19 minute read
Present in the Future
Abdulfattah Sharaf, CEO of HSBC UAE and Head of International, HSBC Bank Middle East Limited
Abdulfattah Sharaf Group General Manager, CEO of HSBC UAE and Head of International, HSBC Bank Middle East Limited, explains how HSBC remains at the forefront of banking and financial service innovations as well as taking a leading role in bringing the changes needed to improve the lives of communities and safeguard the state of the world
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HSBC is a rare example of a global bank that provides its full-service capabilities locally. Why haven’t you followed your international competitors and simply shrunk the offering?
HSBC’s universal banking model is a clear competitive advantage and bringing the full power of that model to our customers in the 64 countries and territories in which we operate is at the heart of the bank’s global strategy.
Our ambition today is as clear as it was when we opened for business 75 years ago in Dubai: to be the preferred international bank for our clients by supporting crossborder banking flows between major trade, capital and investment corridors.
And as the UAE readies to celebrate its Golden Jubilee, you can see how that strategy has supported the growth and development of the nation.
Don’t forget that in 1946, we were the first and only bank operating here, but in my lifetime, the UAE has built itself into a global trade, transport and logistics hub, an international financial market, a world leader in sustainable finance, and a magnet for start-ups.
That’s an amazing achievement for the nation, which has had a clear, guiding vision built around openness, connectivity, creativity and an ambition to shape the future.
We believe in the UAE’s future as a true international hub, which is why we are committing billions of dollars to support the long-term plans of all our customers from governments, to multinationals, and fast-growing smaller companies, and it is why we are growing our wealth management brand in the country.
The wealth arena is particularly interesting, and we have plans to make
the UAE a focus for our expatriate wealth management expertise. It’s in the top five locations for international wealth management according to Boston Consulting, and the growth in the number and wealth of high-net-worth individuals outstrips the global average.
To tap that potential, we announced the expansion of our Private Banking business into the Abu Dhabi Global Market, adding to our presence in the Dubai International Financial Centre, which followed the launch of our Jade bank account in 2020 – an account combining relationship management, advanced wealth solutions and luxury lifestyle services for high-networth individuals.
Beyond wealth, there are three big themes for me.
Firstly, Sustainability. It is centre stage, and the sustainable finance market is a clear area of focus for us and our customers. Green bond and sukuk issuance almost doubled in the Middle East last year and there is still room for growth.
Another trend is evolving supply chains. The global trade landscape has been completely redrawn by Covid-19 and it will not be business as usual for trade and supply chains in the post pandemic world.
This brings me onto my third theme – digital. Digital technology has proven vital for the trade of essential goods during lockdowns. Applying digital analytics to supply chains is helping to improve transparency and agility, and to eliminate waste and inefficiency. We think that sophisticated use of data will be a catalyst for corporate restructurings and business integrations.
All these things need a stable policy backdrop for investors to have confidence when they are making ambitious, long term plans. And decisive policymaking is one of the things that UAE is known for.
The new companies law is a clear example of that. Empowering nonnationals to own 100% of a company based in the UAE speaks volumes about the nation’s desire to broaden its scope of foreign investors. These positive steps will help drive the UAE economy forward, benefiting all investors, foreign and Emirati.
HSBC’s purpose is to use our unique expertise, capabilities, breadth and perspectives to open up new kinds of opportunity for our customers. We bring together people, ideas and capital to nurture progress and growth, helping create a better world for our customers, our investors, our communities and the planet we share. Valuing difference, succeeding together, taking responsibility and getting it done are the values that define HSBC.
That all underpins our commitment to supporting customers in the UAE as the nation looks forward to its Golden Jubilee
and lays out the vision that will drive the creation of new opportunities here in the decades ahead. with the inherently intangible human infrastructure of trust and dependability, collaboration and commitment was what really makes the difference – and that’s how we approach digital.
At the core of our digital strategy is a concept we call ‘bank-in-your-pocket’. It’s all about giving customers everything they need from their bank digitally and on the move, in just a few clicks. We are rapidly digitising our wealth propositions, including foreign exchange, insurance and investment capabilities, adopting a mobile-first agenda to give clients an expanded range of products digitally and direct access to relationship managers and wealth advisors to support complex needs.
Whether they are sending money internationally, or monitoring their company’s expenses, our customers have full access to a personalised range services and products in their pocket.
While more than 80% of our retail banking transactions globally were completed digitally pre-Covid, our Relationship Managers have helped thousands more customers in the UAE make the move online. And in doing so we accelerated planned developments, such as ensuring that we can process and accept digital signatures – our “LiveSign” service – to make digital banking a completely smooth and seamless experience.
We launched our Global Money Account in the UAE in June, which allows customers to send funds from their mobile device in real-time to any HSBC bank account in 20 countries and
How is HSBC deploying digital tools to be a better bank in the UAE?
The disruption caused by the pandemic has been a test of our digital capabilities, the strategy that guides our investments and the way our people, processes and systems really interact to deliver excellent customer outcomes. I think customers would say we passed with flying colours. Lockdowns and social distancing meant that at one stage more than 90% of our people were working remotely. That took far more than a roll-out of well-rehearsed business continuity plans. Yes, the hard infrastructure of internet connectivity and systems security was vital. But combining that
territories worldwide in 21 currencies at preferential exchange rates.
We have also recently launched an online trading platform for retail customers in the UAE, giving real-time execution on stock exchanges in the United States, United Kingdom and Hong Kong – that’s 60% of global stock market capitalisation. We’ve opened 1,400 trading profiles since launch and more than 13,000 trades with a value of $250 million have been completed.
In wholesale banking, more customers than ever before have been using our digital channels and they are recognising the benefits – it reduces turnaround times, reduces time to receive payments, it is more convenient and has greater security.
During 2020, we helped more than 1,000 clients make the move onto our digital corporate banking platform, HSBCnet, and more than 80% of eligible transactions were completed digitally.
We enhanced the infrastructure of our Global Markets platform in the region to provide the secure systems and processes needed for full-scale securities trading off-site in global fixed income, equity and foreign exchange markets – all uninterrupted by COVID-19.
Our traders were immediately able to begin trading from their homes – for the first time ever – without making any compromises on client experience, cyber security or compliance controls. Many of our competitors could not do that.
We are investing significantly in digital banking tools for corporates and institutions. In February of this year, we launched virtual debit cards for businesses in the UAE, which was a first in the Middle East. The card generates single-use virtual card numbers, offering payment flexibility whilst helping with cash-flow forecasting and management.
We also recently introduced to the region an integrated global payments and FX solution on our online corporate banking platform, HSBCnet. This allows us to automate and streamline the payment process for a range of currencies, across countries and payment types, into a single batch to make efficient crossborder transactions. This lowers the cost of payments, reduces manual input and improves transaction visibility and speed.
Every industry is now seeing an acceleration in innovation and the banking sector is no exception. If there is anything positive to come out of the pandemic, it will be new or improved products and processes – resulting in greater efficiencies and more flexibility in the way people do their jobs, which can only be a good thing for the global economy.
Are banks doing enough to address climate change?
Over the last few years, we’ve seen greater awareness of the critical need to address climate change – including here in our region. Indeed, bond and sustainabilitylinked debt issuance from entities in the Gulf Cooperation Council (GCC) economies roughly doubled to almost $5 billion in 2020. However, change needs to happen much faster if the world is to achieve the Paris Agreement target of limiting the rise in the planet’s temperature to below 2 degrees Celsius above preindustrial levels by 2050. Banks and the private sector have a key role to play.
Banks must prioritise financing and investment that supports the transition to a net-zero economy, that’s why we and 41 other banks earlier this year founded the industry-led, UN-convened Net Zero Banking Alliance (NZBA) to bring collaborating and consistency to collective efforts to reach the Paris Agreement goals. That reinforces our pledge to reduce financed emissions from our portfolio of customers to net-zero by 2050 or sooner and to provide between $750 billion and $1 trillion of finance and investment by 2030 to help achieve this goal.
HSBC is at the forefront of financing the transition to a net-zero carbon economy, prioritising activity and expanding its suite of green products across all business sectors to help economies around the world meet the UN Sustainable Development Goals and Paris Agreement commitments.
In January 2021, we launched a Middle East Sustainable and Transition Finance team with a mandate to engage on environmental, social and governance (ESG) issues to develop strategic engagement plans for each customer sector – from multinationals to individual entrepreneurs – and to originate and execute business opportunities. No other bank in the region has such a dedicated resource focused solely on supporting customer journeys to net zero.
HSBC is using its expertise to help clients across all lines of business on their transition journeys. For major corporates and institutions, we have led innovative deals, including the world’s first transition sukuk for Etihad Airways and the first sustainability-linked loan for a GCC financial institution.
We have extended ESG and sustainability-linked loans to small-tomedium-sized firms and introduced green trade finance and green guarantees to UAE clients. And we helped finance the world’s biggest single-site solar power project, here in the UAE.
Our UAE-based team is also driving transition issuance in the wider region for issuers including sovereigns, financial institutions and the largest multinational corporations. This has furthered our leadership position in sustainable finance in the UAE as part of our commitment to introduce new products and solutions that give clients more opportunities to raise capital sustainably.
How important are Abu Dhabi and Dubai as cities to the global economy?
We are living in the urban age. Cities house our businesses and feed our economies. Two billion more people will be added to the world’s cities between now and 2050.
We’ve done some very focused research on what will define the successful global cities of the future and concluded that Abu Dhabi and Dubai will be drivers of growth, sustainable innovation, human capital and new flows of trade in the post-Covid-19 environment.
Abu Dhabi is recognised as an intercontinental hub for trade, talent and capital. It has evolved as a destination for talent through the opening of international branch campuses of multiple global universities, which fosters the talent base and international business links. And the government is taking proactive steps to expand globally traded, capital-intensive industries such as petrochemicals, pharmaceuticals and life sciences, technology and logistics.
Over the past 50 years, Abu Dhabi has transformed into a global business, banking, cultural and hospitality hub. It is one of the key centres of the Middle East. It has invested in economic diversification, which has boosted the city’s global appeal and influence. The emirate’s oil and gas share of GDP has fallen from 59.3% to 50.2% in the last 15 years in a transition into technology and manufacturing roles serving East-West trade and investment corridors.
Abu Dhabi’s long-term growth strategy has seen it become a leader for economic competitiveness and future growth prospects, ranking 20th globally and among the top 40 global financial centres.
Abu Dhabi’s Vision 2030 aims to diversify the city economy and build a sustainable economy fueled by fast-growing high-value industries. Through key infrastructure and real estate development projects, it aims to establish itself as a more all-round global destination and develop its status as a gateway to the region. Abu Dhabi is already investing strongly in expanding and upgrading its tourism and cultural amenities with significant projects such as the Saadiyat Island Cultural District.
In Dubai, high rates of population growth over the past three decades have emerged in tandem with economic diversification away from oil, a multidecade surge in real estate development driven by Government reforms, and subsequent international migration and investment.
In the past 10 years, Dubai has risen to the ranks of global cities, establishing itself at the crossroads of trade, talent and travel corridors. Dubai’s efforts to diversify its economy has contributed to a major increase in capital flowing to the city, facilitated by business reforms and strong national support.
Dubai is committed to strengthening the resilience of its economy by investing in high growth knowledge sectors and the innovation economy. Dubai has been reducing its dependency on oil since the 1970s and over the last decade efforts to transform the economy have intensified. As of 2020, only 1% of Dubai’s GDP was derived from oil, compared to over 50% five decades ago.
Sectors ranging from advanced manufacturing to creative industries have emerged. They benefit from the clustering effect of the 11 Governmentowned innovation locations designed to host similarly specialised firms in close proximity.
Dubai’s major economic and business reforms have led to significant improvements in its economic competitiveness and status as a global hub. Business and visa reforms are also supporting the city’s innovation ecosystem, particularly for entrepreneurs.
Both Abu Dhabi and Dubai are recognised as epicentres of connectivity, diversity, and innovation. They have often served as bridges between East and West, offering internationalists the perfect place to seed and grow their ideas. Their next cycle has the potential to see them become global centres for reinvented flows of trade, more resilient supply chains and revised business models led by digital transformations, which dovetails with HSBC’s priorities in supporting our clients and communities to build back better across the region.
Over the next 30, 40, 50 years, a renewed global system of connected and trading cities is being set in motion, all integrated by new trade routes, advanced mobility, and digital connectivity. The UAE will be at the heart of this - a country built on an ambitious vision of the future is a natural home for the dynamism that we think will characterise one of the most exciting growth stories of the decades ahead.
We’ll see more diversified, more digitised, cleaner and greener cities, with Abu Dhabi and Dubai very much at the forefront.
THE EMERGENCE OF NEOBANKS
Neobanks are making a mark in the region with their market presence expected to continue to grow. George Hojeige at Virtugroup points out that as neobanks expand into providing corporate services, by partnering with traditional banks they can begin a new age of financial access and security
By 2028, the global neobanking market size is estimated to reach USD 722.6 billion, a seemingly ambitious forecast, but indicative of current trends shaping the banking sector today.
With around 39 million users around the world, it is evident that neobanks are on track to exponential growth, revolutionising age-old banking processes and financial services along the way.
Having introduced a completely new operational model, one that is purely digital and without a physical presence, neobanks are fast filling the increasing demand for financial solutions specifically designed for mobile use.
Their unconventional framework is largely hinged on changing consumer behaviour, which is increasingly leaning towards digital solutions. In 2020, market analysts noted that there were up to 1.9 billion online banking users worldwide, a figure expected to hit 2.5 billion by 2024.
However, an all-digital banking experience is not just what neobanks aim to deliver. In addition to a customer-centric approach that promises exceptional quality and user convenience, in comparison to that of traditional banking, neobanks offer a host of competitive advantages that put them on par with established financial institutions.
The future of banking
Neobanks allow end-users to deviate from traditional paperwork and timeconsuming processes, and transition to faster, digital and more accessible financial services, including a simplified and faster account opening process, more affordable costs and service fees, higher interest rates, unobstructed international payments and more seamless money transfers.
Going beyond standard banking services, neobanks add an array of financial solutions that provide users with a more comprehensive view of their financial activities and greater control over their finances through innovative reporting, budgeting, investment and cash management tools, among others.
Furthermore, neobanks leverage AI technology to better understand customer behaviour and match it with financial solutions that fit the user’s lifestyle.
George Hojeige CEO at Virtugroup
The neobank industry amidst the pandemic
While experts predict robust growth for the global neobank sector, like with many industries, it has faced both unprecedented challenges and opportunities during the pandemic. Monzo,
a United Kingdom-based online bank and one of the country’s pioneer challenger banks, saw its valuation plunge from USD 2.6 billion in 2019 to USD 1.6 billion in 2020.
On the other hand, for certain neobanks, the pandemic ushered in milestones of growth. One of the United States’ leading challenger banks, Current, grew its users from 1 million to 3 million. Its latest funding round of USD 220 million has also increased the company’s valuation to USD 2.2 billion.
Another UK neobank, Revolut, experienced a 40% reduction in revenues when the pandemic started. However, by the end of 2020, the fintech company has significantly recovered from its losses and registered a 50% revenue growth compared to their pre-COVID performance.
As of April 2021, experts forecast Revolut’s valuation to hit USD 10 billion, following another imminent funding round.
In the Middle East, neobanking is emerging as a strong alternative to traditional sources of banking and financial services. Although still in its nascent stage, the Middle East’s neobanking sector has seen a number of neobanks successfully launch and capture significant market share.
Among the countries leading the neobanking revolution in the region is the UAE, where 90% of the people use digital banking.
Early this year, the country’s first independent digital banking platform, YAP, was launched. With over 40,000 preregistered users, YAP integrates a range of fintech solutions, including remittances, peer-to-peer payments, bill payments, and spend and budgeting analytics.
Another new contender that entered the UAE’s competitive neobanking sector is Zand, lauded to be the world’s first digital bank to offer both corporate and retail banking services. Mohamed Alabbar, Emaar Properties founder and former chairman, will reportedly be at the helm of Zand.
In recent years, the UAE has seen other digital banks emerge in the market, can step in and speed up the process for smaller players, allowing them to have the same access to corporate banking services, at even lower costs.
Another gap that neobanks are aiming to fill is the lack of accessible financing for startups and SMEs – the ones that traditional banks might consider risky or less profitable.
Neobanks that offer financing and credit facilities for SMEs implement faster and simpler loan application processes, accelerated creditworthiness assessments, higher approval rates and more lenient collateral requirements.
including Liv, a mobile-only lifestyle banking application released by Emirates NBD, and Mashreq Neo, a full-service digital bank launched by Mashreq in 2017 to cater to more tech-savvy customers.
Targeted support for startups, SMEs and niche markets
The undisputable advantage of neobanks is that they allow users to open an account without the traditional face-toface interactions, physical document processing and the need to personally visit a branch. However, the pandemic has pushed traditional banks to introduce a similar wholly digital process. Does this mean neobanks have lost their edge over conventional banks?
Although incumbent banks have shifted their processes digitally, opening a business bank account can still be a
stumbling block for startups and small businesses, who often find it challenging to fulfil the stricter requirements and higher minimum balances mandated by traditional banks.
A study by Wamda, an accelerator of entrepreneurship in the Middle East and North African region, showed that 56% of startups said they were able to open a bank account within two to five months, 29% took less than a month, another 13% spent over five months to complete the process and 2% opted to open an account overseas.
As traditional banks are still largely focused on transactions involving bigger companies and multinationals, neobanks
The impact of neobanks on the traditional banking sector
Partnering with neobanks gives traditional banks the opportunity to access new customer segments, such as freelancers
and digital nomads, startup entrepreneurs and other underserved niche markets. On the other hand, such partnerships allow neobanks to benefit from the “trust factor” and security that consumers have long associated with incumbent banks. In addition, by making the banking industry more competitive, neobanks are spurring traditional banks to rethink and redesign their conventional bureaucratic processes, which ultimately benefit end consumers – the small business struggling to secure a bank account, the freelancer who is looking for banking solutions tailored to their industry, and the more digitally savvy generation of users.
