9 minute read
Staying relevant in the digital age
The outbreak of the COVID19 pandemic created some exceptional challenges for all industries, but it created unique opportunities especially in the financial service sector by accelerating and strengthening the transition towards digital banking at unprecedented speeds. No function, service, or department seems immune to the wave.
Advertisement
The financial services sector in Middle East region is abuzz with talk and activity on digitalization strategy including Open Banking and its regulation, digital payments, customer digital journey and how banks can develop robust customer acquisition and engagement.
This year’s edition of Fintech SURGE, which is being held under the theme ‘The Global Hotspot Accelerating The Fintech Movement, and is running parallel to the 41st edition of GITEX Technology Week 2021 is showcasing the latest developments in the financial services sector from digital banking to paytech, insurtech and wealth management. The event, which counts MEAFinance among its backers, will see some of the financial industry’s biggest technology revolutionaries and host trail blazing talks.
Following the outbreak of coronavirus, digital payments volumes in the GCC region soared to record highs, generating, by some estimates as much as 10 years’ worth of growth in the adoption and deployment of technology and digitisation across B2C, B2B, and P2P spaces in just over 12 months. “Payment services providers including banks are leveraging on these adoption rates as an impetus to accelerate digital projects, but significant challenges and risks remain,” said PwC.
Apart from payments, the pandemic brought about more than a decade worth of changes in the way banks do business in just a few months. According to KPMG, “With 80% of revenue growth predicted to come from digital offerings and operations over the next three years, financial services providers should continue transforming their operating models and investing in key enablers such as integrated cloud platforms, agile ways of working, intelligent automation, AI, blockchain, and advanced data and analytics.”
In wealth management and private banking, COVID-19 is driving pre-existing trends by changing the way wealth managers deliver advice and serve their high-net-worth individual (HNWI) clients. BlackRock said coronavirus is accelerating digitization of processes and client propositions, a shift towards centralized portfolio and risk management amid increasing focus on responsible investing while emphasizing the role of wealth managers in supporting socio-economic ecosystems.
Similarly, though insurance has lagged other sectors in digitalizing its core business and embracing customer experience-led approaches, InsurTech is expected to revolutionize the industry. Insurers are leveraging how technology is deeply embedded in people’s lives by weaving technologies into their product and service offerings, and how they are delivered to customers.
Digital banking
The current operating environment for financial services providers in the Middle East is putting to the test their digital
transformation journeys and, in some cases, forcing the c-suite level to revisit their transformation strategies and make customers the focal point of their digitalization drive.
“Digital transformation is no longer a luxury, but a necessity. Banks that are agile, flexible, and willing to transform their business models will be the ones that succeed, and secure their financial strength for future growth,” said KPMG.
The regional financial service sector’s digitalization drive is partly self-motivated. GCC banks are pro-innovative and industry experts expect them to continue to dominate the financial services industry as the sector goes more digital. Similarly, the banks’ technology-savvy customers and regulatory initiatives such as regulatory sandbox and open banking will also accelerate the banks’ digital transformation.
The UAE’s Mashreq Bank and Emirates NBD pioneered digital-exclusive banks for SMEs with NeoBiz and E20 respectively in September 2019 to support one of the country’s most important sectors. These were unveiled two years after the Emirati lenders had launched their lifestyle digitalonly banks, Mashreq Neo and Liv., to serve the banking needs of the country’s young and mobile-enabled population.
Digitalization in the banking sector is swiftly changing the field of play where incumbents are facing increasing competition from nontraditional entrants who are billing on customer experience as their point of sale.
The UAE’s first independent digital banking platform, YAP, was unveiled in March 2021. Other neobanks that are expected to launch soon include Zand, the first Shari’ah-compliant digital-exclusive bank, while ADQ is also considering setting up a digital bank using a legacy banking license of First Abu Dhabi Bank.
Kuwait’s Agility Public Warehousing applied for a digital bank license in August as the logistics major looks to tap into the financial services sector, thanks to the changes in customer behaviour, evolving needs and expectations. Bahrain-based Bank ABC also launched a digital bank in 2019. ila Bank—an AI-powered and data analytics digital-exclusive bank is operational, and it started offering credit cards and loans to Bahraini customers in March. The digital bank is expected to launch its services in Jordan this year before expanding its regional footprint into Egypt.
Meanwhile, in Saudi Arabia, the cabinet allowed the ministry of finance to issue the Gulf state’s first set of digital banking licenses to stc pay and a group of companies and investors led by Abdul
Rahman bin Saad Al-Rashed and sons company in June, converting the two firms into digital-exclusive banks.
– EY
Payments
Payments remain one of the best performing financial services product but unfortunately for banks—traditionally the main providers of payments services— this momentum is no longer extending to most of them especially under the current operating conditions. Technology giants, fintech firms, merchants and social media giants have all created their contactless payment offerings.
The outbreak of the pandemic and the containment measures that were introduced thereafter undoubtedly accelerated a string of existing trends in both consumer and business behaviors while introducing new developments that saw the use of digital payment methods surpassing the use of cash and debit cards.
“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.
The competition between players in the payments sector can be considered a battle to achieve competitive advantages using precise strategies to obtain favorable positions. To maintain a competitive edge in a crowded market or adapt to changing operating environment, payment services providers across the GCC must understand the needs and expectations of their customer base.
The ongoing shifts toward e-commerce, digital payments (including contactless),
instant payments, and cash displacement have all been significantly boosted in the past six months, said McKinsey. The COVID-related restrictions that were introduced by regional governments to curb the spread of the virus shifted consumer and business behavior towards e-commerce platforms making it imperative for financial service providers to provide seamless payment solutions.
A study that was conducted by Mastercard in the Middle East showed that 70% of the participants are using some form of contactless payment method since the outbreak of the pandemic due to safety concerns while 81% of the respondents noted that they would continue using digital payments post-pandemic.
Boston Consulting Group and Swift expect the global digital payment sector’s revenues to hit the $1.8 trillion mark in 2024, from $1.5 trillion in 2019, buoyed by the continued transition away from cash, sustained strong growth in e-commerce and electronic transactions and greater innovation.
Wealth and Asset management
The ability to swiftly innovate and effectively meet client expectations while capturing future growth segments is turning into a core asset in the financial services sector. Since the pandemic hit, wealth managers are being confronted by the task of balancing the traditional approach to risk management with the need to respond quickly to a crisis that has created massive changes to their operating environment.
To adapt to the changing times, several wealth management firms across the Middle East region are already investing in innovation, delivering new digital products and services to their clients. Deloitte urged wealth technology (wealth-tech) managers, who are spearheading this change, to consciously eradicate working silos to foster enhanced top-down collaboration, innovation and alignment across the organization to best serve its clients.
According to industry experts, digital transformation in wealth management must be fostered by integrating skills in innovation, human-centered design, digital technology, risk and overall leadership. It is worth noting that just like any other banking product digitalization within wealth management span the entire value chain from client onboarding to relationship management, investment recommendations, and fulfillment and trading.
Wealth management firms’ digitalization strategy should be a holistic approach that makes clients the focal point for product roadmap through the assessment of customer segments and the overall value chain—this is to determine which customer touchpoints need to be kept in-person and which can be made more self-serve.
The growth of “automated wealth managers” or Robo-advisors is also revolutionizing the wealth management industry with unprecedented force. By leveraging algorithms to offer financial advice for a fraction of the price of a real-life client advisor, Robo-advisors are growing at a rapid pace, doubling their assets under management (AUM) every few months.
The Middle East wealth management market went through a remarkable shift long before the outbreak of the pandemic as regulators embraces Robo-advisors or digital financial advisories. The Central Bank of Bahrain issued directives on Roboadvice in 2019, affirming the Gulf state’s position as a leading digital financial hub.
Saudi Arabia’s market regulator also gave two firms, Wahed Capital and Haseed Investing Company, the green light to test their digital financial advisory services as the kingdom moves to adopt financial technologies as part of its economic diversification drive.
“Robo-advisors translate client input into investment logic such as risk or liquidity factors and propose adequate investment opportunities well beyond simply highlighting a handful of ETFs out of a few thousand of possibilities,” said Deloitte.
The UAE’s Commercial Bank of Dubai also unveiled its Robo-advisory app CBD Investr in April. The platform offers the bank’s clients access to globally diversified and personalized portfolios of stocks, bonds, and other asset classes using low-cost exchange-traded funds.
– Deloitte
InsurTech
The pandemic and impact on economic activities triggered an overnight shift in customers’ needs and expectations, while compelling virtualization of insurance operations which on its own exposed gaps in the industry’s digital capabilities and raised cybersecurity concerns.
The way Middle East insurers will respond to the fallout due to the pandemic and the changing operating conditions amid long-term shifts such as technology innovations and evolving consumer preferences will be critical. Deloitte said that generating continuous innovation in insurance policies, sales strategies, operations, and customer experience could turn out to be the biggest differentiator in 2021 and beyond.
As more insurers are increasingly focusing on adding new technology capabilities to their businesses, acquiring
mature InsurTechs could be increasingly attractive for legacy insurers provided they can make a near-term impact on operations.
Dubai-based Addenda, an InsurTech firm that uses distributed ledger technology to streamline processes between insurance companies have signed over five legacy insurers including National Takaful Company (Watania) and Al Wathba Insurance onto its integrated Blockchain platform since graduating from DIFC’s FinTech Hive accelerator program in 2018.
The emergence of new technologies is offering the financial services sector a window to be more innovative and efficient in service delivery, but it is also opening the door to new entrants such as fintechs, global retail giants as well as card networks and neobanks.
