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Banking Technology Innovation Enablers: Empowering Digitalization
BANKING TECHNOLOGY INNOVATION ENABLERS
Empowering Digitalization
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More than a year and a half into the pandemic, several executives in the Middle East banking sector have come to believe that digital transformation is more of an enabler – a vehicle that allows institutions to get the desired value from their transformation agenda.
In the GCC region, the quest to meet customers’ demands and expectations while maintaining a competitive edge in an overcrowded market had already paved way for digitalization well before the pandemic hit. The financial services sector has a rather traditional outlook and takes time to adapt to change and innovation, but coronavirus has created a different narrative.
The prolonged pandemic is accelerating a perceptible shift in the financial services sector by necessitating a quick transition from physical to digital. It is at this stage that the fintech industry has risen to the occasion to arm financial institutions with digitization initiatives into the new normal.
The relationship between banks, vendors and fintech firms is no longer about competition but is now about collaboration through adopting cuttingedge technology services to deliver bestin-class services and products.
Financial institutions are also leading or participating in several accelerators, incubators and training programs to
get early access to technology and talent without taking any significant stake in the fintech companies. These types of collaborations are a valuable addition to the internal innovation programs of the financial institutions that seek to increase and maintain their customer relevance.
Deloitte said that leaders across the banking industry agree that digital transformation and customer-centricity go hand in hand. For banks, the digital transformation journey stretches from digital channels such as mobile banking, digital payments to the company-wide digitalization of employee working models, smart branches, data management methods and risk control strategies.
Though the application of disruptive technology is nothing new to the financial services industry it has been under the spotlight in recent years as advances in machine learning (ML) and artificial intelligence (AI), as well as new business models, are challenging existing products, services and processes while enabling faster, intuitive and more engaging solutions to be created.
As legitimate players of an emerging banking ecosystem, fintechs are deploying digital onboarding solutions, Open Banking enabled solutions, cloud solutions and advancing digital payment services.
According to EY, the growth of the industry has strengthened the common belief that fintech will disrupt banking, but collaboration – not competition – will be the primary driver of disruption.
Digital onboarding
The implementation of an automated customer onboarding process is an essential feature that determines whether or not a financial institution can obtain new customers. Globally, around 12% of banking customers tend to change from one bank to the other annually and in that regard, it should be noted that retaining a customer is easy but acquiring new customers is difficult for all types of banks.
Deloitte said that an automated onboarding process is a mutually beneficial situation offering speed, efficiency and convenience for the customers and freeing bankers for more value-added tasks.
Customer onboarding is the first contact that a new user has with the bank and the process should be intuitive, seamless, responsive and efficient. It is defined as the guidance of customers in the first steps of platform accessibility and a critical step in a customer’s journey with a financial institution as it leaves a
data) and external (e.g. mobile app, social media). • Innovative – products and services offered through the building of strategic partnerships with nonfinancial services players to enhance user experience.
Open banking
Open Banking is a connected ecosystem of financial services that allows two or more unaffiliated banks to enrich their digital offerings safely and securely, bringing greater financial transparency and new and tailored customer services
THE LEADING PUBLIC CLOUD PROVIDERS OFFER AN ARRAY OF INNOVATIVE PRODUCTS-AS-A-SERVICE THAT CAN BE ACCESSED ON THEIR PLATFORMS AND HELP BANKS IMPLEMENT BUSINESS AND OPERATING MODELS TO IMPROVE REVENUE GENERATION, INCREASE CUSTOMER INSIGHTS, CONTAIN COSTS, DELIVER MARKET-RELEVANT PRODUCTS QUICKLY AND EFFICIENTLY, AND HELP MONETIZE ENTERPRISE DATA ASSETS
– Deloitte
long-lasting impression in the clients’ minds about how they perceive a financial institution.
KPMG said that banks should adopt three approaches to their digital onboarding process: • Protect – which entails the development of in-house processes and standards to ensure compliance with jurisdictional requirements in terms of data privacy and API guidelines. • Compete – that is investing in strategic enablers both in-house and externally including internal data usage (e.g. unstructured, big to the region. KPMG said, “Whilst open banking could be of great benefit to customers, it may also result in hurdles in some areas, for example, cybersecurity, changing business models, and regulatory oversight.
The Middle East region is unarguably mature when it comes to regulators’ preparedness for Open Banking compared to other international financial hubs in Europe and Southeast Asia, though there are some challenges such as an outdated regulatory framework.
Bahrain unveiled the Bahrain Open Banking Framework in October 2020. The framework provides a holistic definition of
the country’s Open Banking regulation, guidelines, technical standards for Open Application Programming Interfaces (API) platforms, security standards (including data privacy), and overall governance.
The UAE central bank recently announced plans to open a FinTech Office to support financial innovation in the country while the Abu Dhabi Global Market proved its unwavering support towards the Open Banking revolution having awarded its first digital-exclusive banking license and Category 1 status to Anglo-Gulf Trade Bank in September 2019.
Saudi Arabia, the Arab world’s biggest economy, introduced its Open Banking framework earlier in January 2021. The move by the Gulf state is expected to revolutionize how customers, merchants and financial services providers enhance the value they reap from accessing financial data.
By leveraging APIs – a set of communication protocols used to develop computer applications – Open Banking platforms authorizes 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.
The cloud
The use of the cloud has also been an enabler of digital transformation in the financial services sector. The cloud is an enabler of advanced analytics in banks as these computer system resources provide space to both store and analyze large quantities of data in a scalable way, including through easy connectivity to mobile applications used by customers.
Big data, machine learning, and cloud computing can play a big role in helping banks to understand their customers more and be in a position to make business decisions in real-time including learning about a customer’s spending habits as well as enhancing the agility of financial institutions and enabling secure online payments, digital wallets, and online transfers.
“The leading public cloud providers offer an array of innovative products-asa-service that can be accessed on their platforms and help banks implement business and operating models to improve revenue generation, increase customer insights, contain costs, deliver market-relevant products quickly and efficiently, and help monetize enterprise data assets,” said Deloitte.
Cloud solution providers offer financial institutions an opportunity to synchronize their enterprise; break down operational
and data silos across risk, finance, regulatory, customer support, and more.
Digital payments
The adoption of digital payment methods has undoubtedly soared since the outbreak of coronavirus while the use of mobile wallets has surpassed the use of debit cards as the preferred method of settling payments among consumers across the Middle East.
PwC said that payment services providers including banks are leveraging on these adoption rates as an impetus to accelerate digital projects, but significant challenges and risks remain.
The fact that payments represent the most frequent touchpoints between banks and their customers makes investment in the sector more important than ever. Several financial services in the Gulf region are participating in several accelerators, incubators and training programs to advance their access to financial technologies. GCC banks are collaborating with payments solution providers and vendors thereby driving scale and improving profitability.
“Driven by changes in digital technology, consumer demand and competitive forces, the way people make payments is evolving faster than any other area of financial services,” said EY.
Last month, SWIFT unveiled a Payment Pre-validation service that will enable banks to verify payee account details before an international payment is sent, removing a key point of friction in cross-border transactions. The
launch of the service is part of SWIFT’s efforts to drive instant and frictionless transactions worldwide.
The growth in the payments sector is being accelerated by several factors such as the shift towards e-commerce platforms – by both customers and businesses – at the height of the pandemic, and financial institutions’ quest to meet customer expectations and cut back operational risk. Digital payments offer real convenience
Industry experts believe that carving out payments as a stand-alone business entity such as Emirates NBD’s Network International and First Abu Dhabi Bank’s Magnati allows for the expansion of services across the financial services sector and opens the service to a broader array of customers. Digital transformation in the banking service sector is swiftly shifting the field of play whereby banks are now forced to focus on customer experience, and it is no longer about the products and services on offer.
– EY
