEs play in promoting economic improvement, job creation and entrepreneurship and are working to support the development and growth of the SME sector,” global consulting firm Arthur D. Little said in a report in June 2023.

SMEs account for 94% of companies in the UAE private sector and contribute significantly to non-oil GDP and job creation, representing 86% of the private sector’s workforce. In Dubai alone, SMEs constitute 95% of all businesses, create

42% of employment opportunities and contribute 40% to the city’s GDP.

Small businesses in the UAE receive support from the National SME Programme, the UAE SME Council, Operation 300bn, the UAE’s industrial strategy, the Khalifa Fund and Dubai SME.

Earlier in January, Dubai unveiled an AED 500 million financing programme to bolster the emirate’s position as a global business hub and advance the role the private sector plays in nurturing the growth of its economy.

The latest report by Monsha’at shows that the number of SMEs operating in Saudi Arabia grew an impressive 3.1% in Q4 2023 to more than 1.3 million.

Saudi Arabia won the right to host the Expo 2030 world fair last November. The international fair is expected to foster key knock-on opportunities for SMEs, particularly in the design, hospitality, transport, clean energy and infrastructure sectors.

Monsha’at said SMEs across the ecosystem will benefit from nearly $1 trillion being invested over the next seven

SMEs CONTRIBUTE SIGNIFICANTLY TO GDP AND PROVIDE JOBS FOR THE MAJORITY OF PRIVATE SECTOR EMPLOYEES, AN IMPORTANT ASSET IN THE GCC WHERE MOST COUNTRIES HAVE EMPLOYEE NATIONALISATION PROGRAMS

– Deloitte

The first phase of the Dubai International Growth Initiative, which was launched in partnership with Emirates NBD, is open to select sectors including food and beverage, fast-moving consumer goods retail and e-commerce.

Last November, the Abu Dhabi Department of Economic Development (ADDED) also launched the ‘SME Finance Facilitator’ programme, in partnership with local banks to advance SMEs’ access to financial services. The new initiative is part of ADDED’s ongoing efforts to enhance the business ecosystem for SMEs as a key driver of a vibrant, diversified and sustainable economy.

Saudi Arabia’s SME sector has proven resilience over the years, demolishing barriers to entry in traditional sectors and opening new avenues of growth. The Small and Medium Enterprises General Authority (Monsha‘at) is a significant player in the industrial SME ecosystem.

years ahead of Riyadh Expo 2030. Small businesses in Saudi Arabia are a force to reckon with as the country continues to diversify its economy in line with Vision 2030 economic transformation strategy. Similarly, countries in the GCC and the wider Middle East region are implementing dedicated SME strategies that incorporate small businesses in national development agendas. Small businesses represent a significant part of the region’s economy and the sector is one of the strongest drivers of economic development, innovation and employment.

Unlocking funding for SMEs

The increasing economic contribution of small businesses in the GCC presents many opportunities for growth in the region.

SMEs in the GCC demonstrate a strong rebound in growth following the external pressures faced during and post the COVID-19 pandemic,

RAKBANK said in a report in March while underscoring the significant optimism toward the future amid strong appetite to expand internationally.

Funding commitment to SMEs is key in realising the sector’s overall contribution to sustainable growth across the GCC region. GCC governments have introduced scale-up programs to help SMEs unlock their potential and grow faster.

Similarly, development funds, banks, lending and insurance institutions in the region are also extending support to SMEs. Last October, the Central Bank of Bahrain said funding for SMEs is targeted to comprise 20% of local retail banks’ local loan portfolio by 2025.

Initiatives such as the Al Waha Fund of Funds, the Bahrain Investment Market, Support for Phase 1 Startups and the Public Procurement Financing Programme for SMEs – have had a significant impact on developing financing processes in the kingdom.

The UAE’s state-run Emirates Development Bank has disbursed AED 3.3 billion in loans to SMEs in 2023 and a total of AED 1.3 billion under its credit guarantee scheme with partner banks as the country is targeting one million SMEs by 2030.

Last November, the Abu Dhabi Global Market unveiled Numou – a cutting-edge digital platform to financially empower and support the growth of the SME ecosystem in the UAE. The innovative digital platform’s partners include RAKBANK, Al Maryah Community Bank, Commercial Bank International, Khalifa Fund and Mastercard.

RAKBANK, Al Maryah and Commercial Bank International committed AED 100

million, AED 100 million and AED 20 million to Numou, respectively.

Saudi Arabia’s Small and Medium Enterprises Bank (SME Bank), a development bank under the National Development Fund, has disbursed $6.7 billion (SAR 25 billion) over the past four years and plans to raise the SME sector’s contribution to the GDP from 20% to 35% under to support Vision 2030.

The latest figures released by the Saudi Central Bank (SAMA) in December revealed that the total value of loans to SMEs increased by 17.8% year-on-year to $71.63 billion (SAR268.6 billion) in the third quarter of 2023.

SMEs are often the hardest hit when crises emerge and the recent global banking crisis, soaring inflation and soaring interest rates have been no exception. The sector wants banks to be timely, responsive and adaptable, working with the same agility and flexibility as them.

Scaling up innovation

SMEs in the GCC region are typically categorised as early-stage innovative startups, established successful startups, growing medium-size companies, stagnant or struggling medium-size companies, locally focused small businesses and informal micro businesses.

The region is well-positioned to continue its trajectory and foster the development of new unicorns in the foreseeable future, driven by continued government support, a thriving ecosystem, a conducive regulatory environment and increasing investor interest.

WITH THE RIGHT SUPPORT, SMALL AND MEDIUM-SIZED ENTERPRISES COULD SIGNIFICANTLY BOOST ECONOMIC GROWTH. GOVERNMENTS CAN HELP CAPTURE THIS OPPORTUNITY

– McKinsey & Co.

SMEs and startups often face challenges in accessing traditional financing options due to their size, limited operating history or risk profile. However, the Gulf region’s booming venture capital market is filling the gap by providing funding to high-potential startups and SMEs in exchange for equity stakes in the companies.

Dubai Integrated Economic Zones Authority unveiled a venture capital fund worth AED 500 million last November. The fund is expected to play a pivotal role in supporting startups – starting from the pre-seed stage and extending to the Series B investment stage.

Venture capital and startup data platform MAGNiTT said investment in Saudi startups surged by 33% YoY to $1.4 billion in 2023, driven by sovereign funds such as SVC, Jada and Sanabil as well as the government’s focus on innovation and dedicated unicorn projects.

Similarly, funding for startups at the in5 Dubai design district also surged by 25% in 2023 to reach AED 3 billion and the platform has incubated as many as 900 startups since its inception.

Furthermore, Qatar Investment Fund plans to deploy more than $1 billion in international and regional capital funds as part of a broader strategy to develop the Gulf state’s venture capital and startup market.

“The GCC has seen an unprecedented level of support and funding for startups, particularly in the technology sector, despite drying venture capital funding globally,” Hammad Younas, Chief Investment Officer at GFH Financial Group said in a blog post.

The GCC is expecting a boom in startups and SMEs, with 45 unicorns worth an estimated $100 billion expected to emerge from the region by 2030. Careem, HungerStation, Noon, Jahez and Kitopi are some of the region’s success stories.

SMEs are crucial actors in economies and societies worldwide. These businesses make outsize contributions to GDP, exports, employment and livelihoods in developed and developing countries alike, but they face challenges that threaten their growth and ability to contribute meaningfully.

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Building Economies

Emad Ahmed and Thomas Baxendale from RAKBANK describe how SMEs and startups are an integral part of GCC countries’ economies, explaining how their development will be affected by ongoing technical and government mandated initiatives

Emad

Ahmed – EVP, Head of Commercial Banking, RAKBANK

How high up on the business banking priority list do you feel SMEs are at this time?

Emad Ahmed - At RAKBANK, we have a rich legacy of supporting SMEs and we are an SME banking leader in the region. We opened more than 15K accounts for start-ups and SMEs whilst providing them AED2.2 billion in financing to establish

Thomas

Baxendale – EVP, Head of Digital Platforms & Value Proposition –Business Banking, RAKBANK

or scale their businesses in 2023. This clearly highlights our continued support to the SME community and depicts their priority for us. Additionally, various initiatives and programs are in place to support SMEs, such as curated products for start-ups, mentorship programs and business advisory services. We have also tied up with various licensing bodies and government guarantees schemes all

aimed at reaching out to and supporting SMEs in the region.

Taking a view of the wider market, the UAE government has been actively promoting SME growth as part of its economic diversification efforts, recognising their contribution to job creation, innovation and economic development. Many of the federal bodies offer skill development, subsidies, government funding (in partnership with banks) to support and grow the SME sector.

In the GCC region, including countries such as the United Arab Emirates, Saudi Arabia, Qatar, Bahrain, Kuwait and Oman, SMEs are generally considered important for economic growth and diversification, much like in the UAE specifically. While priorities may vary slightly among individual GCC countries due to differences in economic policies and regulatory environments, SMEs have been recognised as key contributors to job creation, innovation and overall economic development across the region.

Overall, SMEs are vital drivers of economic growth in the UAE, and the banking sector plays a crucial role in supporting their development and expansion.

What effects will the increasing

use of AI in banking have on startups and SMEs operating across the region?

Thomas Baxendale - The increasing use of AI in UAE banks will open up opportunities for SMEs and startups. AI can help analyse vast amounts of data to allow banks to offer personalised banking solutions and improve fraud detection. AI can also help assess creditworthiness

more efficiently which will allow SMEs to have faster access to credit and at the same time protect them from financial losses due to banking frauds.

AI powered chatbots and virtual assistants can also handle routine banking tasks, freeing up valuable time for SME owners to focus on running their businesses.

Leveraging AI effectively, can help UAE banks can build a more supportive environment for SMEs and startups, building higher levels of engagement with the customer while elevating efficiencies in offer and delivery. However, it will be crucial for banks to address data privacy concerns and at the same time develop affordable solutions to ensure they benefit from this technological leap.

What efforts are regional banks making to ease the funding needs of SMEs?

Thomas Baxendale - Awareness and accessibility are the key focus areas, for most of the banks. SMEs in the region did not know about the various offerings each bank had to provide. In the past few years there has been increasing marketing effort made by banks to increase awareness of the financing opportunities in the region. This healthy competition amongst the Banks to secure the SME business has proven beneficial for SMEs who can evaluate the different financing solutions available and pick one that suits their requirements.

Further, ease of application and customer journey has now become a differentiator. Banks have been increasing their investments and integrating tech platforms to adopt a modular approach for SME business. That said, apart from a couple of Fintechs, RAKBANK was one of the first banks in the region to enable digital application for business loans and working capital financing. Most banks have now realised that increasing level of digital engagement with customers widens their reach to the market, thereby attracting new clients, while also retaining the existing ones.

Additionally, there are various federal initiatives undertaken to assist those SMEs who find it difficult to meet the eligibility criteria to avail finance. In continuation with our SME sentiment over the past 2 decades we have also partnered with a few of them in our endeavour to support as many SMEs as we can.

With much said of the importance of SMEs to regional economies, what enabling initiatives are in place or planned to ease their challenges?

Emad Ahmed - The UAE government has actively implemented several initiatives to bolster the SME sector; The Ministry of Finance has introduced digital solutions to create a business-friendly environment for SMEs. This includes the

for SMEs, particularly in the initial stages. This will contribute to the overall growth and diversification of the UAE›s economy.

How might changes to regional tax regimes going to affect the performance of SMEs?

Emad Ahmed - It›s still too early to say definitively how these tax changes will play out for SMEs in the long run, if they are standardised across the GCC then it could simplify compliance for SMEs operating in multiple countries within the region.

The UAE introduced corporate tax which offers a zero-tax rate for profits below a specific threshold. This can be a significant benefit for many small businesses. However, I feel that this will now lead to increased compliance costs for SMEs operating in UAE as

SMES

IN THE REGION DID NOT KNOW ABOUT THE VARIOUS OFFERINGS EACH BANK HAD TO PROVIDE

government’s aim to make government contracts more accessible to SMEs through a streamlined registration process for the Federal Supplier Register. Dubai government also launched the Dubai International Growth Initiative to strengthen the international growth of all SMEs founded in Dubai.

There are also various government guarantee schemes where SME entrepreneurs can approach to seek financing support. These schemes have then tied up with Banks in the region to administer the distribution of finance to SMEs.

Initiatives like free registration renewals and exemption from registration fees also result in significant cost savings

they will now need to factor in additional costs associated with tax filing and record-keeping. This could be a burden for smaller businesses with limited resources. There might be some initial confusion and uncertainty for SMEs until clear guidelines and procedures are established.

SMEs can be better prepared to navigate the new tax landscape by staying informed and seeking professional advice. These businesses play a pivotal role in the country, employing over 60% of the workforce, facilitating their sustainable growth has been a priority for the UAE Government and I am hopeful that the government will continue to support this sector.

Getting The Message

Onur Ozan Managing Director, Middle East, North Africa and Türkiye at Swift, talks with MEA Finance, explaining how Swift is enabling regional growth with a focus on innovative new products and services that are a key part of the dynamically changing payments landscape of the region

How is Swift supporting growth in the region through its payments solutions?

We continue working towards the vision of instant and frictionless transactions in the MEA region and globally, including through elevating the cross-border payment experience. We are working with banks and software providers to provide fully integrated, network-wide services that can ensure a smooth payments process. The focus is on delivering the underlying infrastructure that can enable the financial ecosystem to adapt and grow. Core to this, Swift’s integrated payments toolkit services helps to reduce costs and major delays in transactions.

Our payments solutions include Swift Go, which ensures low-value, crossborder payments are as easy, predictable, transparent, secure and low cost as high-value payments. We now have 650 banks signed up – with 430 onboarded within the last year across 130 countries. And our Payment Pre-validation service adds an extra layer of predictability with upfront account verification. The service enables checks of account details against pseudonymised and aggregated data from more than 4 billion accounts to catch errors before a payment is sent, which could save the industry millions each year in costs to fix failed transactions. The strict network validation provides easy initiation and processing of Swift Go payments and currently covers 70% of beneficiary accounts in major markets. The service continues to gain momentum, with about 300 financial institutions signed up. This year, we’ll explore how AI can also help detect anomalies and prevent fraudulent payments before they’re sent.

Meanwhile, as we continue working to streamline every transaction’s journey, our Transaction Manager platform protects transaction data end-to-end and

Onur Ozan, Managing Director, Middle East, North Africa and Türkiye at Swift

provides a centralised view of data, on top of Swift’s payment-related message processing. It allows banks to interact with the payment using their choice of message format, supporting ISO 20022 adoption. Transaction Manager started processing live messages in May 2023, with a subset of ISO 20022-originated transactions in scope to limit any potential disruption. All traffic is now successfully flowing through it. As the industry adopts ISO 20022, Transaction Manager will reduce the need for banks to develop and maintain expensive custom repair logic, while accelerating the community’s goal of instant and frictionless payments. It will also continue to be enhanced over time, so that it can integrate other networks and shared value-added processing and encompass more of the steps involved in processing payments end to end.

This approach is helping to drive growth globally including in MEA, represented by an increase in payments traffic. As at the end of 2023, 11.9 billion+ messages a year were sent over the Swift network; an average of 47.6 million messages a day. This includes a record 55.0 million in daily FIN traffic on 1 June and 30 November. And it represents a range of 4-5% increases in FIN traffic, payments traffic and securities traffic.

The ISO 20022 migration is ongoing – how will businesses benefit from this new standard?

The start of the industry-wide migration to ISO 20022 in March 2023 marked an important milestone for the payments industry. We’re proud to be supporting the community as it migrates and to be providing solutions that embrace richer data.

With the ISO 20022 standard becoming the common language for payments worldwide we’re entering an exciting new era. By improving the quality and richness of data in domestic and cross-border payments, ISO 20022 will help accelerate the move towards greater integration and digitisation in

the whole payments space, by boosting operational efficiency, including improving straight-through processing rates. And with more, and better-quality data available, financial institutions will be able to better understand their customers, make quicker and better decisions, and innovate and improve

Swift is focused on supporting the corporate business of financial institutions as part of our instant and frictionless strategy. We want to help financial institutions to achieve two key objectives for all corporates, whether they are connected to Swift or not. These are to capture and validate richer data

THE START OF THE INDUSTRY-WIDE MIGRATION TO ISO 20022 IN MARCH 2023 MARKED AN IMPORTANT MILESTONE FOR THE PAYMENTS INDUSTRY

services to end customers. This ultimately creates better outcomes for the industry as a whole.

The move is set to bring benefits for banks’ corporate customers. The key benefits brought by global usage of ISO 20022 for corporates include more efficiency and lower costs, improved compliance, business innovation and enhanced customer experience. The ultimate value for corporates lies in global harmonisation.

And as the payments industry adopts ISO 20022 for domestic high-value and instant payments as well as cross-border, banks may ask their corporate customers to provide structured name and address details for key payment parties. Using ISO 200222 structured address data is also set to increase processing efficiency and automation rates.

While corporates themselves have long been using ISO 20022, a new version of ISO 20022 messages and message definition reports was released in 2019, offering a level of standardisation that can enable increased efficiencies and create opportunities for them. It also delivers new capabilities that can help to drive progress in critical areas including new business innovation and cost optimisation, through automation and enhanced customer experience.

in ISO 20022 at the source and make this data readily available across the processing chain, and to achieve an uplift in the ecosystem service level while reducing institutions’ costs. We aim to achieve this by enabling easier adoption of standards, tools and services, which in turn enables delivery of an improved experience for all corporate clients.

There are more and more options for cross-border payments – how is Swift ensuring global connectivity in the payments ecosystem?

Our focus is on accelerating innovation, enabling interoperability, and helping financial institutions to enhance their customers’ experience, including corporates, by embedding new data-rich services in front-end applications. As part of this we’re opening up new ways for our community to access Swift capabilities. This includes cloud and API-based connectivity options for messaging and full-transaction services. And as new payment means and models to connect instant payment systems emerge, addressing fragmentation and securing interoperability between domestic or network-based ‘digital islands’ is vital. Currently there are a wide variety of choices for sending international

payments and single transactions can go through many different networks. As a result, data integrity, end-to-end transparency and traceability are critical across the industry as a whole. Beyond our network, Swift has a key role in delivering data services and payment tracking to tie together the entire ecosystem. We’re working to enhance trust across end-toend transaction chains, whether or not a payment is sent over Swift.

Within this work, Swift is collaborating to extend the benefits of our infrastructure across the industry. Payment networks or service providers can benefit from interoperating with us to scale their businesses and to take advantage of capabilities like payment tracking, cloud connectivity and pre-validation to underpin delivery of their innovations in client experience. In this way we’re helping to accelerate choice, access and innovative client experience in payments internationally. This is while providing infrastructure that can further reinforce the overall trust and integrity of payment flows globally.

In the last year we have announced two collaborations in this area, as we work to ensure payments optionality across the ecosystem. Wise is adopting a range of Swift services including Payment Pre-validation as part of rolling out a new correspondent service. This will enable banks to route Swift messages to the Wise Platform to send and receive payments. And Visa is also adopting a similar range of services to many other financial institutions, including Payment Pre-validation. This is in order to be able to use Swift as an additional distribution channel for payments generated on Visa B2B Connect.

What progress is being made by Swift to improve wholesale crossborder payments?

Our instant and frictionless strategy is closely aligned with the G20’s goals to enhance the speed, cost, transparency, choice and access of cross-border payments. In relation to improving

speed, 89% of transactions processed on our network now reach recipient banks within an hour, with about 50% getting to the beneficiary within five minutes - huge progress against the G20’s end-to-end target of 75% within an hour by 2027.

However, while in-flight processing between originating and beneficiary banks has significantly accelerated, we know there’s more to be done. At present only 60% of wholesale payments reach customer accounts in that timeframe. Delays at the beneficiary leg can be caused by issues including regulatory controls, batch processing and opening hours of market infrastructures (MIs). Enabling MI Interoperability is a key part of our strategy. We’re looking at ways to support our community in delivering seamless international payments through leveraging domestic instant payment solutions. Working with the community, we are investigating a solution to facilitate the processing of instant cross-border payments.

We’re also closely monitoring and engaging in interlinking initiatives that are designed to support interoperability across market infrastructures. We’re exploring how these could eventually take advantage of our solution portfolio, which initially focuses on cross-border

transactions into an instant payment solution as per the One Leg Out model. And we’re engaging with MIs and communities to understand their roadmap and ISO 20022 adoption plans. Our aim is to support them throughout their journey, from raising awareness through to implementation. We’ve developed an MI adoption roadmap that provides a detailed overview on the MIs that have announced plans and approaches, and possible solutions Swift can offer.

How is Swift collaborating with its community in the Middle East and Africa, and to what end?

We’ve reconfigured how we work with our community in MEA, drawing together teams and initiatives across the Middle East, Africa and Europe for an EMEA view.

In a world of increasing fragmentation fuelled by digitalisation and geopolitical shifts, the role we play in working with our community on helping payment systems better interoperate becomes even more important to avoid new frictions or digital islands. And as new technologies evolve, and new forms of value come on stream like CBDCs and tokenised assets, we are innovating to ensure seamless interconnection between new and existing systems.

To give a recent example, in the realm of CBDCs, Swift is committed to finding a solution to ensure global interoperability between existing payment systems and the new digital currencies. We have been working with the community globally on facilitating cross-border interoperability and interlinking between different CBDCs, and between CBDCs and existing payment types and systems. In July 2023, Swift initiated a phase 2 of sandbox testing using the solution to connect and orchestrate transactions across simulated digital trade and tokenised asset and FX networks, alongside CBDCs for payments.

In a project carried out over six months, 38 central banks, commercial banks and market infrastructures from around the world participated. These included the Standard Bank of South Africa from MEA. We found that the solution has the potential to simplify and speed up trade flows, unlock growth in tokenised securities markets, and enable efficient FX settlement – all while allowing financial institutions to continue to make use of their existing infrastructure. Swift now plans to extend the solution to support a wider range of emerging digital networks, in addition to CBDCs, such as platforms for tokenised deposits, to help drive

OUR INSTANT AND FRICTIONLESS STRATEGY IS CLOSELY ALIGNED WITH THE G20’S GOALS TO ENHANCE THE SPEED, COST, TRANSPARENCY, CHOICE AND ACCESS OF CROSS-BORDER PAYMENTS

forward innovation and enable new technologies to reach their full potential.

Alongside specific global initiatives that involve institutions in the MEA region, we run regional Swift Connect events. These provide an opportunity for the community to collaborate, network and work towards creating solutions that can drive innovation for a stronger financial ecosystem. They include Swift Connect Africa, which launched in 2023.

This year’s edition, taking place in Kenya from 15-16 May, is set to bring together financial services professionals from 54 countries, along with exhibitors and speakers, for a conversation about Africa’s financial sector. The event will foster discussion on instant and frictionless transactions globally, focused on payments and trade in Africa and worldwide.

What are the key trends you’re seeing in the region?

The payments landscape in the Middle East and Africa continues to evolve rapidly. Changes are happening within competitive and fast-paced marketplaces, set against a backdrop of shifting geopolitical realities. The ongoing growth of e-commerce, bringing more consumer payments across countries, and online transactions, is driving demand for real-time crossborder payments. And across the board, customers have greater expectations in terms of the speed, security and transparency of payments.

Attention remains on digital transformation within correspondent banking to improve the cross-border payments experience. Financial institutions

must also address related compliance requirements plus fee structures around cross-border payments. Collaboration between established and emerging players is often key to further innovation and arriving at effective solutions.

As a result, in terms of trends, interoperability, technology and financial inclusion are all critical areas of focus. Interoperability is gaining momentum across payments MI interlinking, CBDCs, tokenised assets and trade platforms, yet new technology and geopolitical shifts continue to point towards fragmentation. In relation to new technology, banks are investing in AI. The growth of instant payments brings a need for AI for anomaly detection plus account validation. Commercial banks are also developing tokenised deposit products to address customer demand. And digital transformation continues, covering generative AI, trade digitisation, embedded finance, digital ID, API enablement and digital wallets. A key goal is to increase automation of backend processes, as part of being able to deliver a better experience for the end customer. The Middle East and Africa also lead in digital payments technology, due in part to young tech-savvy populations. This includes the ongoing rise of mobile payments, and we continue to see innovation in this area.

Financial inclusion remains critical for the region and is driving many developments. These include the G20/ FSB roadmap around lowering the cost of remittances; and retail CBDCs. The growth of digital wallets in developing markets is also contributing to greater financial inclusion.

Transaction in Action

We are in the throes of the evolution of transaction banking and will witness this essential but slow to modernise banking sector develop in ways that will create new opportunities for incumbents and disrupters alike

The role of transaction banking in trade and supply chain finance places it in a crucial position to support the economy as the World Trade Organisation is projecting a rebound in global merchandise trade in 2024, albeit more slowly than previously anticipated.

The sprawling banking division, which comprises cash management, payments, trade finance and securities and custody services, is the heartbeat of the global economy.

Banks in Saudi Arabia are playing a vital role in facilitating international trade by providing their clients with a wide array of offerings including transactional banking, which integrates cash management, correspondent banking and trade finance.

Transactional banking services allow enterprises to cover the inherent risks related to a cross-border trade transaction, whether counterparty risk

or country risk, according to a report by McKinsey. It underpins one of the most fundamental economic concepts – countries’ need to import and export goods and services based on their resources or lack thereof.

The banking division’s support of realtime payments and the advancement of cross-border payments around the globe remains a top priority. Real-time payment, in addition to quicker access to funds, allows data to transfer with the payment – instant payment transactions grant visibility into invoices, dates, purchase orders and more, allowing companies to improve their finance function and decision-making.

Meanwhile, Saudi Arabia’s transactional banking and payments ecosystem is once again demonstrating resilience in an era of ongoing geopolitical tensions, a slowing global economy, highinterest rates and sticky inflation.

Globally, changes in this banking division are creating new opportunities for incumbents and disruptors alike to win customers, develop new solutions and claim market share.

Digital transformation in transaction banking continues to be a major theme within the financial industry and financial institutions are working to augment customer experience or operational efficiencies.

“One way for banks to bring in more corporate deposits is to provide an excellent proposition in transaction banking – improving payment collection and reconciliation and optimising corporate clients’ daily cash flows and forecasting,” said McKinsey.

It is worth noting that Saudi Arabia has had a huge influence on world trade flows and is an increasingly important factor in global financial markets, owing to its strategic location, abundant resources and diverse economies.

Transaction banking & payments

The importance of transaction banking and payments as enablers of global trade has gained traction in the current highinterest rate environment, driven by the increased cost of holding cash, changes to business operating models and the ongoing attempts to standardise the payments landscape.

Consumers and companies have shifted from cash to a burgeoning array of electronic payments,” Boston Consulting Group said in its Global Payments Report 2023.

Much like the rest of the banking and finance industry, transaction banking is evolving rapidly to adapt to new client expectations. Powerful trends are transforming the payments ecosystem in Saudi Arabia and the entire GCC – a region that was once heavily dependent on cash.

Cash is no longer king as digital payments are increasingly becoming the preferred mode of settling payments in the Gulf region. Emerging trends such as e-commerce, evolving customer demands, digital transformation and geopolitical tensions are also disrupting the payments ecosystem, transactional banking as well as trade and traditional business models.

“Transaction banking is changing to fill the need for increased agility and scalability and meet stricter compliance mandates on a global level,” Amazon Web Services said in a report while noting that legacy technology and operations hinder innovation and speed to market.

To maintain a competitive edge in a market such as the GCC, incumbents should go beyond incremental automation and substandard technology upgrades. Deloitte said that by leveraging the service externalisation model to reimagine how work is done, financial institutions can reduce operating costs while advancing customer experience.

Though the digitalisation of transaction banking is imperative to supporting trade and the global supply chain, the reality is

ONE WAY FOR BANKS TO BRING

IN MORE CORPORATE

DEPOSITS

IS TO PROVIDE AN

EXCELLENT PROPOSITION IN TRANSACTION BANKING – IMPROVING PAYMENT COLLECTION AND RECONCILIATION AND OPTIMISING CORPORATE CLIENTS’ DAILY CASH FLOWS AND FORECASTING

– McKinsey

that the division has been relatively slow to modernise its decades-old processes.

Digitalisation holds the potential to improve documentation, testing and risk governance models, meet regulatory risk-based demands, improve anti-money laundering policies and tighten up change control procedures.

“As new digital technologies automate the manual, paper-intensive processes involved in transaction banking, costs will decline. That dynamic, combined with heightened competition, is likely to cause a structural decline in prices for cross-border payments and trade finance,” according to consultancy firm Bain & Company.

Meanwhile, the GCC region’s payments space has evolved over the years, driven by digitalisation in the financial services sector, which is expected to continue fuelling disruptive business models in the sector.

Globally, real-time payments have now been adopted in more than 85 countries with more countries and services expected to join.

TRANSACTION BANKING IS CHANGING TO FILL THE NEED FOR INCREASED AGILITY AND SCALABILITY AND MEET STRICTER COMPLIANCE MANDATES ON A GLOBAL LEVEL

– Amazon Web Services

A survey by ACI Worldwide and GlobalData revealed that the Middle East is the fastest-growing real-time payment market globally, with transactions expected to grow at a CAGR of 30.6% from 675 million in 2022 to 2.6 billion by 2027.

Saudi Arabia is currently the biggest real-time payment market in the Middle East, Bahrain is the global leader in consumer adoption and the UAE launched Aani in October 2023 while Qatar, Kuwait and Oman – are expected to launch domestic real-time payment schemes soon.

“Real-time payments are the latest players in the payments ecosystem who have paved the way to more innovative and transparent cross-border payment solutions. To keep up with the demands of the global economy, countries worldwide are investing in real-time payments capabilities,” according to EY.

The advancements in the transaction banking and payments ecosystem allow corporate clients in different segments to improve operational efficiencies while financial institutions need to reevaluate their capabilities and implement robust security measures to accelerate the adoption of real-time payments.

The new frontier

The transaction banking industry is currently exploring opportunities afforded by the latest digital banking trends including open banking, the cloud and artificial intelligence.

TRANSACTION BANKING

According to Austrian bank Raiffeisen Bank International, “The new frontier in transaction banking will be tackled successfully when corporates, transaction banks and technology partners increase collaboration.”

Open banking and APIs hold the potential to create an integrated financial ecosystem by enabling data-sharing and improving financial transparency. The rise of open banking has led to an increased competitive environment in the financial markets and competitive markets are the perfect environment for innovation.

With the global open banking market size projected to reach $128.12 billion by 2030, according to Polaris Market Research, GCC banks are establishing strategic partnerships and requesting government support to help scale their open banking efforts.

Open banking will lead to open finance and the next level is open data, eventually allowing for a network of financial data to be shared.

“Economies that embrace data sharing for finance could see GDP gains of between 1 and 5% by 2030, with benefits flowing to corporates, consumers and financial institutions,” said McKinsey & Company.

Open banking has gained momentum in the GCC region in recent years, making it a core element in the digitalisation of transaction banking. By embracing open banking frameworks and APIs, banks in the region can create ecosystems that enable seamless integration of services, advance customer experiences and drive innovation.

Furthermore, financial institutions are recognising the potential of the cloud to enhance agility and security in their quest to meet evolving customer preferences and compete with cloud-native financial technology firms.

The cloud empowers banks to leverage open banking to accelerate innovation while meeting regulatory requirements. The innovative technology helps banks advance customer experience and unlock new revenue opportunities by

efficiently embedding banking services in partner digital channels, touchpoints, and broader ecosystems.

“The fast-moving nature of the cloud has led to a long list of “as a service” solutions that banks can externalise including Software as a Service (SaaS), Infrastructure as a Service (IaaS), Platform as a Service (PaaS) and Business Process as a service (BPaaS),” said S&P Global.

Banks in the GCC region are aware of the digital potential of the cloud. The benefits of large-scale cloud adoption in transaction banking and payments

The payments typically require three to five days of end-to-end processing before reaching the intended recipient and the shortcomings are compounded by high costs, lengthy settlement times and opaque processes.

However, the push to make end-to-end money movement more instant, secure and transparent across borders is driving the payments industry to continuously look to enhance customer experience.

EY said the trillion-dollar cross-border payments sector is ripe for disruption due to changing customer demands,

AS NEW DIGITAL TECHNOLOGIES AUTOMATE THE MANUAL, PAPER-INTENSIVE PROCESSES

INVOLVED IN

TRANSACTION

BANKING, COSTS WILL DECLINE. THAT DYNAMIC, COMBINED WITH HEIGHTENED COMPETITION, IS LIKELY TO CAUSE A STRUCTURAL DECLINE IN PRICES FOR CROSSBORDER PAYMENTS AND TRADE FINANCE

– Bain & Company

can be a differentiating factor and the benefits range from scalability to security and privacy to agility to innovate.

Primed for growth

The payments chessboard is being rearranged and understanding these market innovations and acting is critical for financial institutions seeking to grow and prevent disruption. With global economies becoming increasingly connected, there is growing demand for a fast, secure and efficient cross-border payment system.

Global payments firm Mastercard said cross-border payments are an integral feature of today’s world and they play a vital role in keeping the global economy healthy and stable.

emerging market growth and financial inclusion. New entrants that are disrupting the cross-border payments ecosystem promise to solve long-standing pain points around delays, high costs and lack of transparency.

Banks in the GCC region face a make-or-break moment to increase their investment in transactional banking given the role it plays in developing long-term customer relationships with corporate clients. To maintain a competitive edge in the market, experts say banks must digitalise their trade and supply chain finance offerings as letters of credit, financing for accounts payable and receivable, and other classic products will remain enablers of global trade.

Facilitating Growth

Kyle Boag Managing Director, Regional Head of Global Payments Solutions, Middle East, North Africa and Türkiye at HSBC underscores the increasing importance of Transaction Banking to the region’s businesses and economy

How are regional banks adapting their transaction banking business to current economic and geo-political challenges?

Banks value the role that their transaction businesses play in facilitating the operational, liquidity and payment needs of their clients.

As transactional banking facilities cash flow through business, it needs to recognise and respond to economic and geopolitical changes – both to manage risk and take advantage of opportunities.

On the liquidity side, regional banks are enhancing their transaction banking services in response to increased interest rates and the rising costs of working capital, which have made funding more expensive and highlighted the potential for improved returns on cash balances.

To help corporate clients manage these challenges, banks are offering solutions that improve liquidity management both domestically and internationally in addition to tools such as cashflow forecasting and liquidity management platforms to support treasurers’ decision-making.

Banks are also implementing receivables solutions like Virtual Accounts and APIs for easier reconciliation and management of receipts.

Kyle Boag, Managing Director, Regional Head of Global Payments Solutions, Middle East, North Africa and Türkiye, HSBC

On the payments side, customers are becoming more sensitive towards costs, speed, efficiency and transparency. As such, banks are making large investments in real time and instant payments with value added services. This allows clients to be more in control and have visibility of their payments and manage their cash flow positions effectively.

There is a bigger drive than ever before to embrace digitisation and move away from manual and paper. Digitising the payments journey enables contactless operations and allows operating from anywhere in the world enabling a resilient functioning of Treasury centres.

Additionally, there’s a growing demand for Corporate and Virtual cards, which serve as efficient methods for funding payables and executing payments.

Geopolitically or even practically, these innovations allow corporates to better plan and respond to dynamic environments that could impact their business operations.

How important is transaction banking currently for banks across the region?

Transactional banking holds a critical status within regional banks as it fosters a robust relationship with clients.

Unlike debt, which is often viewed as a commodity and the distinctions between bank’s lending can be fewer, transactional banking offers unique value by fundamentally supporting a client’s business model and, in some cases, providing a commercial advantage.

This aspect of banking tends to create a stickier relationship between the bank and its clients through the ongoing flows of payments and receivables – all of which deepens the bank’s understanding of client needs.

As technology evolves, banks are shifting from selling products to creating integrated solutions tailored to different products and services, thereby enhancing their relevance and support to corporates.

Separately, as more and more companies look to host their Treasury centres in the region, banks and regulators are taking note of the importance that transaction banking plays within the economy and are empowering the growth.

Have improvements and innovations in payments processing had a positive economic impact across the region?

The region has seen a positive economic impact from improvements and innovations in payments processing for both business-to-business and businessto-consumer transactions.

Take the recent example of the global coronavirus pandemic. It was when we witnessed the explosion of e-commerce which had otherwise seen sustained but typical growth and adoption. The digital disruption expedited a huge move away from cash and paper and the advent of digital wallets, mobile apps and treasury API’s have become commonplace.

This also saw the greater emergence of new payment rails competing with the traditional ones and the interoperability between domestic and cross border platforms which revolutionised (and are continuing to revolutionise) the way payment settlements are taking place.

These faster and cheaper payment methods are accelerating the shift away from cash and powering up the growth of platform-style businesses.

For consumers, these innovations offer quick and effective ways to make purchases, facilitating commerce by simplifying transactions. Features like Buy Now, Pay Later (BNPL) schemes also help consumers manage their budgets more effectively. For corporates, digital payments reduce the costs associated with cash handling and shorten delays in receiving funds,

TRANSACTIONAL BANKING HOLDS A CRITICAL STATUS WITHIN REGIONAL BANKS

AS IT FOSTERS A ROBUST RELATIONSHIP WITH CLIENTS

while also providing valuable data on their clients, especially when linked to payment platforms.

How will Open Banking APIs technology transform transaction banking?

Open Banking APIs have the potential to transform transaction banking significantly, depending on the innovation and creativity of banks, FinTechs and corporates.

These APIs enable third parties to access valuable data, which they can use to enhance consumer services or add value to existing data.

As has been seen in markets where open banking is more mature, it will definitely offer clients more control and options for their banking requirements and enable financial services providers to start competing more actively for the services they offer.

As open banking becomes more common and the quality of data improves (for instance, through the adoption of ISO 20022 standards), the potential applications and benefits are expected to grow, compelling traditional banks to innovate more aggressively.

THE ONGOING DEVELOPMENT OF AI IS EXPECTED TO FURTHER ENHANCE MANY ASPECTS OF TRANSACTIONAL BANKING, SUCH AS STREAMLINING CLIENT SERVICE AND QUERY MANAGEMENT THROUGH AUTOMATIC SYSTEM INTERROGATION AND DRAFTING OF RESPONSES

What will be the leading benefits of AI in transaction banking for both banks and their corporate clients?

The growing rate of AI capability is astonishing, and more and more people are beginning to realise the scale of its potential and only imagine the amount of change to come.

Banks are already using AI in their transaction monitoring, sanctions screening and fraud mitigating processes and are seeing great success. This is both in terms of simplifying processes and cutting down time as well as improving client experience. This is because AI enables banks to allocate human resources to more strategic, valueadded activities and optimises overall operational efficiency.

We can already see that Artificial Intelligence (AI) is already showing significant benefits in transaction banking. For instance, some services now identify when a client is about to make a costly cross-currency payment and suggest more economical alternatives.

The ongoing development of AI is expected to further enhance many aspects of transactional banking, such as streamlining client service and query management through automatic system interrogation and drafting of responses.

AI could also analyse client behaviour to provide insights for more effective treasury operations and improve services like cash flow forecasting by incorporating external industry data for better comparisons.

Overall, AI promises to enhance client experiences, increase process speed and efficiency, although its success will depend on the accuracy of data and an understanding of its limitations.

Prioritising Cybersecurity

Salah Suleiman Country Manager, UAE, Trend Micro describes the development of cybersecurity and the changing threat landscape in our region, and explains what they are doing to help businesses guard against attacks

What is the state of cybersecurity in the UAE & MEA region?

The cybersecurity landscape in the MEA region, including the UAE, presents a complex and evolving scenario with both challenges and opportunities. The market size for cybersecurity in the Middle East is expected to grow significantly, reaching $23.4 billion by 2028, driven by a CAGR of 9.6%. In the UAE specifically, the cybersecurity market is forecasted to reach $1.07 billion by 2029, growing at a CAGR of 12.72%.

A notable trend across the MEA region is the increasing frequency and sophistication of cyber threats across diverse sectors. Financially motivated cybercrime, ransomware attacks and pervasive phishing campaigns are among the prominent threats. This rise in cyber threats is further compounded by ongoing digital transformation initiatives, which

expand the attack surface and pose a dual challenge for organisations. Critical infrastructure sectors, such as energy and utilities, face persistent challenges in fortifying their cybersecurity defenses to protect essential services. However, the region also grapples with a shortage of skilled cybersecurity professionals, similar to the global. This shortage poses additional obstacles for organisations seeking to effectively protect themselves against evolving threats.

To address these challenges, countries in the MEA region, including the UAE, are actively implementing or enhancing cybersecurity regulations. These regulations aim to enforce cybersecurity best practices and establish data protection standards, reflecting a growing commitment to bolstering the overall cybersecurity landscape.

Trend Micro has played in protecting digital infrastructure in the region and the UAE, as our solutions have successfully blocked and detected millions of cyber threats across the MEA region. In the UAE alone, Trend Micro identified and stopped over 83 million threats, ranging from email threats and malicious URLs to malware attacks.

What are your thoughts regarding the growing influence of AI on cybersecurity?

The growing influence of AI on cybersecurity is a significant development in the digital transformation landscape. AI is not only being used to automate tasks but also to revolutionise data analysis and unlock the full potential of operations across various industries. In the MEA region, the anticipated annual growth rates of AI, spanning between 20% to 34% per year, signal a dynamic and expanding AI ecosystem, offering opportunities for economic gains and technological advancements.

AI has emerged as a transformative force in cybersecurity, presenting both opportunities and challenges. It serves as a keystone for strengthening cybersecurity efforts by enabling

advanced threat detection, behavioral analysis, automation, predictive insights, scalability and reinforcing incident response capabilities. However, alongside the remarkable advancements in AI, there is an inherent increase in associated risks. Cyber attackers continuously exploit vulnerabilities and launch highly sophisticated attacks. Therefore, it is imperative for organisations in the region to ramp up their defenses and operate at the speed of AI.

As the threat landscape grows in complexity, scale and velocity, Trend Micro remains steadfastly committed to tackling these challenges and empowering enterprises through its cutting-edge solutions. Trend Micro is a pioneer in the use of AI and machine learning for cybersecurity, having embedded the technology in its products, with a strong emphasis on AI-augmented solutions. Over the years, the company expanded and matured its use of AI, developing new models to detect and contain unknown threats more effectively. Most recently, the flagship Trend Vision One™ platform integrated advanced AI capabilities to help security operations analysts better

prioritise incoming threats. The latest version of the platform released adds generative AI in the form of companion, called Trend Vision One™ – Companion, a new assistant designed to empower analysts to streamline workflows and drive productivity.

What are the latest cybersecurity solutions that Trend Micro offer that set the company apart from other cybersecurity companies in the industry?

We offer a broad range of multi-layered security solutions, covering areas such as endpoint protection, cloud security, network defense and more. This holistic approach empowers organisations to address multiple security challenges from a single source, streamlining their cybersecurity efforts.

The groundbreaking Trend Vision One, recently launched in the UAE, is one of our key offerings that sets us apart from other cyber security companies in the industry. This pioneering unified platform goes beyond conventional cybersecurity measures, providing an unparalleled, comprehensive framework for threat detection, response and risk analysis.

Trend Vision One simplifies and converges security operations for organisations through a holistic approach by supporting diverse hybrid IT environments, automating workflows and delivering expert cybersecurity. Leveraging state-of-the-art technologies like encrypted traffic analysis and anomaly detection, it robustly defends against a wide array of network-based threats & intrusions and advanced persistent threats (APTs), ensuring unparalleled airtight security. With extended detection and response (XDR) at its core, it sets a new benchmark, equipping security teams with enhanced capabilities to gain better visibility and respond swiftly to emerging threats.

This cloud-native security operations platform surpasses traditional cybersecurity measures by offering a unique, holistic approach to threat

Salah Suleiman, Country Manager, UAE, Trend Micro

detection, response and risk analysis, delivering remarkable outcomes including a 17% reduction in data breach risk, a 70% decrease in cybersecurity costs and a 20% reduction in employee turnover.

Trend Vision One™ significantly benefits businesses, enhancing threat detection and response time by 70%. By breaking down security silos, the platform reduces network dwell time by 65% and reduces security events by 55%, streamlining operations. Additionally, it minimises the risk of attack repropagation by an impressive 60%, preventing threats from spreading and causing additional harm. Furthermore, the platform revolutionises cybersecurity operations with its AI-powered assistant called Trend Vision One™ - Companion.

Can you tell us more about AI Companion?

Trend Vision One™ – Companion, is a groundbreaking generative AI security assistant designed to revolutionise cybersecurity operations. Leveraging decades of AI and ML innovation from the Trend Vision One™ cybersecurity platform, it empowers Security Operations Center (SOC) teams to work more efficiently and effectively.

Companion offers a range of capabilities, including the ability to explain and contextualise alerts, triage and recommend actions, decode complex scripts and develop advanced search queries. What sets it apart is its plain-language interface, making it accessible to users of all skill levels. It ensures that even junior analysts can rapidly enhance their understanding and make informed decisions, reducing the mean-time-to-understand critical security incidents. One of Companion’s strengths lies in its ability to illuminate and contextualise alerts, significantly improving threat detection and response. It facilitates quicker understanding, more effective triaging and provides AI-driven recommendations for security events. For example, it can break down complex multi-step attacks into plain-

THE FUTURE OF CYBERSECURITY IS MARKED BY A RAPIDLY EVOLVING LANDSCAPE CHARACTERISED BY INCREASINGLY COMPLEX AND SOPHISTICATED CYBER THREATS

language summaries, allowing analysts to orchestrate responses efficiently.

Moreover, Companion automates repetitive tasks, reducing false positives and offers insights into threat activity with precision. It helps organisations accelerate time-to-identification during threat hunts and empowers analysts to respond swiftly to potential breaches. In the context of understanding complex scripts used by attackers, Companion autonomously investigates and decodes these scripts, providing plain-language explanations of each command line. This feature enhances incident response, ensuring rapid actions in critical situations.

How do you envision the future of cybersecurity, and what measures is Trend Micro taking to prepare for it?

The future of cybersecurity is marked by a rapidly evolving landscape characterised by increasingly complex and sophisticated cyber threats. In the Middle East and Africa (MEA) region, spending on security solutions and services has been on the rise, reaching $6.2 billion in 2023 and projected to reach $7.7 billion in 2026, representing a Compound Annual Growth Rate (CAGR) of 7.8% over the forecast period of 2022-2026.

To prepare for this future, Trend Micro is taking proactive steps and focusing on several key areas. Firstly, the company is investing in innovative solutions to effectively detect and counter the advanced cyber threats that employ cutting-edge technologies such as AI and machine learning. Staying at the forefront of cybersecurity technology is a central element of their strategy.

With the increasing adoption of remote and hybrid work models, Trend Micro has developed comprehensive cloud security solutions like Trend Micro Cloud One. These solutions aim to protect cloudnative applications, data and workloads by adopting a Zero Trust Security approach, which assumes that no one, whether inside or outside an organisation, can be fully trusted. The rise of Internet of Things (IoT) devices presents new security challenges, and Trend Micro is actively working on IoT security solutions to safeguard connected devices and networks. Collaborative threat intelligence sharing is also emphasised to stay ahead of cyber threats in an interconnected world.

Furthermore, Trend Micro provides support for organisations in navigating increasingly stringent data protection regulations, offering solutions to ensure compliance. The company’s dedication to cybersecurity education and awareness equips both organisations and individuals with the necessary knowledge and resources to effectively recognise and defend against cyber threats. Trend Micro has been at the forefront of organising training programs including “CPITS” which equips recent computer science and engineering graduates with the practical, hands-on knowledge and skills required to take advantage of systems engineering job opportunities in the IT security industry. CyberGATE internship program is also a strong testament of the company’s commitment to training and education, equipping university graduates with the essential skills required to seamlessly integrate into the labour market, thereby setting them on a path towards future career success.

Banking Renaissance

Teesha Khanna Business Development Director at additiv explains that the Middle East’s banking sector is attracting unprecedented attention and unburdened with the extensive legacy systems in more established markets, the region is a crucible for innovation

What are the current technological priorities or essentials for banks in the region?

As the Middle East banking sector experiences unprecedented growth, driven by a surge in demand for banking services across retail, corporate and institutional contexts, banks are under pressure to position themselves for success. The region’s population growth, startup boom and increasing trade volumes have created a fertile ground for financial institutions to innovate and expand.

The rapid growth of open banking fosters a demand for technologies that enable secure data exchange, seamless fintech partnerships and the creation of innovative financial products. In my opinion, a strong emphasis on sustainable finance will see banks prioritising investments in environmentally conscious technologies, including green blockchain solutions and eco-friendly app features. AI and blockchain are seen as transformative forces, with banks focusing on AI-powered fraud detection and blockchain-powered cross-border transactions, while also exploring the potential of Central Bank Digital Currencies (CBDCs).

To maintain pace, and ideally outperform competitors, financial

Teesha Khanna, Business Development Director, additiv

institutions are focusing on launching new value propositions, partnering with ecosystem partners and reducing customer acquisition costs. Technological priorities have shifted towards supporting business counterparts in product innovation, configuration and contextualisation. Banks are also investing in building internal talent capabilities to execute strategic operating models and tap into new revenue pools.

Furthermore, banks are prioritising scalability, seeking to build capabilities that can be reused, swapped out, or upgraded in a modular manner. This modular

approach enables them to respond quickly to changing market conditions and customer needs. Ultimately, the goal is to orchestrate innovation, production, distribution and consumption of financial services in a way that is superior to the competition and more profitable than traditional methods.

How do you see Open Banking developing over the next few years?

I believe the Open Banking landscape is poised for rapid growth, firmly driven by regulatory push and market pull factors. Regulators in key Middle Eastern markets are actively setting up frameworks, infrastructure and regulations to promote collaboration on customer data. This open data ecosystem is rapidly coalescing to allow banks to operate as service orchestrators instead of monolithic providers.

It is estimated that Open Banking will see a 25% annual growth across the region, representing over $1 billion in 2024, as enhanced transparency, collaboration and innovation sweep across the region.

There are several market forces that demand innovation in financial services, including hyper-personalisation, bundling and embedding. This requires collaboration and data exchange across the financial services value chain.

Strategic partnerships and data sharing between banks and a diverse array of fintech firms, e-commerce giants, telcos and other players is now the norm for developing innovative bundles penetrating new verticals.

As Open Banking evolves into Open Finance and eventually Open Data, one can safely speculate that industry incumbents not adopting an open architecture will likely be relegated to utility status.

Are we now seeing tangible instances where the use of AI has brought enhanced benefits to banks?

For years, AI has been touted as a gamechanger for the banking industry, and with good reason. In my view, this is now being met with tangible results on the ground.

One key area where AI has been delivering significant value is fraud detection and prevention. AI’s ability to analyse vast swaths of transactional data, far exceeding the capabilities of traditional methods, allows it to spot suspicious pattern that might otherwise go unnoticed.

AI is also revolutionising the customer experience. From chatbots that provide 24/7 support, tirelessly answering questions and resolving minor issues, to intelligent engines that personalise recommendations and product offerings, AI is increasingly creating more seamless and satisfying interactions for customers.

In underwriting and risk assessment, traditional credit scoring models, which often relied on limited data sets, are being replaced by AI-driven approaches that consider a wider range of data points. This allows for more fine-tuned and inclusive lending decisions, opening doors to new demographics that may have been yet underserved.

In the fast-paced world of investment banking, where split-second decisions can mean the difference between significant profits and substantial losses, AI-powered algorithms can process massive amounts of market data in real time to optimise trading strategies. These algorithms can often outperform human judgment, particularly when it comes to identifying complex patterns.

Another area where AI excels is predictive analytics. By analysing customer data, market trends and other key indicators, AI algorithms can forecast future behaviors and potential risks. This proactivity is allowing banks to tailor their product offerings, mitigate future losses and identify areas for potential business growth – all with

greater accuracy than traditional forecasting methods.

Do you foresee any limits to the abilities of or to the usage of AI in banking?

While AI is revolutionising banking, we must address limitations like bias, privacy and interpretability for responsible integration that safeguards consumers.

Data privacy and security concerns are paramount, and ensuring compliance with regulations such as GDPR is essential. Bias and fairness in AI models are also critical issues, requiring careful data selection, algorithmic transparency and ongoing monitoring.

Regulatory compliance is another challenge, particularly regarding transparency, accountability and model validation. The lack of interpretability in some AI models can be a barrier to regulatory compliance, risk management and customer trust. Furthermore, the performance of AI algorithms relies heavily on the quality, relevance and accuracy of the data on which they are trained.

Human oversight and accountability remain essential, particularly in critical decision-making areas such as risk management, compliance and customer service. Finally, the cost and implementation challenges of AI solutions can be significant, potentially widening the gap between industry leaders and laggards.

Which cloud use preferences are emerging amongst regional banks – Public, Hybrid, Private or a combination?

In my opinion, public cloud is the best approach because it offers scalability, flexibility and cost-effectiveness. However, given the sensitivity around the location of data and local regulations, banks try to balance between public and private in-country cloud.

In recent years, regional banks have shown a growing interest in both public and hybrid cloud solutions. Public cloud services offer scalability, flexibility

and cost-effectiveness, making them attractive to banks seeking to modernise their infrastructure while managing costs. Additionally, public clouds often provide a wide range of services and resources, such as data storage and analytics, which can support various banking operations.

Hybrid cloud solutions, on the other hand, have gained popularity due to their ability to offer a blend of on-premises infrastructure and public cloud services. This setup allows banks to leverage the security and control of their private infrastructure for sensitive data while taking advantage of the scalability and agility offered by public cloud services for less sensitive operations or during peak demand periods.

Overall, the preference for both public and hybrid cloud solutions among regional banks reflects a strategic approach to balancing the benefits of cloud technology with regulatory compliance and data security requirements inherent in the banking industry.

What currently keeps the region’s bank CTO’s and CIO’s up at night?

The rapidly evolving landscape of innovation and technology in the financial sector is keeping CTOs and CIOs of regional banks awake at night. The pressure to undergo digital transformation to stay competitive is immense, involving the modernisation of legacy systems, adoption of cloud computing, implementation of AI and machine learning and enhancement of customer-facing digital channels.

Managing this transformation while ensuring seamless integration with existing systems is a significant challenge. Furthermore, the rise of fintechs is disrupting traditional banking models, forcing CTOs and CIOs to stay vigilant and proactive in monitoring fintech trends, partnering with innovative enablers when beneficial and developing their own innovative solutions to retain market share.

Corporate Intelligence

With a point-by-point look into AI for Corporate Banking, Reda Oummouy Chief Operating Officer at Adria Business & Technology, makes a case for how it will heighten efficiencies in this vital market sector

The traditional world of corporate banking, with its paper trails and in-person meetings, is rapidly evolving. Driven by technological advancements and a growing demand for efficiency, a new era of digital corporate banking is upon us. This digital transformation is reshaping the way corporations manage their finances, offering them greater control, faster transactions and a more personalised experience.

In this exploration of current developments and prospects, we’ll delve into the innovative tools and trends shaping the future of digital corporate banking, highlighting how it empowers businesses and redefines the relationship between banks and their corporate clients.

According to the results of a recent study carried out by Adria B&T among its partner banks, the number of end users of digital banking has increased on average by 12% over the past year and the rate of online transactions compared to total transactions exceeded 80%.

Current Developments in Digital Corporate Banking

To improve how they serve corporations, banks are adopting several digital services. From AI, Cloud Computing and Biometrics to Open banking, are some of the current digital developments in digital corporate banking.

Artificial Intelligence (AI) has been integrated into several facets of corporate banking.

Reda Oummouy, Chief Operating Officer, Adria Business & Technology

Corporate banks are leveraging the power of AI systems to be more efficient and secure, and provide services that uniquely fit the needs of different corporations.

Personalising banking offers with AI

AI empowers banks to harness customer data, delivering highly personalised offers through Generative and multimodal AI models. These technologies enable banks to process and analyse both structured and unstructured data, gaining insights into corporate needs and crafting solutions that align perfectly with specific requirements, like customising account options based on a corporation’s transaction history and financial analyses.

Providing accurate forecasting services

Today, banks have access to extensive marketing data, which they can use to give their customers an edge over their

competitors. AI systems can combine this extensive data with a company’s specific data and come up with forecasts that can help that company grow.

Fraud detection and prevention

AI has empowered banks to employ fraud detection and prevention in real time. It makes use of advanced algorithms that can analyse transaction patterns as they happen. This allows them to easily identify red flags and implement measures to prevent fraudulent activities. With AI fraud detection and prevention, banks allow corporations to stay on top of their security and safeguard their data, users and finances.

Chatbots and virtual assistants

AI has also helped banks to be available to enterprises whenever they have inquiries. AI-powered chatbots offer 24/7 support for corporate clients. They can answer basic inquiries and point them to resources that can help solve their issues at any time of the day. For instance, Marge, a Watson Assistant-based AI-powered chatbot that uses natural language processing (NLP), was adopted at the Royal Bank of Scotland (currently NatWest).

Cloud Computing

A utopian future that addresses all corporate banking needs is an open, hybrid cloud architecture. Quantum and cloud computing are transforming banking operations end to end, uncovering new efficiencies. In short, banks are moving from traditional business practices today to the scalable business approaches of tomorrow. Digital transformation has unlocked the capability to deliver more with fewer resources, cutting down costs to enhance profitability.

Currently, banks are quickly and safely migrating their workload to cloud

platforms and seamlessly integrating with fintechs, adapting to modern trends.

Utilising Cloud resources for processing corporate

data

Cloud computing reduces hardware needs for data processing and storage, allowing banks to offer advanced financial services through a hybrid-cloud strategy and cloud-native solutions.

The corporate banking sector is rapidly integrating with cloud architecture to address the challenges of modernisation and digital workspace, fostered by their unlimited scalability and flexibility. This means that banks of different sizes can be operated on-premises in a data center, through a private cloud, or on a public cloud.

Building and hosting banking apps in the Cloud

Containerisation of banking services will deliver operational agility, reduced cost, scalability and enhanced security. The digital transformation allows a bank to migrate over 250 applications and secure complete IT system separation without impacting operations.

Major financial institutions, such as Bank of America, MUFG, BNP Paribas and Bradesco, are among over 80 institutions that have leveraged public cloud to help guide the platform’s future adoption and long-term success.

Intuitive user-friendly digital platforms for corporate clients

Corporations are not simply limited to checking the account balance or transaction history on their bank’s website or mobile app. These platforms are more user-centric today, offering services such as:

Real-time

account management

Simplified payments and collections

Trade finance automation

Data visualisation and reporting

As platform use by enterprises grows, cybersecurity is crucial. Banks are adopting measures such as multi-factor authentication, data encryption and fraud detection to secure corporate financial data.

What does the Future of Corporate Digital Banking Look Like ?

Blockchain and cryptocurrencies, while not yet mainstream in digital corporate banking, are emerging as potential game-changers with exciting possibilities. Here’s how they might revolutionise the landscape:

Trade Finance: Traditional trade finance can be slow and paper-heavy. Blockchain can streamline the process by creating a secure and transparent record of transactions. This can expedite approvals, reduce costs associated with paperwork

Embedded banking for enterprise resource planning

Financial services will become seamlessly integrated into corporate workflows. Imagine automated bill payments, realtime expense tracking, or instant access to working capital loans – all embedded within a company’s accounting or enterprise resource planning (ERP) system.

Hyper-personalisation

AI HAS EMPOWERED BANKS TO EMPLOY FRAUD DETECTION AND

PREVENTION IN REAL TIME

and improve visibility within the supply chain. Imagine a system where letters of credit and documents are verified and transferred on a tamper-proof digital ledger, facilitating faster trade settlements.

Cross-border Payments: International payments can be costly and slow due to intermediaries and exchange fees. Strategically used cryptocurrencies could enable faster, more affordable and transparent cross-border transactions, with banks potentially creating digital currencies via blockchain for international settlements, minimising dependence on conventional methods.

Securing Corporate Payments: Blockchain’s inherent security features can enhance the security of corporate payments. The distributed ledger technology makes it nearly impossible to tamper with transaction records, potentially reducing the risk of fraud in corporate transactions.

We have seen how banks can leverage AI systems to personalise banking offers in a previous section. Banks are expected to take this further in the future as AI technology and data analytics continuously evolve. They could easily develop customised financial products, tailored risk management tools and proactive financial advice based on the specific needs and industry of the client.

The Current State of Digitisation in Corporate Banking

The demand for speed and efficiency propels digitisation in various industries, including corporate banking, which remains somewhat underserved despite its critical need for these attributes.

A fraction of the sector has fully adopted digital technologies due to hurdles like risk management, security and compliance challenges. The surge in digital technology adoption introduces complexities in regulatory compliance, given the sector’s stringent regulations affecting data privacy and security across multiple jurisdictions.

Recent surveys highlight cybercriminals exploiting legitimate access points, emphasising the importance of regulatory compliance and security measures. Yet, collaboration between corporate banks and regulatory bodies is paving the way for overcoming these obstacles, signaling an undeniable shift towards comprehensive digital transformation.

This shift aims to bolster efficiency, customisation and innovation, ultimately establishing banks as trusted advisors amidst evolving digital landscapes.

Accelerating Saudi Arabia’s Digital Payment Evolution

Adam Jones highlights the key roles of fintech and SMEs in Saudi Arabia and explains how Mastercard is playing their part by partnering in their ongoing development

Saudi Arabia is a country with progressive national agendas that are driving the development of its digital infrastructure, creating an enabling environment for people and businesses to reap the full benefits of the digital economy.

At Mastercard, we seek to accelerate the adoption of digital payment methods in the Kingdom and strengthen financial inclusion. We apply our trusted advanced technology solutions to new use cases, brought to market through partnerships with public sector entities, financial institutions, fintech companies, digital giants and telcos.

We are helping governments connect more people and businesses to the digital economy. This contributes to boosting economic activity and enhancing citizen welfare, leading to the development of sustainable communities and happier, smarter cities. We are also working with the private sector to co-create innovative solutions and offer access to our network of partners, expertise, technologies and markets.

Fintech disruptors as key innovation drivers

Saudi Arabia is home to a fast-growing fintech landscape, driven by a proactive regulatory approach, pioneering initiatives and increasing investments. The Kingdom’s fintech market size is currently estimated

at $43.78 million and is expected to reach $77.63 million by 2029.

We all thrive when fintech companies have access to the technology they need to reach scale and democratise finances. Innovative fintech players are contributing to the rapid digital transformation that makes people’s lives more convenient, simpler and rewarding. And as an experience-centric company, we at Mastercard are supporting this creative disruption.

Through our portfolio of products and services, powered by innovative and secure technologies, fintech innovators can plug into our capabilities to create added value. This provides an express lane for fintech companies of all sizes to scale their offerings. Together, we are shaping the future of commerce and delivering frictionless experiences that bring more people into the digital economy.

SMEs – the lifeblood of Saudi economy

Spurred by Vision 2030 and initiatives such as the National Transformation and Financial Sector Development Programs, Saudi Arabia is fast becoming one of the commercial capitals of the world. Its rapidly evolving SME landscape distinguishes it as a burgeoning hub of innovation and a leading investment destination.

According to Monsha’at’s Q4 2023 SME Monitor, Saudi Arabia is home to 1.3 million SMEs. Advancing the growth of the country’s SME sector is key to unlocking its economic potential.

At Mastercard, we serve as a trusted technology partner of choice to the Kingdom, driving the success of Vision 2030 and realising its goal of increasing SME contribution to the GDP to 35%.

We use our extensive network, state-of-the-art technology and global partnerships to help SMEs adapt to changing commercial environments and new spending patterns. We build synergies with the public and private sector to boost financial inclusion and motivate consumers and merchants to support small businesses. These efforts are part of our pledge to connect 50 million micro, small and medium enterprises (MSMEs) worldwide to the digital economy by 2025.

The future is digital

As Saudi Arabia’s digital transformation advances, it presents us with unprecedented opportunities to effect more positive change. Together with our partners, we can leverage the Kingdom’s appetite for innovation to build trust in the digital ecosystem and empower everyone to thrive in the digital economy to usher in a new era of prosperity.

Adam Jones, Division President for West Arabia at Mastercard