MEA Finance - October 2022

It’s About You

Arriving in Q4, 2022, we see that so far, when compared with the rest of the world, this year has been fairly good to those of us living and working in the region, though we are no more immune than anyone else to the lasting, maybe even epochal changes to our daily lives brought by technology and the post-pandemic environment.

Changes to the way we work, employ and manage people are upon us, with staff demanding and achieving greater flexibility and fulfilment from their jobs and professions. What you want from your career is something that more employers need to be mindful of in order to retain talent and competitiveness. Equally prominent amongst the increasing range of considerations for business and employers is the adoption and application of technology. Essential to retaining loyalty, relevance and utility in the eyes of customers and clients of financial institutions, getting technology right is an increasingly important “must do”.

Tackling the importance of Human Capital in today’s world, in our cover feature, Elissar Farah Antonios CEO for the UAE and MENA Cluster Head, Citi talks with MEA Finance about the development of this vital resource and why it is crucial to banks and businesses, “If you don’t offer flexibility, in all likelihood there’s going to be a pool of talent that you’re not going to be able to bring into your organisation”.

Highlighting the important role of customer-centric technology and services, MEA Finance partnered with ACI to hold our latest roundtable - Real-Time Payments: Convergence, Ideation, and Innovation. At this event, a select panel of leading bankers

and broader industry executives debated the oncoming advent of instant payments and the effect it will have on banks, clients and the wider economy. Read our coverage of the occasion from page 20. And in another of our regular articles on banking technology, page 14, we glance at technology and innovation in regional banking, realizing that what were once distant predictions, are with us today with the increasing personalisation of services arising from Banking as a Service and Platform based banking models.

In our sectoral reports, from page 36, we look at M&A, with coverage of the concluded and planned deals in the regional banking sector, and we hear from HSBC’s John Conner who summarises the wider merger scene, “The region clocked up 359 M&A deals worth US$42bn during H1, 2022, which was a 12% increase on the same time last year”. Then from page 45, we take a look at the Asset Management landscape in the region where increased flows of business are expected, “We believe there is tremendous room to grow” says Faisal Hussein from Al Mal Capital.

Keeping to the theme of change and the tailoring of financial needs, from page 50, we hear from Ocorian, a leader in fiduciary services, fund administration and capital markets, discussing the ongoing development and growth in the use of Foundations in the region.

This month’s Market Focus is on Jordan, which while facing challenges, has earned the backing of the international donor community in recognition of the reforms the nation has made in its economy and finally, on page 58, we hear from Backbase and the growing fintech scene in Egypt and its emerging importance to the country’s banking sector.

So finally, the time has come for you to set aside some “me time” and continue with some well-deserved self-indulgence by reading through the rest of this issue.

Emirates NBD strengthens commitment to sustainable goals by joining fight against illegal wildlife trade

Bank will join more than 50 global peers in the United for Wildlife Financial Taskforce

flows continuing to move around the world through legitimate banking channels. Financial institutions can therefore play a crucial role in addressing IWT through ‘follow the money principles’ to seek to identify those that profit most from this heinous crime.

to better understanding the financial activity around IWT and fighting the associated financial crime risk.

In line with its commitment to champion sustainable initiatives, Emirates NBD is supporting efforts to combat global wildlife trafficking by joining the United for Wildlife (UfW) financial taskforce which is dedicated to stopping illicit financial flows associated with the Illegal Wildlife Trade (IWT).

Formed in October 2018, the UfW Financial Taskforce comprises circa 50 global financial institutions committed

IWT refers to the commerce of products that are derived from non-domesticated animals or plants, usually extracted from their natural environment or raised under controlled conditions. IWT is organised crime on a global scale, estimated to be worth up to USD 23 billion annually. The trade has grown substantially in recent years, with poaching rates for many species increasing, particularly those of high value to consumers. Illicit poaching and trafficking of wildlife continues to thwart conservation efforts worldwide, with nearly 7,000 species of animals and plants reported in illegal trade involving 120 countries. The global banking system is a crucial medium for the transfer of illicit proceeds gained from illegal wildlife trade. Financial institutions risk acting as unwitting facilitators of the trade, with associated illicit financial

Commenting on the announcement, Victor Matafonov, Group Chief Compliance Officer said: “Emirates NBD is proud to support the fight against illegal wildlife trade cause by joining the UfW Financial Taskforce. Aligned with the UAE government’s efforts to end illicit trade in endangered and exotic species, Emirates NBD will diligently work with its peers and other local and global organisations to promote the welfare and safety of wild animals, as part of the bank’s wider efforts to champion sustainability-related initiatives.”

In addition, several leading UAE companies have already taken measures to combat IWT by joining UfW; including those from the transport and financial sectors as well as non-governmental organisations. Over the years, several Dubai Government entities have also initiated programmes to raise awareness and counter the illegal practice.

Emirates NBD’s move to join the UfW Financial Task Force is aligned with the bank’s commitment to supporting global and local sustainability-focused initiatives such as the UN Sustainable Development Goals (SDGs) – specifically Goal 15, Life on Land – and the UAE Vision 2021, which aims to ensure sustainable development while preserving the environment.

Reinforces Emirates NBD Group’s firm commitment to integrate sustainable practices on all fronts

Region’s first platform bank Wio Bank

PJSC officially launches in the UAE

continues to drive changes across economies, it is paramount for us to evolve new operating models that contribute to the growth of digital businesses in the UAE. We believe the next evolution of banking is a shift from traditional online banking and pure play digital banks to that of platform banking and we are excited to launch Wio as the first platform bank in the region.”

Wio Bank PJSC announced its official launch in the UAE, becoming the first platform bank in the region, aiming to transform banking operating models towards a more digital future. This is in line with the UAE’s Digital Economy Strategy that aims to double the contribution of the digital economy to the country’s GDP over the next decade and to enhance the position of the UAE as a hub for digital economy in the region and globally. The new bank will provide solutions in three areas –Digital Banking apps, Embedded Finance and Banking-as-a-Service solutions.

In the UAE, almost one in five individual customers has an account with a digital bank and this is expected to double in the next few years. However, SME digital banking is still in its nascency with customers largely relying on brick-andmortar branches to open accounts and carry out business transactions. Wio will launch a range of digital banking apps for individual and business customers. These will offer easy and quick access to banking services, insights and tools to manage their personal and business lives efficiently.

“At Wio Bank, we are keen to contribute to the digital ambitions of the UAE by driving

the creation of a robust digital financial system that provides world class banking offerings and user experiences, laying the foundations for a futuristic economy,” said His Excellency Salem Al Nuaimi, Chairman of the Board, Wio Bank. “Wio Bank heralds the arrival of next generation banking in the region that will enable customers to access banking services effortlessly while also allowing them to do more in their business and personal lives.” He added.

Jayesh Patel, CEO, Wio Bank commented: “As the digital revolution

In line with these strategies, Wio Bank launched their first digital banking application Wio Business, on 5th September 2022. Wio Business provides start-ups, freelancers, and small & medium enterprises (SMEs) access to banking services seamlessly while empowering them with innovative beyond-banking services. The offering was developed in collaboration with customers and built to get SMEs up and running quickly by providing easy and simple banking tools to manage their business better.

“We are very excited to launch our first offering, tailor-made for SME customers.” said Jayesh Patel, CEO, Wio Bank. “We have streamlined account opening to provide an operating account within a day. Our innovative features empower customers to manage and track expenses easily, simplify saving for VAT, manage receivables through the invoicing services, and accept payments through links. The Wio Business app will enable the UAE’s start-up and SME communities, who are vital to the economic growth of the nation, to access banking and business support services in a fast, convenient and fully digital manner,” he added.

Wio Bank will strive to expand its offerings with innovative solutions in the coming months to help reboot banking in the UAE.

Jayesh Patel, CEO of Wio Bank

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Inspiring Better Banking

Path of Progress

(IMF), the World Bank and the European Investment Bank.

While other countries in the Middle East boast of crude oil, which has mostly traded above the $80 mark since February, Jordan has the location and a stable political environment.

The Hashemite Kingdom is still in recovery territory, though a rebound in tourism, remittances and higher exports of fertiliser have cushioned the economy from the prolonged pandemic and the economic knock-on effects of the war in Ukraine.

According to the World Bank, the country’s real gross domestic product (GDP) is projected to grow by 2.1% this year after it expanded by 2.2% in 2021 following a 1.6% contraction in 2020.

The fact that Jordan is one of the Middle East’s most politically stable

countries attracts the world’s attention and international investors have come to the country’s aid. The Western and regional powers have long valued their relationship with the kingdom.

Jordan has made progress in reforming its economy, but pressing challenges remain. The country’s crucial fiscal reforms that were unveiled at the 2019 London Initiative to reduce the budget deficit and get the economy back on track are starting to yield results. The resignation of Prime Minister Omar al Razzaz, who was replaced by a veteran diplomat and palace aide Bisher al Khasawneh in 2020, threatened to damage investor confidence as the country grappled with COVID-19.

However, the country enjoys financial support from multilateral lenders such as the International Monetary Fund

The Hashemite Kingdom has one of the smallest economies in the Middle East and few natural resources. Previously, the country has lavished subsidies on its public thanks to the support of its GCC and Western allies, however, an unprecedented influx of refugees from Syria and Iraq as well as the Israeli occupation of the Palestinian territories has strained its already fragile economy.

The IMF lauded the Jordanian authorities for preserving macroeconomic stability in a most difficult environment as the country implements key structural reforms, especially in its public finances.

Friends in high places

Jordan’s friends in high places are strongly backing Prime Minister Khasawneh’s commitment to maintain the reform momentum, strengthen growth and reduce public debt.

Khasawneh reshuffled his cabinet in October 2021 for the fourth time since taking office a year ago, creating a new investment ministry as part of strategy

Jordan has made progress in reforming its economy and has the backing of the international donor community, but pressing challenges remain

analysts said will give the prime minister more scope to tackle the country’s social and economic crisis.

Fitch Ratings said in August that Jordan’s external financing flexibility is a rating strength, underpinned by strong relations with the international donor community, multilateral organisations and bilateral allies, including the US, Europe and oil-rich partners in the Gulf.

Last year, foreign grants and concessional support loans were more than $3 billion, accounting for 7.3% of the kingdom’s GDP and slightly higher than 2020. Jordan receives $1.1 billion in budget support grants from the US, and President Joe Biden also announced his government’s intention to enter into a new Memorandum of Understanding to fund Jordan economically and militarily, with an annual commitment of around $1.45 billion in grants between 2023 and 2029.

The IMF approved the fourth review of Jordan’s Extended Fund Facility arrangement in June 2022, increasing this year’s disbursements by $165 million to over $500 million, including augmentation of access by $100 million. The programme is set to last until March 2024, with remaining disbursements in 2022-2024 of around $570 million, more than 1% of GDP. “Jordan enjoys strong relations with the IMF and its programmes have provided a policy anchor,” said Fitch.

The World Bank also released $350 million in additional financing for Jordan’s COVID-19 Emergency Response Project earlier this year to mitigate the impact of the pandemic on poor and vulnerable households. The Washington-based lender approved another $85 million for the Jordan Support for Industry Development Fund Project in May to promote investments and exports in the manufacturing sector.

The European Investment Bank unveiled $30 million in partnership with Jordan Commercial Bank in March to support entrepreneurs and businesses as part of the country’s broader economic

JORDAN’S EXTERNAL FINANCING FLEXIBILITY IS A RATING STRENGTH, UNDERPINNED BY STRONG RELATIONS WITH THE INTERNATIONAL DONOR COMMUNITY, MULTILATERAL ORGANISATIONS AND BILATERAL ALLIES, INCLUDING THE US AND PARTNERS IN THE GCC

recovery strategy. Jordan secured a $10 million Green Economy Financing Facility from the European Bank for Reconstruction and Development, the European Union and Green Climate Fund to promote its transition to an environmentally sustainable, low-carbon and climate-resilient economy.

The Hashemite Kingdom also received funding from its allies to enhance security and stability including a joint $1.9 million from France and The Netherlands in June and $50 million from Germany.

Jordan’s senate passed the country’s 2022 budget in February and the country is forecasting $15 billion in state expenditure and total revenues of $12.6 billion—68% from tax returns, 10% from foreign grants and 22% from non-tax resources.

Financial metrics

Jordan’s financial services sector is another dependable performer. The Central Bank of Jordan (CBJ) raised its key interest rate on various monetary

ON THE BACK OF RECENTLY IMPLEMENTED LEGISLATIVE REFORMS AIMED AT BROADENING THE TAX BASE AND ADMINISTRATIVE EFFORTS,

Meanwhile, Jordan is still a recipient of the five-year $730 million funding that was promised by Japan at the London Initiative on 28 February 2019, $1.1 billion that was pledged by France and as much as $250 million in soft loans from the UK.

policy instruments by 50 basis points (bps) and 75 bps on overnight deposit rate after the US Federal Reserve (Fed) hiked its interest rate by 75 bps earlier in June to curb inflation and maintain fiscal stability.

The home of MENA’s digital transactions

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S&P Global projected at least three back-to-back 50 bps hikes for the remainder of 2022 and four to five hikes in 2023 as inflationary pressures have soared to record highs with the US registering a fresh 40-year high of 8.6% in May. The increase in inflation will likely force the Fed to extend an aggressive series of interest-rate hikes which will push the CBJ to take similar actions given that the Jordanian dinar is pegged to the dollar.

Banks in the region have been consolidating to improve economies of scale, reduce operating and funding costs as well as boost profitability and efficiency. Jordan’s Capital Bank Group agreed to acquire 100% of Societe Generale Bank Jordan (SGBJ) in February, in its second foray within a year to expand its foothold regionally and domestically. The acquisition of SGBJ, which is 87.7% owned by Societe Generale de Banque au Liban, follows the takeover of Lebanese Bank Audi’s businesses in Iraq and Jordan.

Saudi Arabia’s wealth fund, Public Investment Fund (PIF), also signed a subscription agreement with Capital Bank in June to acquire a 23.97% stake for $185 million in a deal that is expected to help the lender expand its operations in Jordan, Saudi Arabia, Iraq and other markets.

“Jordan’s commitment to economic reforms, the full reopening of the economy, rising demand for exports and a rebound in tourism will support economic growth,” Moody’s said in July. The ratings agency said that the rebound in the Jordanian economy has helped to improve operating conditions for the country’s financial institutions and continues to support the banking sector’s stable outlook.

Banks in Jordan have weathered the pandemic storm and analysts say that the banking sector has the footing to move forward with new lessons and strategies for success including digitalisation—which was accelerated by COVID-19.

JORDAN’S COMMITMENT TO ECONOMIC REFORMS, THE FULL REOPENING OF THE ECONOMY, RISING DEMAND FOR EXPORTS AND A REBOUND IN TOURISM WILL SUPPORT ECONOMIC GROWTH

Structural reforms

The IMF said that Jordan’s fiscal reforms are crucial to preserve macroeconomic and external stability as well as placing public finances on a sounder foundation while lessening the risks to debt sustainability.

The Hashemite Kingdom outperforms regional peers on government effectiveness and control of corruption—characteristics that won broad-based international support in the form of budgetary grants, concessional financing and technical assistance. The government’s key fiscal reforms, backed by efforts to close tax loopholes and combat tax evasion, have started bearing fruit.

“On the back of recently implemented legislative reforms aimed at broadening the tax base and administrative efforts,

domestic revenues overperformed 2021 projections by 0.5% of GDP, with tax revenues up 13% year-on-year,” said the IMF.

Jordan is one of the few countries in the Middle East whose economy is not dependent on natural resources due to the scarcity of hydrocarbons and water, nevertheless, it is also one of the most committed to fiscal reforms within the region having taken steps to privatise the economy, introduce tax reforms as well as opening up the banking sector.

The visit by Saudi Arabia’s Crown Prince Mohammed bin Salman in June is highly expected to unlock as much as $3 billion in investment projects that the Gulf state committed to in recent years but never materialised. Jordan is also on the investment radar of UAE-based including AD Ports and sovereign wealth funds ADQ and Mubadala.

ADQ said in May that it will allocate $10 billion in investment for projects with Egypt and Jordan and the partnerships will focus on agriculture, pharmaceuticals, minerals, petrochemicals and textiles. The Abu Dhabi-based wealth fund also launched a $100 million technology-focused venture capital fund in June to support Jordan’s burgeoning digital economy.

Jordan remains largely shielded from the fallout of the Russia-Ukraine war by long-term gas supply agreements, large strategic wheat reserves, soaring fertiliser exports and a strong recovery of its tourism sector. The Hashemite Kingdom is working to attract foreign investment and shift away from a public sector-dependent model to create more sustainable job growth for its youthful population.

– Moody’s

Tomorrow is Today

Spurred on by recent events, what once were predictions of distant changes to banking and banking processes are with us, here and now.

who are billing on customer experience as their point of sale.

The outbreak of the pandemic more than two years ago was an unprecedented catalyst for digital banking across the globe. Banks in the Middle East are accelerating and strengthening their digital channels as evolving customer preferences together with pressure to reduce operational costs and boosts efficiency are leaving financial institutions with no option but to adopt new banking technologies.

Many organisations across different industries have struggled to keep pace with the demand for digitisation, especially

during the height of the pandemic, when consumers accelerated their adoption of digital channels. However, the financial services industry has historically had mixed success in technology.

McKinsey said that the artificial intelligence-bank (AI) capability stack combines core systems and AI-andanalytics capabilities in a unified architecture designed for maximal automation, security and scalability.

Digitalisation in the banking sector is swiftly changing the field of play where incumbents are facing increasing competition from non-traditional entrants

Meanwhile, banks in the MENA region have been exploring technological innovations and new business models that include digital banking, open banking, predictive banking and modernisation of payment systems to enhance customer experience and personalisation of products while they keep an eye on increasing cybersecurity concerns.

Open banking

The radical transformation in the era of Industrial revolution 4.0 is being driven by the advancement in digital technologies as previously closed industrial systems have become networked and open.

The financial services sector is no alien to this and Banking as a Service (BaaS), Banking as a Platform (BaaP) and Open Banking are few of an array of new technological innovations that are expected to change the customer experience.

“The business transformation towards a platform-based open banking ecosystem will provide the opportunity to define a courageous ambition that goes beyond incremental change and deliver breakthrough value,” said Deloitte.

BaaS is a clear opportunity for financial institutions in the Middle East to capture and tap into new value streams at a low cost. It is being enabled by the seamless integration of financial services and products into other kinds of customer activities, typically on non-financial digital platforms including e-commerce, travel, retail and health.

Capgemini said BaaS is helping incumbent banks to create new revenue modes, allowing them to monetise their banking stack such as data capabilities and infrastructure through revenue sharing agreements, subscription fees or one-time set up charges.

Meanwhile, BaaP enables fintech and non-financial companies to provide services to banking institutions. Traditional banks’ operating models impedes their efforts to meet the need for continuous innovation, but BaaP allows financial institutions to focus on their core business while delivering new innovative products and services.

“The AI-first bank of the future will need a new operating model for the organisation, so it can achieve the requisite agility and speed and unleash value across the other layers,” said McKinsey. Open banking is shifting the financial services industry toward hyperrelevant, platform-based distribution while offering banks a window to expand their ecosystems and extend their reach.

Bahrain is implementing a Europeanstyle regulation-driven approach and the UAE has adopted an Americanstyle market-driven approach under the guidance of the Abu Dhabi Global Market and Dubai International Finance Centre.

Saudi Arabia is also implementing a market-driven strategy, but the Gulf state’s approach is inclined towards a more formal regulatory framework though its regulations do not follow Bahrain in

– McKinsey

requiring the opening up of application programming interfaces (APIs)—which facilitate data sharing, or in mandating security standards.

New York-based Tiger Global Management led a $12 million funding round for Tarabut Gateway in November 2021 as the firm seeks to expand its Open Banking platform into Saudi Arabia and North Africa. Tarabut Gateway was licensed by the Dubai Financial Services

onboarding process is an essential feature that determines whether a financial institution can obtain new customers.

Data onboarding is the first contact that a new user has with the bank and the process should be intuitive, seamless, secure, responsive and efficient. Ernst & Young said that customer onboarding has become an even greater area of focus amid changing regulations, innovative technologies, the rise of challenger

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 UNAVOIDABLE WITH ON-PREMISES SYSTEMS

–

Authority to carry out account information services and payment initiation services activities in April. The Middle East is one example of an emerging global openbanking microcosm.

Digital onboarding

Since the outbreak of the pandemic, customers’ lifestyle habits are increasingly being motivated and directed by the speed and simplicity of online services; the same applies to how they want to bank. The implementation of an automated customer

banks and the closure of physical bank branches.

Customer onboarding is 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 long-lasting impression in the clients’ minds about how they perceive a financial institution.

Standard Chartered’s fintech investment arm, SC Ventures, launched Appro, a fintech start-up that digitises the retail banking user journey in the UAE

THE ARTIFICIAL INTELLIGENCE-BANK CAPABILITY STACK COMBINES CORE SYSTEMS AND AI-AND-ANALYTICS CAPABILITIES IN A UNIFIED ARCHITECTURE DESIGNED FOR MAXIMAL AUTOMATION, SECURITY AND SCALABILITY

in August. The platform will initially allow applications for credit cards and personal loans with plans to expand its offerings to include mortgage loans, car loans, current and saving accounts and wealth management products in 2023.

RAKBANK launched its digital onboarding platform for SME loans in April which allow customers to apply for business loans, term and working capital finance and asset-based finance.

KPMG identified three approaches that banks should adopt in their digital customer onboarding journey:

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 data) and external (e.g. mobile app, social media).

Innovative – products and services o ffered through the building of strategic partnerships with nonfinancial services players to enhance user experience.

Digital customer onboarding is a critical part of the overall customer experience and industry experts say financial institutions shouldn’t let bottlenecks, complications and barriers be the first impressions customers have with their services.

The cloud Cloud adoption is the backbone of digital innovation, and it is shaping the future of the financial services sector. It gives banks access to on-demand resources— such as networks, servers, storage and APIs—that can be rapidly provisioned and released with minimal management or service provider interaction.

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

– Deloitte

and resource commitments that are unavoidable with on-premises systems,” said PwC.

The advancements in fintech and the booming development of new APIs are increasingly driving banking to the cloud as the industry is looking to adopt the agility, speed and innovation more commonly found in the technology sector.

Cloud technology has the potential to bring about profound changes to banks and

With several cloud solution providers from Microsoft to Oracle to Amazon Web Service expanding their footprint in the region, banks are tapping into the cloud to boosts operational efficiency while improving their ability to partner, source and collaborate with fintechs.

Banks that are adopting the cloud are bringing new capabilities to market more quickly, innovate more easily and scale more efficiently while addressing surging

the entire financial services sector given that the innovation offers unprecedented opportunities to capture value by leveraging customer data. The cloud offers financial institutions vast opportunities including easier customer data analytics and sharing, improved marketing time, cost reduction and enhanced flexibility and operational efficiency.

“The cloud is the only place where customer data gains scale, agility and the power to drive reinvention so a business can soar,” said Accenture.

Banking and Finance

cybersecurity risks. Financial institutions can choose a cloud strategy by service type including backend as a service (BaaS), infrastructure as a service (IaaS), platform as a service (PaaS) and software as a service (SaaS).

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 challenger banks.

THE BUSINESS TRANSFORMATION TOWARDS A PLATFORM-BASED OPEN BANKING ECOSYSTEM WILL PROVIDE THE OPPORTUNITY TO DEFINE A COURAGEOUS AMBITION THAT GOES BEYOND INCREMENTAL CHANGE AND DELIVER BREAKTHROUGH VALUE

CUSTOMER ONBOARDING HAS BECOME AN EVEN GREATER AREA OF FOCUS AMID CHANGING REGULATIONS, INNOVATIVE TECHNOLOGIES, THE RISE OF CHALLENGER BANKS AND THE CLOSURE OF PHYSICAL BANK BRANCHES

– Ernst & Young

36 FORTUNE GLOBAL 500 FINANCE COMPANIES DIGITALLY TRANSFORM WITH HUAWEI.

TOGETHER

Consumers in MEA embrace digital payments

The digital transformation of business and society has found a very fertile ground in the Middle East & Africa, and this appears to have shifted how we think about money, from how we make payments to what we even view as currency.

According to Mastercard’s New Payments Index 2022 consumers in this region are not only being aware of solutions like digital cards, biometric payments, BNPL (Buy Now Pay Later) and open banking, but they are also increasingly and actively using these solutions in their everyday lives.

The index has also found that 85% of people in MENA have used at least one emerging payment method in the last year, including tappable smartphone mobile wallets, BNPL, biometrics and payment-enabled wearable tech devices. Interestingly, purchases are also being made in more diverse ways, by using voice assistants or social media apps.

Especially younger generations of shoppers tend to move away from cash and instead embrace new digital ways to pay like cards, SMS payments, digital money transfer apps and instant payment services. These behaviors are expected to continue as comfort and security remain key to growing adoption.

Mastercard Payment Gateway is always at the forefront of innovation, so it is our priority to ensure those new payment mechanisms are available to our partners and online businesses can offer multiple ways to pay across the region.

Convenience and speed are actually not always the most important factor, when it comes to consumer payments. According to Mastercard research security is usually on top of mind when it comes to selecting the most appropriate method of payment. Other considerations are ease of use, rewards and promotions. 31% of consumers in MENA also see social and environmental benefits as an important factor.

Maria Parpou EVP of Mastercard Payment Gateway Services gives us a view of the region’s new payments landscape, clearly showing the changing options and the trends that are now taking hold

Maria Parpou, EVP of Mastercard Payment Gateway Services

Buy Now Pay Later - Installments

Let’s look into one of the latest trends which has been on the rise in recent months - paying in installments. According to the Mastercard Index majority of MENA customers have heard of Buy Now Pay Later, with nearly half (45%) of the population already comfortably using it.

Consumers want the flexibility and convenience of BNPL, but with the sense of security associated with a trusted provider like a bank or payment network.

Those that have used BNPL find it useful for emergency and big-ticket purchases, as well as increased purchasing power. Consumers also find BNPL useful for unique use cases, including as a budgeting and financial planning tool.

Mastercard Installments can now be integrated by acquiring banks as their own technology, allowing them to retain and generate revenue from buy now, pay later transactions and strengthen their merchant customer relationships.

The solution leverages existing Mastercard acceptance for quick and easy integration across an acquirer’s entire merchant base, providing fast speed to market at scale.

Open Banking

Open Banking has been a very important part of the global payment ecosystem for many years now. Born in Europe, it is now also being introduced in the Middle East and Africa, with many steps taken to adapt basic frameworks to meet the needs of local markets and conform to their specific regulatory and business environments.

Consumers across the world are starting to appreciate the benefits of open banking, including transparency, speed and convenience, so we can only expect the demand for this payment method to continue to grow. According to our research about three quarters of population know about open banking, and are using it to pay their bills, do their banking, secure or refinance loans and make BNPL payments.

Six in ten MENA consumers also confirmed that they feel safe using apps to send money to people or businesses from their phone. Four in ten are willing to share financial data information with apps to have access to payment tools that help them manage their money.

Biometrics

We have all been surprised to see how quickly consumers of all generations adopted secure payments using fingerprint scanning or facial recognition. There is no doubt that this form of payment authentication takes convenience and security to another level. According to our study 64% of consumers agree that it is

important part of the payments world.

We are seeing this fact play out on the Mastercard network, with people using cards to buy crypto assets, especially during Bitcoin’s surge in value. We are also seeing users increasingly take advantage of crypto cards to access these assets and convert them to traditional currencies for spending.

The poll — conducted before crypto’s latest drop in value — reveals mixed feelings among consumers. Just more than half feel pessimistic about the value of digital assets, but nearly equal amount feel they could be good investments. Consumers would like to see more stability in the industry — with

SIX IN TEN MENA CONSUMERS ALSO CONFIRMED THAT THEY FEEL SAFE USING APPS TO SEND MONEY TO PEOPLE OR BUSINESSES FROM THEIR PHONE

easier to make payments using biometrics than a card or device. The potential for security optimisation is also evident to consumers, with two thirds agreeing biometrics tech for payments is more secure than two factor authentication.

While consumers do have some concerns about what entities have access to their biometric data, they are still open to using it given the time it saves, and nearly two thirds have used biometrics for at least one purchase in the last year.

Cryptocurrency

Whatever opinions there are on cryptocurrencies — from a fanatic to utter skeptic — the fact remains that these digital assets are becoming a more

59% agreeing that they would feel more confident about crypto if they knew it was issued or backed by a reputable organisation.

I think it is fair to say that cash is becoming less critical to all generations of shoppers, digital payments are a daily occurrence for nearly everyone and even the magnetic stripe is going away. We have reached the moment when payment technologies of the future are no longer hypothetical. Tapping, it turns out, was only the tip of the iceberg.

Just like the payments landscape is constantly shifting, our gateway technology has been specifically designed to expand with the industry and provide our partners with the latest innovations and expertise.

Happening in Real-time

The impressive growth rate in instant payments is opening a window for banks to add incremental features and new real-time payment rails to address the growing volume and demand for instant payments in the UAE

Payments are an integral part of a customer’s purchase experience and the bottom line of many financial institutions. The outbreak of the pandemic two years ago showed us why and how real-time instant payments can make a difference in the payments ecosystem and instantly help to solve many of our needs, both at a personal and corporate level.

The global payments landscape has undergone a significant transformation over the years, driven by advancements in financial technology and evolving customer expectations that have shattered the status quo and opened the window for new players that are challenging incumbent banks.

Payments Europe said that technological developments such as online and mobile payments are key

drivers for the uptake of instant payments while regulatory developments such as PSD2 Open Banking are giving service providers the ability to further enhance their products.

MEA Finance , in partnership with ACI Worldwide , hosted an exclusive roundtable themed Real-time payment: Convergence, ideation and innovation in Dubai, where industry experts shared insights on how the UAE will benefit from the transformation in the global payments space. They also shed light on how financial institutions can capitalise on the growth by introducing new revenue models, curbing institutional expenses, boosting customer satisfaction and increasing consumer loyalty through embedded payment experiences.

Founded in 1975, ACI Worldwide is one of the world’s leading real-time payments

solution providers with offices in 34 countries and serving customers in 95 countries globally. The Miami, Floridabased company boasts over 6,000 customers and processes 25 billion cloud transactions and more than 225 billion consumer transactions annually.

The impressive growth rate in real-time payments, which are expected to account for a quarter of electronic payments globally by 2026, has opened a window for incumbent payments networks to add incremental features, fintechs launching customer-facing apps and new real-time payment rails to address the growing volume and demand instant payments in the UAE.

“For banks, real-time payments can help find efficiencies with least-cost routing and help with fraud checks by enabling multifactor authentication and targeted scanning,” said Deloitte. Realtime payments are electronic payment solutions that process payments instantly, 24 hours a day, all year long— where the funds are immediately made available for use by the recipient.

The growth of the instant payments space is expected to drive the further digitalisation and diversification of the payments space while benefiting consumers, corporates and commerce in general.

The global perspective

Globally, instant payments have significantly increased the speed at which payments are made and received, thus acting as a service enhancement in the financial services sector. “With mass smartphone penetration and the digitisation of everything, consumers, businesses and governments are benefiting from being able to make faster, safer and more convenient payments using any device or no device at all,” said Mastercard.

The UAE central bank appointed an Accenture-led consortium to execute its National Payment Systems Strategy over the next five years. The Gulf state’s Instant Payments Platform (IPP), which is due for launch in Q4 2022 is

expected to accelerate the adoption of real-time payments in the country and drive substantial economic benefits for corporates and consumers. ACI Worldwide projected in its Prime Time for Real-Time Global Payments report that real-time transactions in the UAE will account for 10.4% of all digital payments in the country by 2026.

Craig Ramsey, Head of Real-Time Payments at ACI Worldwide, in his opening remarks, welcomed the UAE into the global instant-payment family. “You’ll see some phenomenal benefits of having this new set of rails and the innovation that’s going to come from it,” he said.

The unveiling of an instant payment platform in the UAE bodes well for the country after real-time payments schemes in Saudi Arabia and Bahrain helped unlock $166 million and $246 million of economic output, respectively in 2021.

Saudi Payments launched the kingdom’s instant payments system ‘sarie’ in collaboration with IBM and Mastercard in April 2021 and early uptake saw realtime payments transaction volumes reaching 175 million. Mastercard said that since the launch, real-time payment volumes in Saudi Arabia have already grown to 5.9% of electronic payments and further growth is expected after the Gulf state mandated 70% of all payments to be digital by 2030.

Ramsey said that the Middle East’s real-time payments industry has a lot of potential compared to Latin America and Europe. “We see the Middle East as the region that’s going to see the greatest growth in real-time payments in the future and the UAE is obviously very much part of that,” said Ramsey.

Bahrain’s real-time payments system called Fawri+ is more mature compared to its GCC neighbours and has been in place since 2015. Oman currently does not have a real-time instant payment network but it is using digital wallets to generate real-time payments. Ramsey said that the real-time instant payment network is the real way to go adding, “it

demonstrates the growth opportunity that awaits in the Sultanate for an instant account-to-account transfer.”

The US real-time payments system is yet to take off. The Federal Reserve’s FedNow system is in its pilot phase ahead of its expected launch in 2023 which will bring ubiquitous account-to-account transfers and QR code payments to a previously fragmented payment market.

Meanwhile, Brazil’s real-time payments sector is proving especially fertile ground for fintechs and newer players are making their mark. Mastercard said an exceptionally strong start saw Brazil’s PIX system pass one billion transactions within months and this momentum is being maintained with a steady stream of new use cases, such as the request to pay, cash withdrawals and cross-border functions.

Real-time payments boost overall market efficiencies and enhance liquidity in the financial system thereby acting as a catalyst for economic growth—a boon for fast-paced and digital-led GCC economies. Banks that take advantage of the opportunities enabled by real-time payment rails will be at the forefront of payments innovation and the cloud is a key enabler for success.

Driving growth

There are approximately over 50 real-time payment schemes at different stages globally, some are already live while others are at the development stage. The majority of these instant payment schemes are based on around-the-clock (24/ 7 /365) availability and are real or near-real time.

Accenture highlighted that in the past many banks have been skeptical about the advantages of modernising their payment systems as they felt that the consumer demand for instant payments wasn’t strong enough. Financial institutions also felt that the expense of transforming their entire legacy system to meet the new standards was excessive

The above situation has resulted in legacy banks, some in the Middle East, taking a wait-and-see approach to realtime payments to assess whether the rollout by other players in the industry would warrant the expense. However, it is worth noting that the payments landscape has evolved over the years and both customers and regulators now demand modernised payments systems.

Salim Awan, Managing Director at Magnati said that in markets such as

the UAE, the regulator is now at the forefront of driving change in real-time payments, however, a lot of gaps still exist in the market to fully capitalise on the opportunity.

Awan said that there is a bigger piece, which is linked to certain assurances while giving the real estate sector as an example. He said that there are a lot of other reconciliation link issues and challenges that the industry faces every day when they deal with consumers, corporates and suppliers.

The real estate sector still relies on cheques for rentals and payments to suppliers—which comes with legal recourse. However, the availability of a real-time payment kind of railroad in the country might move that type of legal recourse in case of a default or something.

THE REGULATOR IS NOW ON THE FOREFRONT OF DRIVING CHANGE IN THE REALTIME PAYMENTS IN MARKETS LIKE THE UAE, HOWEVER, A LOT OF GAPS STILL EXIST IN THE

TO FULLY

ON

On the consumer payment side, Awan said that the opportunity is not as big in the small to medium enterprises (SMEs)—there is no considerable innovation happening in the sector as far as the Middle East market is concerned when it comes to supporting SMEs in their cash flow management. Real-time payments have the potential to altogether transform payments from a commoditised service into a key, strategic service with implications across the value chain of industries.

Ramsey weighed in saying it’s a global phenomenon where SMEs are quite often

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treated in the same way that consumers are treated with their banking, adding, “real-time instant payments is one of those areas that traverses both.”

From a digital bank’s perspective, Sanjay Rakesh, Head – Corporate Banking Operations at Zand, said that compared to traditional banks, neobanks do not have any legacy and they build infrastructure and systems that are agile to the new trends such as real-time instant payments.

“The systems that we have are largely on the cloud and our architecture used Application Programming Interfaces (APIs) to the last bit which makes it easy for us to plug in any type of payment system into our core banking,” added Rakesh.

However, the million-dollar question becomes why is that the UAE has a 50/50 success rate in the adoption of real-time payments. Mani said that when it comes to readiness there are lots of ambiguities in the market, workflows are not ready and lots of information is yet to be received from the regulator.

Meanwhile, as an ecosystem, the UAE market infrastructure has to be stable and this depends on the collaboration between all financial institutions in the country, she added.

From the perspective of a bank that was created as a result of UAE’s landmark merger, Yasmin Imam, Executive Director, Head of Sales NFBI, Fintech, Transaction Banking at

Use cases & future opportunities

Besides their technical benefits, instant payment schemes are key enablers of economic growth and financial inclusion in many of the markets that they’ve already been rolled out. These use cases are evident in regions such as Latin America where over 120 million people are considered unbanked and do not have access to a bank account, debit card or credit card.

Barbara Biro, Head of Digital Ecosystem at RAKBANK, highlighted that technology is important, especially for legacy banks but having the proper strategy is critical. She said that reimagining banking is a completely new business model and “this is where

Sreedevi Mani, VP of Payments at Emirates NBD, agreed with Rakesh that, unlike incumbent banks, neobanks do not have any legacy with them, they have embraced all the latest technology and new metrology framework and they’re ready for new trends in the payments space.

Mani argued that the UAE, with over 60 financial institutions that are at different levels of digital transformation, is not new to instant payments given that the central bank has already started rolling out API payments.

First Abu Dhabi Bank said that after integrating two legacy systems that had been around for some time, “we originally tried to extend ourselves by creating a technology-oriented team take care of real-time payments,” an experiment that was not successful.

However, Imam believes that legacy banks in the UAE should collaborate with fintechs and leverage API solutions to get the most out of real-time payments, “because at the end of the day, consumers, whether corporate or retail they’re benefiting from it.”

we need the ecosystem to come in to create completely new use cases.”

With the immigration department supporting UAE banks with Know Your Customer (KYC) capabilities through Emirates ID, Biro noted that legacy systems require proper re-platforming and the re-evaluation of the entire banking model, treasury, liquidity management, security, General Data Protection Regulation (GDPR) and a completely new business model to build an ecosystem that supports a thriving payments system.

HSBC said that once a real-time payment infrastructure is in place, the real debate lies in the solutions and use cases, available in the market and how to tailor the characteristics of these services to each customer segment.

Jagdeshwaran K, Managing Director – Treasury & Trade Solutions MENAPT at Citi said that there are over 60 markets that already have instant payments globally and from a corporate perspective we see more use cases and opportunities in our ability to bring instant payments schemes together to

the extent the schemes support cross border instant payments. “Our typical client is a global multinational with operations in around 60 countries and this kind of solution should give them the ability to go direct to consumers in these markets, apply instant foreign currency and centralise that liquidity,” said Jagdeshwaran.

From a consumer perspective, users of instant payments in the UAE will be considering the ease of use, compared to other payment methods such as cash, without the need for the

payer to know the account number of the beneficiary. Meanwhile, in the corporate world, the goal is to provide services that meet customers’ growing expectations and strengthen the brand while ensuring that instant payments are cost-effective and provide an alternative to existing models.

Vishal Tikyani, Executive Director, Head of Cash Products, Transaction Banking at Standard Chartered Bank concurred with Jagdeshwaran on the centralisation of instant payment schemes saying that there are a lot of use cases even from a business-tobusiness (b2b) perspective.

“Centralisation from regional countries’ perspective is a very important

use case because, at this point, the shift is moving from SWIFT MT101 message agreements between the banks, which takes months if not probably a year to immediate real-time payment where the client can centralise,” he added.

From an aviation perspective, airlines spend $8 billion in card interchange fees, said Tikyani. The International Air Transport Association (IATA) created a platform wherein airlines can utilise this incentive platform to get air ticket buyers to pay using real-time instant payments called IATA Pay.

WITH THE IMMIGRATION SUPPORTING UAE BANKS WITH KNOW YOUR CUSTOMER CAPABILITIES THROUGH EMIRATES ID, LEGACY SYSTEMS REQUIRE PROPER RE-PLATFORMING AND THE RE-EVALUATION OF THE ENTIRE BANKING MODEL, TREASURY, LIQUIDITY MANAGEMENT, SECURITY, GENERAL DATA PROTECTION REGULATION AND A COMPLETELY NEW BUSINESS MODEL TO BUILD AN ECOSYSTEM THAT SUPPORTS A THRIVING PAYMENTS SYSTEM

Ali Godrej Patel, the Head of Business Development - MEASA at ACI Worldwide said that from a consumer standpoint there are experiences that can be revolutionised through the use of instant payments such as paying helpers or Boda-boda ridesharing in Uganda.

Joseph Cleetus, Head of Business Transformation at Lulu Financial Holdings weighed in on centralisation saying that from a cross-border perspective the instant payment envisioned is that at some point there will be an interlink between two or more nations on crossborder payments such as in the case of India’s UPI and NPCI.

Cleetus highlighted that the critical points that should be addressed in crossborder payments setup include setting up the protocols in the country, datasharing to enhance customer experience by avoiding re-KYC and availability of currency conversion.

Meanwhile, Mark Diamond, CTO at Network International said that realtime payments are pregnant with opportunities. “Opportunities start to become more relevant in cases that involve micro businesses given that a lot of small businesses need the liquidity and currently merchant settlements are multiday,” said Diamond.

Laying the groundwork

The ongoing changes in the global

payments landscape illustrate the potential of real-time instant payment schemes. The flight from cash in the Middle East is evident not only in the growth of digital payments but in consumers’ expressed preferences.

Asked if there is a distinction between instant payments in Islamic and conventional banking, Jawwad Khalid, Vice President - Head of Products - Liabilities & Foreign Currency at Emirates Islamic said that there are no differences between conventional and Islamic entities, “but what we see is that there is concentrated focus in the consumer space.”

Narendra Nandal, Chief Strategy Officer at Mercury Payments Services weighed in saying payments as a concept is the transfer of value from one end to the other and the banking community is working on how to get those pools of money back into the banking system.

“One of the ways that instant payments solve a lot of all these points at closest is when it comes to what we call cash transaction. It gives the control to the person who’s doing the payments,” said Nandal.

Compared to other types of payments, instant payments are processed 24 hours/ 7 days a week, 365 days a year and they are posted in the payer’s and payee’s financial institution accounts within seconds. “These “always on,” transaction-by-transaction and rich messaging characteristics of instant payments serve the needs of digital and mobile transactions well, but they also mean systems and functions that are designed around the “business day” and batch processing may need to be adapted,” said the US Fed.

Nandal said that in the financial service industry, fintechs are developing

THE SYSTEMS THAT WE HAVE ARE LARGELY ON THE CLOUD AND OUR ARCHITECTURE USED APPLICATION PROGRAMMING INTERFACES TO THE LAST BIT WHICH MAKES IT EASY FOR US TO PLUG IN ANY TYPE OF PAYMENT SYSTEM INTO OUR CORE BANKING

– Sanjay Rakesh

use cases for the instant payments ecosystem and banks serve to assess if these use cases are operationally and systemically ready. While the adoption of instant payments is being accelerated by consumers, the difference in culture matters, Mani posed the question while referencing the difference in Asian, Middle East and Western cultures.

Nandal said the success of instant payments is hinged on the whole financial ecosystem coming together. “Banks have a role to lay down the railroads, the thirdparty partners come and enable these railroads and let the fintechs and use cases evolve,” he said.

Globally, instant payments are offering game-changing benefits to early adopters. From a non-banking perspective, Altaf Amed, Director, Retail IoT – Digital Channels & Payments Solutions at e& said that every entity that seeks to join an instant-payment ecosystem that is being implemented by financial regulators has to reassess its technological capabilities. “So it’s not just banks or financial institutions that are getting ready for real-time instant payments, but the entire payments ecosystem,” Amed said.

Faisal Saeed, SVP, Head – Retail Liabilities & Transactions Banking at Emirates NBD said that as the leading bank in Dubai, handling of fairly sizable transaction flow for

– Sreedevi Mani

the market represents a mammoth activity. “Whether it be payments at the merchant level or a consumer-tobusiness (C2B), business-to-consumer (B2C) or B2B, in all these spheres, we have seen a transition. While financial institutions or service providers comes with solutions, it’s the uptake that matters,” said Saeed.

While financial institutions in the UAE are beginning to identify opportunities,

they should also consider how instant payments will be integrated into their processes. Similarly, in addition to reviewing integral systems and processes, having conversations with service providers, vendors (fintechs) and customers are of paramount importance.

Tapping new revenue streams

The extensive adoption of real-time instant payments is making it possible for transactions that once took days, to happen in seconds as technological innovations in the financial services sector are revolutionising payments.

“The full impact of adopting real-time payments will only become clear with time (and within a given country) as corporates, start-ups, and policymakers deploy innovative services on top of the modern payments infrastructure,” Deloitte and Mastercard said in a joint report.

Leslie Choo, SVP, Managing Director APAC Greater China, Japan and Korea at ACI Worldwide opened his presentation by highlighting that there are not many differences between the Middle East and ASEAN—a region that is leading in the adoption of instant payment platforms driven by its robust framework and infrastructure.

“Thailand was the first country to offer a real-time instant payment scheme. When Thailand launched its instant payment scheme, the central bank’s focus was to

UNLIKE INCUMBENT BANKS, NEOBANKS DO NOT HAVE ANY LEGACY WITH THEM, THEY HAVE EMBRACED ALL THE LATEST TECHNOLOGY AND NEW METROLOGY FRAMEWORK AND THEY’RE READY FOR NEW TRENDS IN THE PAYMENTS SPACE

facilitate the transfer my money to all the farmers very fast, because they didn’t have bank accounts,” said Choo.

To better serve this unbanked or underbanked group, the government’s step was to launch real-time payment in 2015 without ISO 20022. The authorities aimed to transfer money across the country without considering the technological framework.

The next country to launch a real-time payments scheme was Singapore, which launched the system to complement its existing cheque ecosystem, while Malaysia’s central bank unveiled its real-time instant payment in 2018 as the foundation for the future serving from financial institutions to fintech to consumers.

Choo said Malaysia was followed by Indonesia and to connect the ecosystem, which consists of as much as 33 and contributes around $2.5 trillion to the global GDP, ACI Worldwide introduced ASIAN Payment Network—which become the gateway to interlink or cross-border to ASIAN.

ACI Worldwide is currently available in Southeast Asia’s four biggest economies through PayNet in Malaysia, Net Singapore, ITMX Indonesia and BI Bank Indonesia—Asia’s largest instant payment network. Choo said that all banks in Malaysia connected with the infrastructure within 9 months.

“I have heard people saying we are a bank, we are slow, we can’t get into ISO 20022. So, all these things, we got them live in 9 months and that is very important,” Choo said while giving an example of Citibank Malaysia and Standard Chartered Malaysia among the banks that are available on the ACI platform.

On use cases, Choo highlighted that ACI Worldwide is providing e-commerce requests to pay in Malaysia in collaboration with PayNet. This feature involves a payee initiating a request for a specific transaction from a payer. ACI Worldwide is also providing a ‘forward request to pay’ service, which allows consumers to split a bill and debit consent, which is e-Mandate.

Talking about the shift toward instant payments for card schemes, Ehsaan Ahmed, SVP Head of Transaction Banking at Dubai Islamic Bank highlighted that in addition to the technical benefits, instant payment schemes are key enablers of economic progress and financial inclusion in the markets where they operate. Ahmed who mentioned the collaboration between Noor Bank, which was merged into Dubai Islamic Bank, and e&, formerly Etisalat, said that the concept connects to all types of C2B, B2B, B2B, government to government among other ecosystems that it can tap into.

“With SME financing, one case is that of invoice financing. There has been no central repository for banks to check whether an invoice has been financed

OUR TYPICAL CLIENT IS A GLOBAL MULTINATIONAL WITH OPERATIONS IN AROUND 60 COUNTRIES AND THIS KIND OF SOLUTION SHOULD GIVE THEM THE ABILITY TO GO DIRECT TO CONSUMERS IN THESE MARKETS, APPLY INSTANT FOREIGN CURRENCY AND CENTRALISE THAT LIQUIDITY

somewhere else by another bank, duplicate invoice financing,” Ahmed said adding that the infrastructure is now available in the country on the back of UAE trade connect.

While giving an example of the partnership between UPI and Rupay in India, Tikyani said that he does not expect a swift shift from cards to instant payments in the UAE, a country that has more than five million card users, unless there is a similar ecosystem that offers better customer experience.

From an SMEs perspective, Andrew Key, Group Managing Director Acquiring Business at Network International, said that the biggest challenge for a small business is managing more and more cards that are emerging on the market and it is important for financial institutions to “help them navigate through the eyes of consumer turn up.”

Next frontier

Financial institutions have undergone various efforts to modernise their payment systems over the past decade, driven by the technological innovations in the industry that are expected to continue driving disruptive business models in the payments space globally.

Ramsey highlighted three issues amid the impressive growth in the Middle East’s real-time payments space. He said that the credit card market is not about to be cannibalised and the Real Time

Gross Settlements (RTGS) volumes are going to go down.”

Meanwhile, the changing customer behaviours and reimagined customer experiences, intense regulatory environment as well as payments innovators who are backing open and standardised platforms such as Square and its peers are driving the biggest disruptions in the payments ecosystem

“Fintech and open banking go hand in hand with the revolution that comes from real-time payment,” said Ramsey.

Banks in the Middle East need to consider and plan for how they can realise the potential of instant payment systems and leverage their commercial potential as regional governments including the UAE and Saudi Arabia are rolling out this innovative form of funds transfer.

Jamie Pearson said that the payment ecosystem is getting bigger and uglier while noting that executing an instant payment probably involves more steps than card authorisation—an issue that will impact the customer experience.

Using the chicken and egg situation, Vibhor Mundhada, CEO at NEOPAY, Mashreq said that the adoption of realtime instant payments is just similar to card schemes in the UAE—where 90% of the expat workforce uses cards. “As a merchant or as a commercial acquirer, our role is to allow as many instant payment options as possible,” Vibhor

said while highlighting that the availability of use cases will determine the shift to real-time instant payments.

From a technological perspective, Mohamed Roushdy, the Founder of Fintech Bazaar, said that the adoption of instant payments, getting customers onboard and having the ecosystem ready is more important than the technology, but the “main challenge will be getting the ecosystem ready to utilise this kind of payment tools.”

However, Sara Ali argued that technology is not as quick to deliver as most industry experts believe and one of the biggest challenges that are being faced by incumbent banks is the legacy architecture and the tech stack.

Ali said that financial institutions should consider two aspects, the first being the infrastructure and the second the application—traditional banks’ legacy platforms can’t accommodate instant payments. “We need to think about infrastructure, potentially using the cloud leveraging on private cloud and public cloud whatever makes sense from a technology digital strategy and a business model,” she added.

Hamayoun Khan, Head Transaction Banking Sales & Advisory at Commercial Bank of Dubai weighed in saying from an instant payment point of view the retail banking space is more advanced than the wholesale/SME commercial

division. Given that some banks in the UAE are participating in the Gulf state’s instant payment pilot phase, Khan said that the initiative presents an opportunity for financial institutions to “garner a bit of that thought process of how we can meet the customer’s needs from the wholesale or commercial bank standpoint.”

National real-time payment frameworks and mandates can encourage network adoption leading to rapid solution uptake. Khaled Sallam, Head of Payments Applications at Mercury Payments said that when it comes to instant payments and the initiative that is being implemented by the UAE central bank, there is no clear roadmap when it comes to the use cases that will be applied.

Sallam said that throughout his journey with the NPSS, he has heard almost everyone speaking about replacing the existing rails with instant payments, but no one is focusing on the underserved markets such as microSMEs, micro-merchants, underbanked and unbanked populations.

Financial institutions in the UAE and the Middle East at large should be both malleable to allow for rapid real-time payments implementation and innovative, unlocking unique the ecosystem’s use

WE NEED TO THINK ABOUT INFRASTRUCTURE, POTENTIALLY USING THE CLOUD LEVERAGING ON PRIVATE CLOUD AND PUBLIC CLOUD WHATEVER MAKES SENSE FROM A TECHNOLOGY DIGITAL STRATEGY AND A BUSINESS MODEL

– Sara Ali

cases via open banking to boost its usage nationwide.

“I think we must think beyond the Service Level Agreement (SLA). The focus is enhancing the consumer’s experience,” said Vishal Wadhwa, Senior Principal Solutions Consultant at ACI Worldwide. Wadhwa noted that currently, the SLA is around 10 seconds but for banks and payments companies to deliver a better customer experience, “we should target the SLA of 2 to 3 seconds, in which the end-to-end payment cycle should be finished, both parties should have the money in their account.”

Through his experience across different markets, Ali Godreg Patel, Head, Business Development - MEASA at ACI Worldwide, said that he has seen the

transformation that would have not been envisaged happening in no time. However, Patel does not expect the transition to instant payments to happen overnight in the UAE.

The real-time payment readiness framework consists of three pillars the government, the financial services sector and the consumers. The government controls a country’s payment rails and network through different regulatory bodies and frameworks to ensure compliance, financial institutions place a strong emphasis on technological innovation in both their product offerings and data and analytics capabilities and a state of high readiness is determined by consumer and business willingness to adopt real-time payment.

Putting People First

Elissar Farah Antonios CEO for the UAE and MENA Cluster Head, Citi, explains how human capital is developing and why it is a crucial element in the success of banks and businesses operating in the region today

What can make a bank stand out in the region in its approach to human capital?

There isn’t one straight answer. It’s a combination of items. And maybe my insight will not only be applicable for a bank, but businesses in general. First of all, human capital is, to me at least, one of the most important assets within any institution, company, bank or country for that matter. And what’s very important is that you continue investing in your human capital. You continue investing, you continue empowering.

Because events evolve all the time. And I think the recent pandemic has given us a lot of food for thought, in

Elissar Farah Antonios, Chief Executive Officer, UAE and MENA Cluster Head, Citi

terms of how we think about the way we do business, how we think of our talent as well. And what our talent is actually telling us. I think what the pandemic did is accelerate a lot of change. And it accelerated innovation with it. Because we all had to adapt to a new environment in terms of how we continue our business. We had to adapt to a new environment in terms of how we service the clients. And the customer needs also changed. So, it was ever evolving.

In terms of the impact of human capital on growth, whether growth in the economy or growth in business, there is an and extremely high correlation between the importance of human capital and how you invest in your human capital, how you deliver your strategy, and how you deliver growth, be it in a business context, in a bank context or be it also in the economy. And the reason for that, if you look at the growth and GDP of an economy, consumers provide up to two thirds of the growth, and consumer behavior contributes to that. Because the more you have people in the workforce, the more you have people actually spending, which therefore contributes to the growth.

Focusing on banking, it’s an evolving industry. Citi, for example, we’ve been in existence for over 200 years, and the way we used to do business when we started is not the way we operate today. And with that, the human capital and the talent had to evolve with it. It had to acquire new skill sets, it had to acquire enhanced understanding of the dynamics that impact the economy and consumer behavior, and with that a lot of innovation came into play. So, at the core of your growth, at the core of your success is how much you invest in your human capital as well.

There is an anecdote: a CFO says, ‘why do you want to spend on your talent? You invest in them, you help them acquire new skill sets, and they may leave.’ The CEO says, ‘well, imagine if they stay and you don’t invest in them.’ Because businesses are continuously evolving. So, you need to make sure you’re actually empowering

your talent to entice them to stay with you. I want to share that I’ve observed as a leader in the region throughout the pandemic is that today, I feel it is very much more an employee market more than an employer market, because their demands have changed. The way they like to work has changed toward adaptability, comfort and flexibility. And therefore, today you see a lot of organisations giving that flexibility of work. In the past,

into play, in terms of the connectivity of people, the use of virtual forums and virtual meetings or even, from a banking perspective, the products and services that you offer to the client, or the way you conduct business.

As an example, over the past decade we have seen fewer transactions being conducted in a branch, and fewer people wanting to go into a branch. Yet we had that age group that wanted to come to the

IF YOU DON’T OFFER FLEXIBILITY, IN ALL LIKELIHOOD, THERE’S GOING TO BE A POOL OF TALENT THAT YOU’RE NOT GOING TO BE ABLE TO BRING INTO YOUR ORGANISATION

we would look at a CV and say, ‘how long have they stayed with this specific organisation?’ If people jump from one institution to another, we would question their commitment. Today, you look at that differently. Even the new generation looks at that differently. There’s always that excitement of wanting to learn more, so today the focus is more in terms of what they have done in a specific mandate, in a specific job. What skill sets they have learned? How can I deploy their skill sets into the strategy that I want to implement? So, the scene has totally changed.

How is recruitment training and career development adapting to the shape of the post-pandemic working environment?

First of all, post-pandemic, we are today where we have never been before, in terms of the behavior of conducting dayto-day work. It is absolutely true that it is a consequence of the pandemic because during that period we actually learned that you could conduct work without coming to the office. And with that, digitisation and innovation came

branch, to put that ink on paper to get their transaction done. The pandemic forced the advancement and acceleration of digitisation and they had to go to their tablets to use that application to do their transactions. So, that’s the advancement. But in the meantime, working through the pandemic made all of us reflect - me included - in terms of work-life balance, reflecting on the priorities, on how we can be more efficient in having that work-life balance. Now that we’re back to normality, there’s actually more of a demand from employees saying, ‘well, we worked very well from home during the pandemic, why can’t we continue working?’ Therefore, organisations are tweaking or changing their offering. It’s actually an imperative for the attraction of talent.

Today many of us still like coming to the office, but the new generation wants that flexibility. And flexibility today is actually a talent attraction. If you don’t offer flexibility, in all likelihood, there’s going to be a pool of talent that you’re not going to be able to bring into your organisation. And today, at the corporate institution where there is that expectation

of doing an X number of hours a day, if it does not offer that flexibility, it is not going to attract those innovative minds and talents. Because today the employment scene and opportunities are totally different. It‘s no longer about ‘I need to join an institution for life to build my career until retirement’. Flexibility is important, but also is the challenge that the job can offer.

Today, when you recruit, you really need to be at the edge of ensuring that you are continuously challenging this new generation. Else, they get bored, and they leave you. And sometimes they leave you not knowing why. It is not like they leave you because the grass is greener somewhere else. It is because this new generation need to be doing something new a lot of the time. The way they assess information is much faster. Previously you had to open a book, read the information and analyze it. But the digital world has tremendously accelerated how this new generation assesses opportunities.

Therefore today, when we hire, we see a lot of people who’ve done two years in one place, two years in another place. And when you interview them, it’s not a question of their loyalty, it’s a question of their experience and what they have learned doing that specific project. It is a totally different way of looking at the

talent, and therefore institutions have to become much more agile in offering opportunities that can continuously tease their brains and entice them. And with that comes innovation, for sure.

What role do ESG considerations play in managing and developing human capital?

Within ESG, the S, the social aspect is at the core of human capital. And today more than ever, there is the focus on the S strategy, be it at a sovereign government level, or at an institutional level. The S, the social aspect, plays an instrumental role as far as developing human capital within the economy or within the strategy of an organisation as well.

So, how do you ensure you are investing in the continuous learning of your talent? Maybe we can elaborate on that and say, if we’re thinking about growth in an economy, whilst Environment, Social and Governance (ESG) is key to make that difference to your own citizens, you need to pay attention to the S factor, the social factor. If you invest well in the social factor, everything else will come.

I have seen research that the OECD has done in 2020, around education. Be it education that one gets within the country that they live in, or education and skill sets that organisations invest

in. In countries where you have high school education, around 72% of men are employed, and 45% of women. When you jump to countries that are at a good rate of college and graduate degrees, this number jumps to around 89% in men and 81% in women. These are crucial numbers, because once you have more people employed within your societyand that is the investment that you do on the social side - then automatically you will create more economic growth. So, this correlation is very important, and it’s important to pay attention to it. For example, we’re sitting today in Dubai.

If I look at the UAE during the pandemic, and how the government of the UAE dealt with it, what was their primary focus during this period? It was the wellbeing of their citizens. Make sure we provide the vaccines, make sure we provide the right healthcare. If you look at countries that recovered quicker from the pandemic and started showing signs of growth, the UAE is at the forefront, because their primary focus was their citizens, the human capital, the social aspect.

What has been the most obvious impact of digitisation across the regional financial services environment?

A couple of things. First of all, because we’re talking about human capital, it is the impact on the employees. Making sure that the employees are up to the right level to be able to service the clients and understand this change in the way we do business and have the right skill sets to be able to offer, or to even develop the solutions. So, from that perspective, investing in talent in the right way to align with innovation and the digital agenda. More specifically from a banking perspective, it is key. Else, you basically push yourself out of the market. So, investment in that aspect of human capital, is vital. And if we want to be honest with ourselves, it is also attracting that talent that has the right skill sets. Because typically in the past, the aspect of technology or of being a ‘techie’ was not necessarily what was needed for you

to work in a bank. Today, the scene has changed totally.

Today we, as an organisation, and most financial institutions, are very focused on attracting the right talent with that technological adaptability and understanding to develop the right solutions and the right products. And I would say that what has also accelerated this is the fintech aspect. The truth of the matter is that as a customer, you have choices today. You don’t necessarily need to come to the bank or need to have a bank account to perform a specific financial transaction. You have other options. And if banks want to remain relevant, they need to be in a position of providing these other options, and at a more competitive level, to provide an all-round better customer experience of their various products and services. Then you, as a consumer, would say, ‘okay, now I understand better why I need to have a bank account .’

So, all of this acceleration has been to the advantage of the customer and the consumer experience.

Give us you assessment of the value, and the different kinds of human capital in the world of work today.

You can’t necessarily put a price tag on it. It is intangible. It doesn’t necessarily make your balance sheets under assets, but it is there, and we know it is at the core of being able to drive a business, develop a strategy and be innovative. And I would categorize human capital, as I have read from some of the studies on this, into four categories.

The first one is intellectual capital. There are certain jobs where you require specific expertise or specific subject matter experts, and this would be categorized under intellectual capital. The person has the right understanding; the person has the right background to

perform a specific role or to develop a specific product. So, intellectual capital, I would say, is number one.

The other one is around social capital. And social capital is very much derived around the network and the relationships that an employee is able to have internally to the organisation, as well as externally. I would say internally is as important as externally, depending on the role of the person. But an employee that is able to network properly within an organisation will be able to excel in terms of the solutions he or she can offer a client, or to perform in a specific mandate. And when we look at the external environment, today when you’re hiring, you try to find out what the person’s network is, and their connectivity in the market. Who can they bring as clients to the organisation? That external factor is extremely important. So, you measure the social capital aspect of the talent.

The third is around the emotional capital. This centres very much around self-confidence, ambition, courage, the ability of taking calculated risks, resilience and perseverance. All this comes into emotional intelligence and emotional capital, and they are all very important characteristics for businesses to excel and to differentiate themselves in the market.

And the last aspect is spiritual capital. This is a really recent development in the practice of human resources. So, whilst in the past you would measure someone’s IQ to tell you how intelligent they are, whether they have the right academic superiority to be able to deliver complex work that requires certain analytical capabilities, recently there has been much focus around spiritual capital. This has a lot to do with one’s ego and values. So, do the values of the individual, of the person, align with the mission and the values of the organisation? It is very difficult to measure, but these are now becoming more and more important factors for consideration as you try to attract the right workforce and have your people aligned with your strategy.

Middle East Banking’s Merger Momentum

are a diverse mix of conventional and Islamic entities as well as being both retail-focused and corporate-aligned in their stance, which from a potential future merger perspective will offer value-added consolidations.

The landmark merger between the National Bank of Abu Dhabi and First Gulf Bank to create First Abu Dhabi Bank (FAB) in July 2016 sparked a deluge of consolidations in the banking sector across the Middle East. The consolidation wave is still gaining steam as new players emerge to challenge industry stalwarts and new markets offer unprecedented growth opportunities.

The M&A market rebounded from a very tough 2020 to post impressive increases in deal volume and value in 2021—a trend that is expected to continue as banks positions themselves for improved economic conditions post-pandemic. Fitch Ratings said that the fragmentation in the Middle East region banking system is greater compared to other emerging markets, with many banks resulting in strong competition and weak pricing power.

The Middle East financial service sector has weathered several storms in recent years from the 2008 global financial meltdown to the plunge in oil prices in 2014 to direct exposure to the Russo-Ukraine war.

S&P Global said in March that the overall exposure of MENA banks to the Russo-Ukraine war is limited, adding, “for rated GCC banks, exposure is minimal and not expected to meaningfully affect asset quality, cost of risk or profitability.”

It is worth noting that growth in the Middle East banking assets is linked to regional GDP, which moves largely in tandem with oil prices. The International Monetary Fund (IMF) projected in April that the oil revenues in the Middle East and Central Asia will reach $818 billion this year, an increase of $320 billion as Brent has mostly traded above the $80 mark since February.

The structural characteristics of banks and financial institutions in the region

More than two years into the pandemic, banks in the region are demonstrating that they are eager to buy, sell, invest or partner to enhance their competitive edge, rightsize their portfolios, add scale and expand markets.

Deals on the cards

The MENA banking system remains highly fragmented making competition intense and the trend is likely to intensify due to the shrinking population in some countries after expatriates departed for their countries amid massive job losses in the past two years.

If the creation of FAB paved the way for a wave of mergers, Emirates NBD’s

Banks in the Middle East are demonstrating that they are eager to buy, sell, invest or partner to enhance their competitive positioning, rightsize their portfolios, add scale and expand markets

takeover of Turkey’s Denizbank in 2019 triggered a spate of acquisitions as regional banks are increasingly expanding their operations to sustain growth.

Kuwait Finance House (KFH) agreed to acquire Bahrain’s Ahli United Bank (AUB) for about $11.6 billion, a rare cross-border tie-up that has been almost four years in the making. The tie-up between KFH and AUH is expected to create the Gulf region’s seventh-largest lender with a capital base of over $10 billion and $121 billion in assets. “This transaction will position KFH as a dominant bank in the GCC as the addition of AUB’s solid corporate banking franchise complements its large and strong domestic retail customer base,” Moody’s said adding that synergies from this larger franchise has the potential to drive stronger profitability.

AUB’s Bahraini unit agreed to acquire Citigroup’s consumer banking operations in the Gulf state in April and the transaction is set to close by the second half of the year. The transaction, which is subject to regulatory approvals, includes the retail banking, credit card and unsecured lending businesses but excludes Citi’s institutional businesses.

Bahrain’s Al Salam Bank also acquired Ithmaar Bank’s consumer banking division and several other assets in March in a deal valued at $2.2 billion. Bahrain’s banking system is ripe for mergers and the authorities are reportedly supportive of consolidations, but sound profitability and a lack of common shareholders prevent obvious tie-ups. “Nevertheless asset quality, profitability and capital pressures at some banks could result in more tie-ups in 2022,” said Fitch Ratings.

HSBC Bank Oman and Sohar International Bank are in talks over a potential merger after they signed an exclusive, non-binding MoU in July. Sohar, which has a market capitalisation of $1.2 billion (OMR 468.2 million) as of 16 September 2022, is also linked with a potential merger with Omani Islamic lender Bank Nizwa. Both proposed mergers are subject to regulatory and shareholder approval.

– S&P Global

Saudi Arabia’s wealth fund, Public Investment Fund (PIF), signed a subscription agreement with Jordan’s Capital Bank Group to acquire a 23.97% stake for $185 million in a deal that is expected to help the lender expand its operations in Jordan, Saudi Arabia, Iraq and other markets.

Capital Bank agreed to acquire 100% of Societe Generale Bank Jordan (SGBJ) in February, in its second foray within a year to expand its foothold regionally and domestically. The acquisition of SGBJ, which is 87.7% owned by Societe Generale de Banque au Liban, follows the takeover of Lebanese Bank Audi’s businesses in Iraq and Jordan.

Megadeals

Banks in the Middle East region are facing the pressure of tighter liquidity and increasing competition amidst a more challenging macroeconomic backdrop. Past mergers have demonstrated the merits of tie-ups.

The UAE’s biggest lender, FAB, rebranded its Egyptian unit as ‘FABMISR’ following the completion of its merger with Bank Audi Egypt. The tie-up made FABMISR the largest foreign bank operating in the Egyptian market with $10 billion (EGP 185 billion) in assets, 69 branches, and 207 ATMs as of 31 March 2022.

Spanish lender BBVA took a 50.15% stake in Garanti BBVA for $1.3 billion (TRL 22.8 billion) in May taking its shareholding in its Turkish unit to 85.97%. The transaction came at a time when

UniCredit offloaded its remaining 18% stake in Turkey’s Yapi Kredi Bank to Istanbul-listed Koc Holding—a deal that facilitated the Italian lender’s complete exit from Turkey’s third-biggest bank.

Banks with exposure to Turkey, including some GCC heavyweights, have faced losses ever since the country’s currency began depreciating in 2018.

Last April, Saudi Arabia completed the tie-up between National Commercial Bank (NCB) and Samba Financial Group (Samba) into Saudi National Bank (SNB), a banking giant with $244 billion (SAR 914 billion) assets in 2021. SNB is expected to be on equal footing with regional rivals Qatar National Bank and First Abu Dhabi Bank.

Qatari lender Masraf Al Rayan completed its $50 billion (QAR 182 billion) consolidation with Al Khalij Commercial Bank in November last year. The tie-up created the Gulf state’s second-largest bank by assets and one of the largest Shari’ah-compliant banks in the region.

Meanwhile, EFG Hermes also completed its takeover of state-owned Arab Investment Bank (aiBANK) last November, transforming itself into an Egyptian universal bank. EFG Hermes, which agreed to buy a 51% stake in aiBANK in May 2021, said the deal will make it an investment bank, a commercial bank and a platform for non-bank financial institutions.

The scale achieved from these mergers is leading to improved liquidity management, enhanced profitability and reduced inefficiencies with better cost-

THE FIRST WAVE OF M&A WAS DRIVEN BY SHAREHOLDERS’ DESIRE TO REORGANISE THEIR ASSETS, INCLUDING THE TIE-UP BETWEEN NATIONAL COMMERCIAL BANK AND SAMBA—A DEAL THAT INVOLVED A COMMON SHAREHOLDER, THE SAUDI GOVERNMENT THROUGH THE PUBLIC INVESTMENT FUND

to-income ratios. Similarly, the tie-ups also afforded these financial institutions wider international reach and are better placed to serve regional corporates with international ambitions, as well as international companies operating locally.

“In today’s era of significant economic change, companies continue to look for partners that can leverage their abilities for cross-selling, accessing new markets and customers and other synergies to enhance financial performance and gain competitive advantage, boosting the combined market share,” said KPMG.

SNB has also been studying potential purchases of financial institutions in Europe and Asia as Saudi Arabia wants the lender to boost its presence outside the kingdom as part of Crown Prince Mohammed bin Salman’s Vision 2030 economic diversification initiative.

Enabling environment

The outbreak of the pandemic created perfect conditions for dealmaking activity across the Middle East region. A surge in domestic consolidation, divestiture of non-core businesses and scope deals are likely to shape mergers and acquisitions in the future as banks seek to create larger entities that are financially more robust and efficient, capitalising on economies of scale to better diversify the concentration of risks that prevail in the sector.

Common shareholders

Bank consolidations in the GCC region have so far largely involved common shareholders—normally governments and related entities—reorganising bank assets under a single entity in a bid to achieve a leaner cost structure and increase profits in a highly competitive and overcrowded banking market.

S&P Global said that the first wave of M&A was driven by shareholders’ desire to reorganise their assets, including the tieup between NCB and Samba—a deal that involved a common shareholder, the Saudi government through the PIF. The Saudi wealth fund held a 44.29% shareholding in NCB and a 22.91% stake in Samba.

NEVERTHELESS ASSET QUALITY, PROFITABILITY AND CAPITAL PRESSURES AT SOME BANKS COULD RESULT IN MORE TIEUPS IN 2022

The Qatari government was the ultimate shareholder in Al Rayan and Al Khalij—the country’s fourth and sixth largest banks—through the Qatar Investment Authority and other stateowned entities with stakes of 49% and 47% respectively, according to Moody’s.

Overbanked

With 0% interest rates and an overbanked population especially in the Gulf region, the emerging operating environment may necessitate a consideration to accelerate any potential merger plans to take advantage of economies of scale and solidify customer bases.

Qatar has 2.5 million people being served by about 20 local and international banks, leaving smaller lenders at a disadvantage unless they can find a niche or competitive edge. “With over 50 financial institutions set against a population of 11 million, both retail and commercial banking customers in the UAE have a wealth of choice, ranging from international and local lenders, specialist and commercial banks, and private banks,” said Deloitte

Overall, the Middle East region had more than 160 banks serving a regional population of 58 million as of 2019 compared with a dozen commercial banks in the UK catering to a population of 66 million.

Market dynamics

MENA banks are pro-innovation and industry experts see them continuing to dominate the emerging markets banking landscape as the sector goes more digital. The outbreak of the pandemic presented an opportunity for the global

financial service sector to accelerate and strengthen the digitalisation of complex processes and end-to-end customer journeys across the front, middle and back offices—a trend that was already in full throttle in the Middle East.

Deloitte said that the digitisation of banking services is another spur for consolidation, as larger banks are better equipped to navigate and capitalise on these market changes. For smaller regional banks, operating expenses are expected to increase significantly due to requisite investments in the new technologies to bolster digital strategies and improve operational efficiency—tasks that can be made easier with stronger balance sheets.

Meanwhile, MENA banks are still battling with problem loans owing to the property and retail slump—a crucial sector for regional economies which has been sluggish for years on the back of high supply vs weaker demand.

Despite a rebound in the UAE property market, real estate assets across the Middle East continue to face downward pricing pressure and banks with a heavy concentration in the sector are also likely to report increased impairments on their books. M&A in such instances may serve among other things to diversify such risks and provide access to new platforms of capital.

There are compelling reasons for banks in the MENA region that have been sitting on the sidelines to reengage in mergers and acquisitions in 2022. These include positive macroeconomic conditions being driven by a rally in oil prices, an abundance of investment capital and accelerated digital transformation across the industry.

Signalling Success

Regional M&A activity remains strong, backed by diversification drives, an evolving regularity environment and relative economic buoyancy, in turn leading financial services to focus on newly emerging sectors, observes Jon Connor Managing Director, Global Head of Transport, Logistics, Infrastructure & Construction, Regional Head of Advisory & Investment Banking, MENAT, Global Banking and Markets, HSBC

2021saw a rise in regional M&A activity of over fifty percent over the last twelve months. How will 2022 compare with its’ previous year?

Last year saw a record year for M&A activity across the world, with deals transacted at an accelerated pace on high valuations, whilst at the same time, leveraging a conducive low interest debt market. This year has seen a decrease in transaction volumes so far, down 23% in H1 compared with last. Global factors, such as the conflict in Ukraine, global uncertainty and supply chain concerns and disruptions, partly explain this. However, we are seeing positive signs, with activity growing 13% in the second quarter.

In 2021, the Middle East and North Africa achieved a dealmaking record. This year, we’ve been affected by the slowdown in the first half but have witnessed strong deal performance; and my outlook is positive. The region clocked up 359 M&A deals worth US$42.6bn during H12022, which was a 12% increase on the same time last year.

In terms of the individual markets, the UAE has led the pack of the top five target countries across the MENA region with 105 deals, followed by Egypt, Saudi Arabia, Morocco and Oman. KSA recorded a total of 82 deals worth US$55.7bn from 2021 to YTD 2022 and has become one of the most attractive markets for international companies seeking M&A opportunities, while the Government continues to encourage privatisation, monetisations and foreign investment.

Across the GCC, we’re seeing a diversification away from commodity exposure, with activity in sectors such as transportation and logistics, consumer products, technology and digital, telecommunications, real estate as well as power & utilities.

What factors are currently driving of the wave of M&As in the region?

The MENA region is in a unique position globally, experiencing accelerated economic growth and a strong rebound from the pandemic. The post-COVID-19 recovery, which is in no small part down

Jon Connor, Managing Director, Global Head of Transport, Logistics, Infrastructure & Construction, Regional Head of Advisory & Investment Banking, MENAT, Global Banking and Markets, HSBC

to effective leadership by the authorities here, has significantly driven regional M&A activity.

Government-initiated economic diversification has increased interest in strategic transactions and boosted the nascent start up ecosystem. Government transformation agendas such as Saudi Arabia’s Vision 2030, Abu Dhabi’s Economic Vision 2030 and the Dubai Industrial Strategy 2030 are also important factors.

The boardrooms across the region are noticeably confident these days – in their businesses, and their regional positioning. Furthermore, deal activity is significantly driven by the strong involvement of private capital and Sovereign Wealth Funds (SWF), and the UAE was the most favoured destination for private capital and SWF deals, while KSA was the most active acquiring market.

Additionally, the market is seeing strong interest in buying assets that accelerate sustainability strategies, especially in automotive, industrials and consumer segments which are expected to grow.

How will growth in M&A activity likely affect banks strategies in the near to medium term?

Banks are ramping up capabilities on the ground across the region to enhance their market share in deal activity.

At HSBC, we’re already one of the largest investment banking teams on the ground, operating as one region with two hubs in Dubai and Riyadh. This marks us out from others who rely on expertise of colleagues based in other geographies such as Europe or Asia, to assist the local teams.

We’re also seeing the financial services industry focusing on newly emerging sectors such as new energy solutions, health tech and food tech, for which regional capabilities are being developed.

How much of the current M&A activity is cross border, within and without of the region?

Although the current climate means the majority of transactions are domestic, we are seeing corridors to Europe and Asia/China opening up and being tested with deals. So, longer term, I think we can expect cross border activity to grow.

The rising energy prices, and implementation of business-friendly reforms in the region as well as easing of travel restrictions have supported the inbound deal volume in MENA in H12022.

And in outbound deals, MENA has seen 92 worth US$19.0 bn during H12022 comparted to 75 deals amounting to US$5.2 bn in H12021. The UAE is leading the pack in this category, too, recording the highest number of outbound deals, led by the technology and consumer products sector.

Are economic conditions outside of the region impacting deal making in the Middle east?

Of course, this year has been challenging for the whole world, and unfortunately these challenges are ongoing. Inflation is biting and dampening economic demand, the related costs of living challenges are being felt across the region, as is the impact of the Ukraine conflict.

Despite this, MENA is withstanding the headwinds impressively, with large transactions mainly led by SWFs and

Government reforms, and intra-regional dynamics have also contributed to increased M&A activity, with a number of transaction involving KSA or the UAE into Egypt.

The regulatory environment for M&A continues to encourage investment and transactions. Countries have developed their respective growth visions for the next decades and are implementing reforms to ensure that those are achievable, in some instances these include adjustments to M&A regulation. Nations are seeking to exit the pandemic strongly and plan ahead improving resilience and creating inclusive economic models, for example in the UAE, local reforms are in place to further develop international financing centers and grow the country’s Fintech ecosystem.

Key factors that can help drive growth and enable M&A include global standards of governance, diversification strategies, employment regulation and private sector development. These are particularly key for cross border transactions. Additionally, there have also been landmark changes to the foreign direct investment regime in the UAE to enable overseas investors to fully own local companies.

In Saudi Arabia, the New Companies Law, effective from 1 Jan 2023, changes the corporate law framework, unifying the legislation for companies, while catering for the requirements of a fastgrowing start-up and venture capital market. The new law will be simplifying the incorporation of new companies, business practice and exit phases. It is designed to enhance the flexibility of operations for existing businesses, enhance the diversity and strength of the local market, raise competitiveness in the country’s investment environment, and attract further foreign investment.

Do you expect to see any development of the supervisory and regulatory requirements applying to M&A?

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Accelerating Development

The sector is being challenged by changes wrought by market forces, growing sophistication, increasing competitive pressure and significant emerging trends, but asset managers in the region expect increased flows in the near future with AUM driven by strong retail markets

The outbreak and spread of the pandemic over the last two years planted multiple seeds of disruption which are setting a dynamic new horizon of growth for the asset management industry in the coming decade. Boston Consulting Group said in May that the asset management industry continued its unprecedented growth trajectory in 2021, with global assets under management (AuM) rising by 12% to $112 trillion, significantly above the 20-year growth average of 7%.

AuM in the Middle East, which increased by 52% since the end of 2019, has been rising consistently and analysts expect them to expand further driven by soaring energy prices and a spectacular rebound in the property market.

“Middle East-based managers had seen a contraction in AUM in 2015 and 2016 following the oil price slump that

started in 2014,” alternative assets industry data and analytics firm Preqin said in May adding that AuM in the region has rebounded over the last years increasing with the share of assets taken by the largest two markets Saudi Arabia and the UAE recording improvements.

The global asset management industry is evolving and the market within the Middle East region is no exception. The changes in demographics, technology, environment and social behaviors have set the ground for rapid transformation in the asset management industry.

“The pandemic has been a watershed event for the wealth industry, accelerating dramatic changes in investor attitudes, behaviors and expectations,” said ThoughtLab.

A study that was conducted by Moody’s in September 2021 showed that asset managers in Gulf countries expected increased inflows over the next 12 months amid growing demand for Islamic and environmental, social and governance (ESG)-compliant investments. The industry is being confronted with the challenge of transforming itself through a combination of market forces and megatrends.

An enabling environment

Traditionally viewed as a source of capital, the Middle East is now being seen as a region with promising investment opportunities. The asset management industry continued its unprecedented growth trajectory in 2021, with AuM in the Middle East rising by 16% to $1.2 trillion significantly above the 10-year growth average, Boston Consulting Group said in May.

Growth in AuM in the region is being driven by strong performance in retail markets. Over the past two years, retail investors have increasingly become one of the most important investor segments, outpacing institutional AuM as a source of capital growth, at 9% of total AuM.

The Middle East financial services sector is ripe for mergers. Regional governments are supportive of

– Boston Consulting Group

consolidations because robust banking systems able to finance new industries are seen as key to boosting the dynamism of the private sector and accelerating growth.

Saudi Arabia completed the tie-up between National Commercial Bank and Samba Financial Group into Saudi National Bank (SNB) in April 2021. The merger led to the creation of SNB Capital, the biggest asset management firm in the Middle East region with $81.8 billion in assets under management at the end of Q1 2022.

UAE-based SHUAA Capital merged with Abu Dhabi Financial Group in August 2019. The merged entity, SHUAA Capital, registered $13.1 billion in assets under management in 2021. The asset management firm’s special purpose acquisition company (SPAC) was listed in New York in April 2022. The $100 million SPAC or blank-check firms will focus on identifying and merging with technology or tech-enabled financial services business in the Middle East.

A survey by Oliver Wyman showed that consolidation appetite in the GCC region is high, reflecting the asset management sector’s growing sophistication as well as mounting competitive pressure.

Sustainable Investing

The burgeoning demand for net-zero compliance by investors is driving some asset management firms to develop sustainable investing strategies as public attention toward the global sustainability agenda is also rising.

BNP Paribas said that clients have become increasingly demanding in the complex world of asset management, driven by younger investors such as NextGen and Gen Z clients. The increasingly growing demand for sustainable investing from investors is evident in the pledges by institutions and increased flow into sustainable mutual funds and exchange-traded funds (ETFs).

“With $100 trillion to $150 trillion in global capital deployment required to reach net-zero goals by 2050, demand for sustainable investments represents an opportunity that will dominate the sector in both the short and long term,” said Boston Consulting Group. Additional growth is expected to come from the rise of climate-tech unicorns and the private investment flows into decarbonisation that became widespread last year.

Conscious investing was slowly building momentum through the support of corporate social responsibility, but with COVID-19, the need for action on ESG topics by governments and corporations alike has never been higher. ESG is increasingly becoming an integral part of how the global financial services sector operates.

The pandemic also placed the Islamic finance industry back on ESG investors’ radar. S&P Global said that as regulators and policymakers around the world seek to establish a more sustainable, stakeholderfocused and socially responsible financial system for the future there are certain similarities between Islamic finance and sustainable finance.

THE ASSET MANAGEMENT INDUSTRY CONTINUED ITS UNPRECEDENTED GROWTH TRAJECTORY IN 2021, WITH GLOBAL ASSETS UNDER MANAGEMENT RISING BY 12% TO $112 TRILLION, SIGNIFICANTLY ABOVE THE 20-YEAR GROWTH AVERAGE OF 7%

Shariah-compliant financial instruments offer a framework that embodies the social and ethical values of ESG investing, offering asset managers the opportunity to adopt more sustainable and conscious investment strategies while tapping into the potential value of impact investing. Sustainable investing has come a long way and had over the years gained more interest amongst institutional investors.

The global push to achieve net-zero carbon emissions by 2050 is both mission critical for the planet and presents several opportunities for the asset management industry. Meanwhile, the hosting of the next two rounds of the United Nations climate summit, Conference of Parties (COP), by Egypt and the UAE in 2022 and 2023 respectively is a boon for the asset managers and it is expected to drive rapid social and economic changes in the region.

The fountain of growth

The profound shift in the asset management sector that was accelerated by the pandemic has overturned conventional wisdom about investors. ThoughtLab said that digital is no longer just the domain of the millennial retail market; it is now preferred by older and richer investors.

Asset management firms have remained largely on the sidelines in an industry where digitalisation has transformed much of the financial services and products. The industry is typically seen as embodying oldfashioned values and providing discrete, tailored service attributes that remain valuable parts of the business, but McKinsey said for many clients, these qualities are “no longer sufficient”.

The outbreak of the pandemic forced wealthy clients to accelerate their adoption of digital technologies and seems certain to lead to permanent changes in the behaviour of both firms and investors. “Asset managers are unlikely to be able to serve modern clients effectively without a digitised operating model,” said McKinsey.

Digitalisation in the asset and wealth management sector is being driven in part by changes among clients. Though the typical client in a developed market today is around the age of 65 years and is fairly comfortable with digital technology, shifting demographics, evolving client behaviours, the rise in new innovative technologies and emerging disruptive competition are all reshaping the industry.

A coherent digital transformation plan will give asset management firms a head starts in leveraging stronger client relationships, reduced operating

The growth of “automated wealth managers” or Robo-advisors is revolutionising the asset and 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 every few months.

Kenneth Research projected that the Robo-advisory market in the Middle East and Africa will grow at an overall compound annual growth rate (CAGR)

costs and enhanced risk management and regulatory compliance capabilities. “The changes are helping firms meet their regulatory obligations, boosting the productivity of relationship managers and lifting compressed margins,” McKinsey added.

Once a laggard in the adoption of technology, wealth management is accelerating digitalisation, deploying artificial intelligence (AI), Big Data, robotics and other technologies to enhance client’s experience and trust—which is central to private banking relationships.

of 55.9% to $3.8 billion by 2023. Roboadvisory platforms in the region are quickly taking off, with several homegrown players having recently joined the onrush.

The shift to digitisation is inevitable and industry experts expect it to radically transform the industry in the coming decade. To succeed in MENA’s transformed and competitive market, wealth and asset management firms need to revise their strategies and switch from a product-centric to a customer-centric approach—one focused on personal requirements not the demographic.

CONSOLIDATION APPETITE IN THE GCC REGION IS HIGH, REFLECTING THE ASSET MANAGEMENT SECTOR’S GROWING SOPHISTICATION AS WELL AS MOUNTING COMPETITIVE PRESSURE

– Oliver Wyman

THE ROBO-ADVISORY MARKET IN THE MIDDLE EAST AND AFRICA WILL GROW AT AN OVERALL COMPOUND ANNUAL GROWTH RATE (CAGR) OF 55.9% TO $3.8 BILLION BY 2023

– Kenneth

Room to Grow

Faisal Hassan Chief Investment Officer and Head of Asset Management, Al Mal Capital tells us that there is much of room for growth and opportunity in the GCC for Asset Management, and that the sector is going about just that

Though there have been efforts by regional exchanges to offer these, significant traction hasn’t been gained and once it should, we believe this will attract global asset managers to the region as it will improve market liquidity and efficiency. This region is also a major Islamic investment hub and there is a big room for improvement in creating Shariacompliant products in different asset classes. Finally, government ambitions when it comes to public offerings as seen in UAE and KSA more notably will also play a role attracting investors to the region. The outcome is two-part, one increasing capital inflows but secondly and more importantly an opportunity for governments here to diversify fiscal balance sheets. There is an ever-growing debate between passive and active investing, and we believe there is huge opportunity in the region for the passively managed products. ESG is another area where we feel that will have strong growth and we will see regional managers launching ESG-related products.

How does the present AUM-toGDP ratio in the GCC compare with the rest of the world?

Interms of the amount of assets managed and product range, how much space is there for the asset management sector to grow in the region?

We believe there is tremendous room to grow given the inherent focus more recently on sovereign revenue

diversification away from oil-based sources. This presents asset managers that are able to offer geographical and sectoral diversity with a great opportunity to capitalise on. Furthermore, in terms of products, regional capital markets still lack the diversity of products developed markets offer such as futures and options.

Here there is a problem of data which is either not available or a bit dated. Also, many of the funds in the region are domiciled in different jurisdictions which give an additional complication to calculate AUM/GDP. However, we do think a number of GCC nations would have improved their AUM/GDP ratios, as we have seen new funds being originated by the asset managers both in the public and private asset classes. There are new fund offering both in Sharia as well

Faisal Hassan, Chief Investment Officer and Head of Asset Management, Al Mal Capital

as conventional fund space and we see new niche fund types such as leasing and trade finance funds which is increasing the assets under management in the region. But we would still have a fair bit of catching up to do before reaching the likes of Luxembourg. However, the capital is there in the region which is looking at avenues to invest and this will help in increasing the AUM/GDP ratio in the coming future. GCC asset management is concentrated among the top asset management companies, and there is room for growth for both current and new players to take the market share by giving superior risk-adjusted returns.

Could the influx of millionaires taking up residency in GCC countries noticeably affect the regional asset management sector?

We view this as positive and notably numerous Global asset managers are of the same view with talent from financial hubs like London and Hong Kong moving to the GCC to take advantage. More than the

TECHNOLOGY WILL FURTHER ENABLE ASSET MANAGERS REGIONALLY TO TRADE GLOBAL MARKETS AS SETTLEMENT TIMELINES BECOME MORE UNIFORM

wealth of these millionaires, the multiplier effect within domestic consumption and GDP, we believe will be the drivers that will affect regional asset managers most, as both the capital markets and domestic wealth will benefit from the same. Many a time, the clients like their private bankers

or asset managers to be near so that they can have a regular “catch up”, and this will lead to increase in the growth of the asset management sector. One area that will see a major shift will be the alignment of corporate governance standards in-line with international standards as the international investors will demand the same level of corporate governance in the GCC as well. They will expect additional transparency, oversight and corporate governance which will improve the industry as a whole as the asset manager look to access the millionaire’s wealth.

Which aspects of the legal and regulatory frameworks across the region are best serving to attract asset managers into the region?

We are already seeing, as mentioned before, global asset managers improve their presence in the region and nations such as UAE are doing their best by implementing regulatory changes be it on the weekend front or inheritance laws. Regulatory changes combined with the geographical positioning and time zones naturally allow the region to attract best in class asset managers. However, in our view, what is needed is common regulatory framework among the different countries in GCC so that the asset manager can market their product by “passporting” throughout the region. This will save the cost and bring efficiencies to the asset management sector if we have similar regulatory framework throughout the GCC region. Increased adoption of new products and services will help the regional asset managers to achieve higher penetration

if supported by structural reforms. Financial regulations are at different stages of development in each GCC country, and if we can bring them to the same platform this will help in supporting the development of capital and asset management markets.

Beyond greater customer utility and improved efficiencies, how do you expect technology to determine outcomes for asset management businesses in the region?

Technology will further enable asset managers regionally to trade global markets as settlement timelines become more uniform. I think technology will be the base on which the asset management sector will grow in the region. This region has one of the highest mobile penetrations in the world and the tech savviness of the investors will clearly make the asset managers view technology as the engine for the increase of market share. Innovation using technology will be the key and is deciding the winners as the fees come under pressure in the near future. Every firm will have to take advantage of technology as it will impact all functions, and for this the business will need to re-skill their workforce. In our region, fintech companies entering the wealth and asset management space with robo-advisory services have started to disrupt the sector. The incumbent asset managers/banks have also augmented their services using technology. In order to remain competitive asset managers will need to invest in technological innovation providing highly interactive, personalised, transparent and low cost investment models for their clients.

BUT WE WOULD STILL HAVE A FAIR BIT OF CATCHING UP TO DO BEFORE REACHING THE LIKES OF LUXEMBOURG

What are the private client trends in the Middle East right now?

With nearly twenty years’ experience in the Middle East, Lynda O’Mahoney Director at Ocorian, delivers her perspective on the trends she is currently observing in the private wealth and private client industries in the region. With clear opportunities in the Middle East, and with Ocorian strengthening its commitment to the region, I think the growth in the private wealth and private client industry in the Middle East is very exciting. Here are just some trends I am currently seeing in the region and why they matter to us.

Domestic structuringFirstly, we are undergoing a lot of work in relation to domestic structuring for regional families who want to structure their assets locally. Whilst international structuring in offshore finance centres, such as the Channel Islands, has been developing for many years, local structuring is relatively new. This is an exciting area of growth for us, as this is a solution we could not provide to our clients until recently.

As part of this, the DIFC, ADGM and RAK ICC foundations regime has really taken off: we have around 550 foundations already registered as of September 2022. The UAE foundations are also the only private wealth vehicles which can hold UAE real estate. They are also the only orphan structures (without shareholders) in the Middle East, allowing for the transfer of the ownership of assets from own name, which is a key tenet of

asset protection, which facilitates the flow of wealth across generations and the continuity of businesses.

What I think this growth demonstrates is that families and high net worth individuals have become a lot more aware

of the need for asset protection and intergenerational planning. In the Middle East we are experiencing a generational shift, with the next generation stepping up in terms of planning for financial security. Unfortunately, in some cases

Leevyn Isabel, Director, Ocorian

Lynda O’Mahoney, Director, Ocorian

after the patriarch passes away, issues arise amongst siblings and as a result, the assets are diluted by legal costs and the distribution of family wealth to multiple heirs. One positive aspect is we are seeing is an increase in the awareness of the need for that structuring alongside a deepening sophistication of family governance.

Our team in the Middle East has seen a significant uptick in the use of foundations for domestic structuring. As previously mentioned, traditionally, families and ultra-high net worth individuals that hold assets outside of the region tend not to structure them domestically. If they have financial assets in Switzerland, for example, or commercial real estate in the UK, we are more likely to see those assets being structured in theChannel Islands.

Whatever the asset class, or jurisdiction of the structure, it is our responsibility to ensure the clients feel confident their assets are protected, and they can sleep at night knowing they are in safe hands. That assurance is going to continue, and it is great to be able to offer those solutions at Ocorian, with our ability to cater for both international and domestic structuring.

Leevyn Isabel, business development director at Ocorian, recently highlighted the development of structuring in the UAE at a presentation given at the 2022 MEA Finance Wealth & Investment Summit & awards. He emphasised that the foreign heirship under Sharia Law, applicable in the UAE and in the GCC, does not apply to non-Muslims. The image below explores the timeline of structuring in UAE from 2005 to present, from a simple English language will (for non-Muslims) to more sophisticated wealth structures like trusts and foundations. This is a great testament to how structuring has evolved in the UAE and the commitment of the UAE to be a top-tier jurisdiction for wealth management.

Impact investing and ESG

Impact investing and ESG concerns,

particularly for next-gen family members, is also an area of significant growth. It is also an area where we sometimes see a gap between generations. Next gen can have a very different approach to investing, allocation of capital - to global sustainability in general - to that of their parents or grandparents. We see the next gen looking at very different types of investments: from ESG investments to crypto assets.

An example of such a gap was one of our family clients, a family in which the patriarch had become wealthy from the manufacture of plastics. He started his operation in the Middle East in the 1980s and built a very successful business. However, when it came to the next generation getting involved, his two children were not interested in the business. After much discussion, which Ocorian facilitated, a family office was established. The father agreed to sell the business with the money being used by the children to protect the family for future generations.

The children encountered an issue when they were consulting impact investments and keeping ESG in mind: the returns were not comparable with the revenue and profits generated by the manufacturing business in the past. In their perspective, the next generation had great ideas about investing, but they were not ticking the box from a return perspective for their father, so they had to find investment opportunities that ticked both. When I spoke to the son recently, he told me his father is now obsessed with recycling and, as a family, they have

completely changed their perspectives and behaviour.

We are seeing more of these success stories in the Middle East as brilliantly talented entrepreneurs – true advocates of ESG and sustainability - are changing the mindset of previous generations. We are also seeing this new generation of clients using foundations to structure their businesses and their wealth.

The complexity of family offices

Finally, another trend in the Middle East is the further development of family offices. Family offices are becoming much more diverse. Traditionally, a family office was just about investments and a vehicle for allocating capital. Now that is very different. Alongside investments we are seeing family offices used for protection of wealth, succession and intergenerational planning and governance. We are witnessing the desire to professionalise the family office, and that’s where Ocorian can step in and help, if even just with administration or accountancy.

There are numerous trends coming out of the Middle East, some of which are highlighted above, which make it such an exciting time for Ocorian. We are very committed to the Middle East and will continue to grow our presence here. It is an important growth market for us.

From foundation and trust services to succession planning for family assets and businesses, Ocorian’ s private client team provide a one-stop shop so you can take full advantage of the opportunities in the Middle East and beyond.

WE ARE SEEING MORE OF THESE SUCCESS STORIES IN THE MIDDLE EAST AS BRILLIANTLY TALENTED ENTREPRENEURS – TRUE ADVOCATES OF ESG AND SUSTAINABILITY - ARE CHANGING THE MINDSET OF PREVIOUS GENERATIONS

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Five key considerations to scale cloud success in banking

Authored by Sriranga Sampathkumar VP & GM, Infosys, MEA, with Rama Gabbita Global Head, GSI Partner Industry Solutions, FSI at Google

Cloud as co-author, they highlight the numerous options and serious considerations banks must face when migrating services to the cloud

Banks have long caught on that the cloud unlocks immense business potential. Be it to scale digitally, engage customers, accelerate innovation, cut costs or to operate more efficiently, there’s no dispute that cloud adoption drives real value and must be expedited to deliver to its full potential.

What remains a challenge is the “how” - Banks may find it challenging to crack the wherewithal of plotting a clear blueprint of their cloud migration journey. Moreover, every bank is on a unique digital transformation journey and therefore, must chalk out a cloud adoption strategy that best suits their context, larger business vision and specific goals.

Where must they begin and how do they go on to make the most of their investment in cloud?

A recent report from Infosys Finacle and Google Cloud puts forth five key recommendations for banks to consider, to maximise their cloud success.

1. Move along the cloud continuum

To scale the cloud maturity curve,

banks must journey along a continuum which has on-premises deployment at one end and Software as a Service at the other. Most often, banks begin with Infrastructure as Service (IaaS) which helps them freeing staff from tedious infrastructure management tasks, for high-value strategic tasks. From there, they progress towards Platform as a Service (PaaS) and then to Software as a Service (SaaS), where the most value lies. And this transition doesn’t necessarily have to be linear.

While the tendency is to move the peripheral applications initially, if the bank has to scale cloud benefits, then it must look to quickly moving mission-critical applications to the cloud as well.

2. A multi-pronged approach to application migration

As per Gartner 1 , over 85% of existing enterprises’ IT applications, which includes legacy mainframe, midrange, ERP, UNIX-based applications, are not built for cloud. Therefore, a big component of the bank’s cloud transformation is about modernising applications and getting them ready for cloud. Institutions can dev elop a transformation approach that will allow them to tailor the scale of transformation/ modernisation of applications and developing a roadmap that will help them scale the benefits of cloud gradually.

Choosing the right transformation approach will be key, and as there is a multitude of approaches available, it

Sriranga Sampathkumar VP & GM, Infosys MEA and Rama Gabbita; Global Head, GSI Partner Industry Solutions – FSI at Google Cloud

will be all the more important for the bank to arrive at the optimal one for their specifications after having weighed in on the application size, customisation needs, risk of and transformation skills among other factors. Whether it’s lift -and-shift, lift-and-optimise, refactor, replace, or build-and-by – each approach has its share of merits and challenges – chalking out a clear roadmap is essential. Leveraging a multi-pronged transformation approach that is mapped to the entire application landscape is recommended. The idea is to gradually replace legacy applications with services from cloud native applications while allowing both to co-exist – the services are hosted on cloud while legacy applications run on premises. This will not only allow bank to flexibly pace their transformation, but also cause minimal disruption.

3. Adopting the multi-cloud paradigm

The cloud landscape continues to evolve and mature. Today, differentiation among cloud service providers is no longer driven by plain computation and storage capabilities, but by managed services and niche innovation enablers. Some of them are further evolving their propositions to offer curated cloud platforms replete with security, controls and standardisation tailor-made for specific industries.

To make the best of these opportunities, banks must go the multicloud way. This will allow them to cherrypick the best-of-breed cloud provider for each workload and thus avoid vendor lock-in. Moreover, evolving data residency norms across regions are also pushing for adoption of multi-cloud setups. Not surprisingly, 88% of respondents were contemplating moving to a multi-cloud strategy according to a 2021 Google Cloud Report2 on cloud adoption.

However, banks must also stay mindful of initial challenges. In a hybrid multi-

cloud environment, banks would have to recalibrate their mode of operations and face increased complexity, heterogeneity, and lack of standardisation. To manage the complexities of moving applications across diverse cloud landscapes, containerised deployments will become table stakes.

However, these are teething problems which can be resolved by implementing solutions built on cloud-native, cloudagnostic architecture. Cloud Native

makers must find that ideal configuration of on-premises, private and public cloud options based on the use cases.

5. Go the full distance and unlock true value

All banks, across segment, geographies and cloud-maturity stages have a common question about when they might expect to see their returns on their cloud investments. As per the recent cloud research4 done by

WHILE THE TENDENCY IS TO MOVE THE PERIPHERAL APPLICATIONS INITIALLY, IF THE BANK HAS TO SCALE CLOUD BENEFITS, THEN IT MUST LOOK TO QUICKLY MOVING MISSION-CRITICAL APPLICATIONS TO THE CLOUD AS WELL

Computing Foundation’s (CNCF) guidelines and twelve factor application development methodology will go a long way in enabling banks chalk out a successful multi-cloud transformation strategy.

4. Embrace hybrid cloud

There is growing consensus that the hybrid cloud will be the most viable model, at least in the near future. Even the large and mid-sized financial institutions that preferred the private cloud, are now more amenable to trying public cloud for their smaller, non-core applications. In fact, a recent study3 by Infosys on cloud adoption found that 31% of the institutions surveyed were using a combination of the two. Undoubtedly, banks must adopt hybrid cloud for the best-of-both-worlds’ advantages it brings. What’s important, is finding the right mix. To gain full benefit of hybrid cloud, bank’s technology decision-

Infosys Finacle, cloud adoption needs to reach the critical mass of at least 60% migration of the total workload for optimum returns to come in. And the returns get incrementally higher as banks move to the right of the continuum into the SaaS model. Thus, banks must go the whole nine yards if they have to unlock true value from their move to the cloud. With this mindset shift, they can aim beyond cost efficiencies and business resilience, towards more aggressive objectives including faster speed to market, better scale to handle burgeoning transaction volumes, lead with insights-driven operations and so on.

To know more about how banks can derive maximum value from their cloud investments, read the report “Scaling Digital Transformation with Cloud”. The report by Infosys Finacle and Google Cloud delves into the need to accelerate cloud adoption and provides insights on the potential impact of the cloud across value streams. It also highlights the current state of the industry and puts forth key recommendations to scale cloud success.

Meet the people protecting your digital assets

strawberries as a young boy. He is still selling today, but instead of strawberries, he is our master-at-arms and digital assets expert for Securrency Capital. Andrius is your go-to point for access to new products, markets, and trends.

The Securrency (A-Team)

Phil “Ice Cold” Langton is our COO. He began working in finance in the mid-eighties, a time when retail banking was still based on paper ledgers, and you had to show up in person at your bank to deposit or withdraw funds. Phil has seen the transformation from retail payments to internet banking to mobile banking and now blockchain. Phil is a good man to have on your side

in a crisis; he has survived a few himself. From experiencing first-hand, the impact on the markets of Black Monday in 1987 to having a front-row seat to the 2008 Global Financial Crisis, Phil has seen it all. That gives you some idea of how old—oops, I mean experienced—Phil is.

Andrius “Double A” Anelauskas , our head of business development and client experience, got thrown into combat early with a head start in sales, selling

For our Compliance Director, Praveer “Rules are Cool” Pinto, Compliance is more than a job. It was something he was born to do. It is no coincidence that he was born on September 26, which also happens to be Compliance Officer Day, a day to celebrate the work done by ethics and compliance professionals around the world. Who knew there was such a thing?

Praveer is a firm believer in adhering to the rules. He is proud of the fact that he was the only person in his previous firm who never received a ticket for jaywalking. The office was across the road from a park, and every single employee invariably

Amir Tabch Chairman and Chief Executive Officer, Securrency Capital tells us about the company’s plans for the future and the “A-Team” he has in place to deliver them.

jaywalked from the park to the office when it was safe to do so. Not Praveer. He always walked the extra ten miles (that may be a slight exaggeration) to use the zebra crossing. If you think Praveer was the type of goody-two-shoes who would snitch to his teacher in class, you are correct — only now he gets paid to do it by reporting questionable transactions to the regulator.

Chris “Why Not?” Pugh is tickled pink to be Head of Product Delivery. With a quarter-century of grind and graft implementing a wide range of business transformations that would usually involve some leading and bleeding-edge technology, he is the ultimate yogi who will help bend and stretch all the resources to get the job done, without breaking them. From digital banking to foreign exchange, from private wealth management to clearing houses, he has covered the gamut and run the gauntlet enough times to not get painted into a corner.

Neale “The Wizard of Defi” Foy has the pleasure of being our CTO. With a twodecade career spanning multinational Tier 1 IBs, brokerages, and asset management firms to digital challengers, he thinks he’s seen it all, but he has not seen anything yet. Welcome to Securrency Capital, son! Having led major programs and functions across business, regulation, and technology, he knows what to watch out for and how much worry is essential in any situation—his therapist is worldclass and offers bulk rates. Neale led the design and development and launch of a corporate neobank platform, the first fully digital cloud and SaaS-based offering in a jurisdiction with enough bureaucracy and rigidity to make Praveer “Rules are Cool.” Pinto weep...So, we have a chance.

What the story bank shows is that our team is not just skilled in their area of expertise; their area of expertise is their DNA.

Finally, there is me, Amir “Top Dog” Tabch, aka Mr. T. I know the rest of the mob call me other names apart from Top Dog, but I am writing this, so Top Dog it is! I am the CEO — or Chief Vision Officer (CVO), as I like to call it — of Securrency Capital.

Charts, trends, and patterns are my passion. Where others see complexity, I see certainty.

When my son was born, my wife was hooked up to a monitor to chart her vital signs. I was fascinated by the wave patterns and the highs and lows on the screen.

“This looks like a stock!” I told my wife, who looked at me like I was crazy.

“You’re not working now!” she said. “Focus on me!”

I cannot help it. I’ve been fascinated by financial markets since my first job in the industry as an intern twenty years ago.

The Italian Mafia is known as “La Cosa Nostra,” which translates as “our thing” or “this thing of ours.” For the mob at Securrency Capital, our thing is looking after your wealth and best interests. We are building a juggernaut—a powerful, overwhelming force that promises to transform the financial services industry.

Our vision and mission

Our vision is to revolutionize financial markets, become a global leader in digital financial services, and set new standards for exceptional customer service by leveraging the innovative new power of institutional-grade DeFi built on industry-leading blockchain technology to provide secure evolutionary liquidity, automation, and diversity all while satisfying global regulatory and compliance requirements transparently.

Our mission, which we have gladly accepted, is to deliver highly convenient, low-priced, dependable, and multiexperiential financial services to our customers through easy and seamless user-friendly technology tools that ensure clarity, confidence, and transparency, enabling our investors, customers, and stakeholders to harness the power of blockchain, intuitively and easily.

What we do

Securrency Capital is a regulated Institutional DeFi brokerage firm that offers both traditional and digital financial services.

We are at the forefront of the DeFi revolution, providing a suite of products and services that allows investors to leverage our digital marketplace, to access both traditional assets and to take advantage of DeFi trading. The benefits of our solution include 24-7 trading capability and liquidity; the efficiency of both automated and disintermediated models; along with the ability for additional opportunities derived from pledged yielding structures; all seamlessly accomplished at the investors’ discretion through our core technologies.

We function as a utility for services by integrating both traditional and digital trading and payment networks to deliver unprecedented access through both conventional means and new blockchain, Defi, and metaverse channels. By offering secure and compliant institutional products and services through our platform, we make it easier for investors to trade digital assets.

We provide a scalable, future-proof technology platform that enables the safe and secure adoption of digital trading by the world’s largest and most sophisticated brokers and institutional investors, as well as a newer demographic of under-served retail and professional/accredited investors. By equipping our clients with modular-based blockchain toolkit, we provide an enterprise-grade trading capability that interconnects all market participants, both in the traditional and in the decentralized world, and provides a multi-asset global trading experience, supported by Securrency’s patented universal compliance framework. Through automation and a mastery of “smart contracts” in financial logistics, we can operate cheaper, more broadly, and with greater diversity than even the larger and more established incumbents. Powered by Securrency’s intellectual property centered around Institutional DeFi, we are proud to include revolutionary features such as Digital Asset Clawback capabilities and Compliance Aware Tokens.

Fintech Ascending: Why Egypt’s Banks Should Embrace Change

Aymen Daoud Regional Head, North & West Africa at Backbase tells us about the growing Fintech scene in Egypt, underlying its importance in the nation’s banking sector

A sustained reduction in the number of unbanked Egyptians will expand the banking market, creating new vectors of growth for fintech and banks alike.

The advantages brought by fintech to the banking table were not lost on Egypt’s highest institutions. The Central Bank quickly recognized the potential, launching a number of initiatives meant to facilitate the sector’s expansion. Perhaps the most important of these is the 2019 Fintech and Innovation Strategy, which lays out a roadmap meant to better identify, cultivate, fund, regulate and govern the burgeoning talent on the fintech scene.

You can call it a miracle on the Nile. In less than a decade, Egypt has experienced an astonishing digital transformation of its financial sector. In 2014 there were a grand total of two fintech start-ups in the whole of Egypt, while in 2021 that figure reached 112. Investor interest has also been piqued, with venture capital putting only $1 million across three deals in the sector in 2017, but almost $160 million over 32 deals last year, with money pouring in both from within Egypt and from abroad.

This status was further consolidated in 2020 when e-payment company Fawry became Egypt’s first tech unicorn, showing just how high the standard can be set. This remarkable growth made Egypt stand

the one hand, banks are clearly feeling the pressure: Less than 30% of Egyptians have a bank account, but in just a few years the percentage of fintech users in Egypt

And while legislative progress could be faster, there are reasons to feel optimistic. A new banking law which was ratified back in 2020 and will allow the launch of digital banks for the first time finally came into effect in May of this year, with several of Egypt’s largest banks already applying for digital licences.

Continued Integration

Commercial banks as well have taken notice and become more involved in the field of digital finance. Earlier this year Banque Misr, National Bank of Egypt and Banque du Caire, three of the country’s top national banks, partnered with Global Ventures, a leading firm in the realm of venture capital, to launch a new venture called “Nclude”. With $100 million in starting money, Nclude is aimed at accelerating fintech development and investing in young innovators.

FINTECHS MADE PERSONAL FINANCE

AND EVERYONE IN THE INDUSTRY STANDS TO BENEFIT FROM

out in the region, with only established powerhouses like Nigeria and South Africa having a bigger fintech market in Africa.

Constructive Competition

As Egypt’s fintech ecosystem grows, its traditional banking sector is faced with both challenges and opportunities. On

reached almost 10%. Furthermore, the ease of use and flexibility of fintech raised user expectations across the board.

On the other hand, banks should be delighted to have so much attention drawn to their sector. Fintechs made personal finance hot and everyone in the industry stands to benefit from that.

Egyptian banks must now continue this process of integration between fintech and traditional banking. When it comes to fintech in Egypt, the forces of disruption are not a one-way street. Through initiatives like Nclude, banks are already joining the fray and betting on the future of fintech, avoiding the familiar pitfalls of industry protectionism.

Banks need to leverage this opportunity ever further. The fintech train is moving full steam ahead in Egypt and the surest way to maintain its momentum is to have both fintech and banks busy shovelling coal in the boiler room. The destination is worth it for everybody.

Aymen Daoud, Regional HeadNorth & West Africa at Backbase

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