7 minute read
Tomorrow is Today
from December 2022
by MEA Business
Spurred on by recent events, what once were predictions of distant changes to banking and banking processes are with us, here and now.
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.
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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-and-analytics 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 who are billing on customer experience as their point of sale.
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 hyper-relevant, platformbased 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 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 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.
– McKinsey
– PwC 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 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 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 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 offered 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 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 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.
– Deloitte
“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. 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 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.
– Ernst & Young
