MEA Finance - March 2022

March 2022

The Value of Values Dr. Adnan Chilwan Group CEO, Dubai Islamic Bank

March 2022

Shaping the Future Dr. Adnan Chilwan Group CEO, Dubai Islamic Bank

10 Market Focus | 14 Wealth Management | 34 Cloud Technology in Banking | 44 Payments Solutions | 56 Islamic Finance

HOW CAN YOU ACCESS U.S. REAL ESTATE INCOME SOLUTIONS? ADAMSON

In business for over 40 years, the Walton Group of Companies is an international real estate investment company focusing on the research, acquisition, administration, planning and development of strategically located land in major North American growth corridors.

Working closely with the largest U.S. homebuilders, we specialize in providing innovative land-based real estate products focused on generating short to medium term USD income for qualified investors.

Endorsed as Shariah-compliant

by Amanie Advisors

Speak to us today to learn more about our products and how you can deliver superior returns for your High Net Worth Clients.

For more information, please contact TIM HAYWOOD at Timothy.Haywood@walton.com | +971 05 44 888 673 Risk disclosures: Investing in land has risk. Land investment is illiquid and it may be impossible for you to sell your land within a short period, or at any time at all. Land could potentially lose value over time. Past performance is not necessarily indicative of future results. No representation is made that profits, income or other returns will arise, or will likely arise, from the acquisition, holding, disposal or any other dealing with the land, or that any profits, income or other returns will arise or will likely arise within any specific time. These risk disclosures do not purport to disclose all risks associated with land purchases. Walton does not provide any investment, financial, accounting, legal or tax advice.

You should carefully consider whether land investment is suitable for you in light of your financial circumstances, and consult professional investment and tax advisers if necessary.

Walton and its representatives are not licensed to deal with real property located in Mainland China, Hong Kong, Macau, Taiwan, Japan, Korea, UAE, Singapore, Malaysia, Thailand, Vietnam, Indonesia, India, Philippines and South Africa.

202202_Adamson_MEA Finance Ad_210x270mm.indd 1

24/2/2022 3:39 PM

In this issue...

O

ur journey into 2022 has begun, as have recent years, with defining events that will shape the world around us and the businesses we work in. Let us hope the positive aspects of our nature such as wisdom, generosity, empathy, imagination and innovation come to take greater space this year than has been occupied by the unwelcome events of recent times.

Here in the UAE and much of the wider region, March is when the weather gets warmer, with fewer clouds in the sky. But in realm of banking, the forecast shows cloud coverage will be prevalent across wide reaches of our daily activities. From page 34, we examine how Cloud-based Solutions will allow banks to provide greater agility and smarter service provision. Mambu and Microsoft give their insights on the role cloud plays in the evolution of finance for today’s more demanding customers, “Features of cloud technology like flexibility, affordability, scalability and ease-of- access are some of the most important advantages of having services based in the cloud”, says Naim Yazbeck, Regional Director, Enterprise and Partner Group, Microsoft UAE. From page 14, we focus on the facets of the region that are making it a hub for Wealth Management and private banking. We hear from leading providers of this financial service about the changing expectations of clients, and how it is gearing up to meet them, “The GCC has also seen an influx of talent from historical private banking centres” observes Philippe de Backer, Managing Partner and Global Practice Leader of Financial Services at Arthur D. Little.

Then from page 30, our cover story for this issue features Dr. Adnan Chilwan, Group CEO of Dubai Islamic Bank (DIB). Dr. Chilwan describes how DIB has remained successful through recent challenges, talks about the launch of their new digital banking service, rabbit, and the value of values in the modern world of banking, “And now, because consumers of all kinds are demanding responsibility from those they do business with, Sharia principles are delivering what Muslim and non-Muslim consumers want”.

Probably the leading touchpoint for banks and their customers; Payments are looked at from page 44. Here we talk with leading providers in this field, with contributions from HPS, Infosys, Mastercard and Volante, each bringing their own perspective on the rapid developments and innovation that is changing the way we transact with businesses, banks and each other across the region, “There is a greater expectation for businesses to provide multiple ways to shop and pay during the pandemic”, Martijn Van Os, Senior Vice President, Mastercard Payment Gateway Services.

This month our Market Focus is the UAE, where government is creating more investment opportunities in its non-oil private sector while implementing new structural reforms to boost its competitiveness, and our coverage of Islamic Finance, page 56, looks at the Nigerian government’s policy to diversify its sources of public debt financing by issuing more Sukuk.

Finally, and as always, the issue kicks off with some recent market news highlights from the region.

The main themes of this issue all, in their own ways, encapsulate the forward-thinking hope that drives innovation. We hope that you enjoy reading this issue and also that our collective contributions to improving everyday life becomes the biggest story of this year.

mea-finance.com

3

CONTENTS

CONTENTS 30

MARKET NEWS

6

GFH Financial Group launches GCC $100 million Sukuk Fund

8

First Abu Dhabi Bank submits a nonbinding offer for a majority stake in EFG Hermes

WEALTH MANAGEMENT & PRIVATE BANKING

14

On the cusp of change: Wealth in the Middle East

18 20 24 26

Well Placed Confidence Purpose in Prosperity Modern and Mature A Sunny Outlook

COVER STORY

30

Shaping the Future

CLOUD TECHNOLOGY

34 38 40

MEA Finance WEB: www.mea-finance.com EMAIL: info@mea-finance.com PUBLISHED BY: Creative Middle East Media FZ LLE, 19th Floor, Creative Tower, Fujairah Creative City, PO Box 4422, Fujairah, UAE

4

Banking and Finance news in the MEA market

The Cloud is Lifting The Age of The Cloud Ahead in the Cloud

CONTENT PARTNER

42

The power of three: APIs, eventing and analytics take cloud higher

6

8

PAYMENT SOLUTIONS

44 48 50

The Middle East payments matrix

52

Payments Plan

Consumer Led Change Defining the Future of Innovative Payment Solutions in Middle East – Lessons from Asia

ISLAMIC FINANCE

56

26

20

Nigeria Sukuk

LIFESTYLE

58

Agile and exclusive: Porsche presents the first Macan T

40

34

50 56 54

58 mea-finance.com

5

MARKET NEWS

GFH Financial Group launches GCC $100 million Sukuk Fund Announcing the launch and seeding of a diversified fund comprises basket of fixed income instruments from various GCC countries, GFH aims to achieve an above average long-term investment return on a risk adjusted basis

G

FH Financial Group (GFH) has announced that is has launched and seeded a $100 million sukuk fund which holds a diversified portfolio of sukuk, following signing agreement with Credit Suisse to provide attractive financing and fund administration services.

The fund holds a portfolio of sovereign, quasi sovereign and corporate sukuk and sukuk-related securities from various countries and issuers, primarily in the GCC and will be managed in accordance with Sharia principles.

GFH aims to generate returns to the fund through active asset allocation, credit selection, optimal leverage and duration management to achieve an above average long-term investment return on a risk adjusted basis.

S a l e m Pa te l , H e a d of A s s e t Management at GFH, said: “The market

6

THE MARKET IS BECOMING MORE BUOYANT AS ECONOMIES IN THE GCC RECOVER AMID A REVIVAL OF KEY SECTORS

is becoming more bouyant as economies in the GCC recover amid a revival of key sectors. Global borrowers have issued more than $23 billion of Shari’a-compliant debt in 2021 and global sukuk supply is expected to accelerate in 2022.

Banking and Finance news in the MEA market

Salem Patel, Head of Asset Management, GFH

The GFH Sukuk Fund aims to capitalise on post-pandemic economic growth and recovery.”

Patel added: “GFH has a dedicated, highly knowledgeable and experienced investment team who will manage the fund’s investment portfolio. Our team is deeply experienced in credit analysis, portfolio construction and has strong market relationships to access highly sought-after primary issuances.”

GFH won Best Islamic Investment Bank at the 2019 World Islamic Banking Conference and most recently, it won Best Islamic Investment Bank and Best Sukuk Deal of the Year in the Middle East and Africa region at the MEA Finance Awards in November 2021.

The group’s considered approach to Islamic investment banking services has been recognised globally over the past two decades.

MARKET NEWS

First Abu Dhabi Bank submits a non-binding offer for a majority stake in EFG Hermes Non-binding offer for a minimum of 51% of the outstanding share capital of EFG Hermes, that is subject to due diligence and regulatory approvals from the relevant authorities in Egypt and the UAE. The potential transaction is in line with FAB’s long term strategic ambitions, and beneficial for both parties providing enhanced scale, specialisation and significant revenue synergies in investment banking

First Abi Dhabi Bank Headquarters

8

Banking and Finance news in the MEA market

F

irst Abu Dhabi Bank (FAB) announces that it has submitted a non-binding offer for a potential cash acquisition of a majority stake in Egyptian financial services institution EFG Hermes Holding S.A.E. (EFG Hermes).

The non-binding offer, for a minimum of 51% of the outstanding share capital of EFG Hermes, is subject to due diligence and regulatory approvals from the relevant authorities in Egypt and the UAE. Following the satisfactory outcome of the due diligence process, FAB intends to make a mandatory tender offer in accordance with applicable laws and regulations.

In its non-binding offer to the Board of Directors of EFG Hermes, FAB has indicated an all-cash offer price of EGP 19.00 per share. The offer values EFG Hermes at EGP 18.5 billion (USD 1.2 billion) and represents a 21% premium to EFG Hermes’ closing price of EGP 15.74 on 08 February 2022. The offer price also represents a premium of 32%, 40% and 48% respectively over the three-month, six-month and twelve-month volumeweighted average price.

FAB believes that the non-binding offer represents an attractive liquidity event and a compelling value proposition for EFG Hermes’ shareholders, reflecting the company’s robust fundamentals, and strong future growth prospects. This potential transaction would represent a significant milestone for FAB, in line with the bank’s long term strategic ambitions to become the reference institution for investment banking in the region. It provides enhanced scale, specialisation, growth levers and revenue synergies, strengthening FAB’s offering and regional presence.

This potential transaction will build on EFG Hermes’ strong investment banking capabilities, track record and reputable brand.

Additional details with regards to the due diligence process or the potential transaction would be provided to the market in due course.

BUILD A BETTER TOMORROW ON THE FOUNDATION OF INVESTMENT DECISIONS TODAY Investment management solutions from National Bank of Fujairah are built around your financial goals and growing needs, so you meet priorities of life in a planned and simplified way.

Your our next investment decision is just three th simple steps away: Step 01

Step 02

Step 03

Contact NBF's investment team to discuss your investment requirement.

Select the investment category to determine your exposure: • Conservative • Moderate • Aggressive

Choose your investment option: • Lump sum: Starting From 10,000 USD • Systematic Investment: Starting from $1000 (Monthly or Quarterly basis)

That’s it, you are all set!

Our qualified Asset Managers take charge and keep you updated on a regular basis on your portfolio performance.

NBF Investment Management Investing simplified!

Call 8008NBF(623) to start our partnership nbf.ae Terms and conditions apply

MARKET FOCUS

Aligning with the global markets The UAE government is creating more investment opportunities in its non-oil private sector while implementing new structural reforms to boost its competitiveness

T

he UAE enjoyed a strong finish to 2021 and the Gulf state is primed for a strong economic rebound this year on higher oil prices and production as well as the recovery in tourism and domestic non-oil activity linked to the ongoing Expo 2020 Dubai.

The oil-rich GCC state witnessed a gradual economic recovery last year driven by the authorities’ strong health response, continued supportive macroeconomic policies and structural reforms that are enhancing sustainable economic growth.

10

“A gradual recovery is expected in 2022,” the International Monetary Fund (IMF) said last September citing the UAE’s “strong” health response and supportive macroeconomic policies and rebound in tourism and domestic demand.

The UAE is weathering the negative trend in global markets and analysts remain optimistic about the country’s growth this year. The IMF estimated that the country’s real GDP will expand by 3% this year from the 2.2% that was projected in 2021 after a 6.1% contraction in 2020.

Banking and Finance news in the MEA market

Despite the global and local uncertainty around the economic recovery, “the UAE’s strong reform momentum provides an upside risk to growth,” the IMF said. The government is leaving no stone unturned in its efforts to diversify the economy away from heavy dependence on oil revenues.

The UAE, which has been the Middle East region’s tourism and business hub for more than a decade and has been facing growing competition from its GCC neighbours, is creating more investment opportunities in its non-oil private while implementing new structural reforms to boost its competitiveness. “ T h e U A E ’s i n s t i t u t i o n s a n d governance strength have been demonstrated by the spearheading of reforms destined to improve the business environment, and the progress made on diversifying the economy and fiscal revenues away from the hydrocarbons sector,” said Moody’s.

Meanwhile, the country’s top banks are expected to register an increase in profits over the next 12 to 18 months, though lower than pre-pandemic levels, as they book lower loan-loss provisions while the economy gradually recovers from the impact of the coronavirus.

Financial matrix

Banking sector UAE banks’ funding structure benefits from a strong core customer deposit base and limited reliance on external funding. The business environment for the UAE’s financial service sector is expected to remain solid as growth will continue to present business revenue and growth opportunities as the economy gradually re-emerges from the COVID-related contraction.

The Gulf state’s top five banks—First Abu Dhabi Bank (FAB), Emirates NBD, Abu Dhabi Commercial Bank (ADIB), Abu Dhabi Islamic Bank (ADIB) and Dubai Islamic Bank (DIB) —registered a combined annual net profit of $9.1 billion (AED 33.5 billion), thanks to the recovery in the country’s economic conditions.

Meanwhile, a mixture of changing consumer preferences, competition from fintech startups and an enabling regulatory environment is driving digital transformation in the UAE financial services sector as banks seek to bolster their digital capabilities.

The Central Bank of the United Arab Emirates (CBUAE) last month gave an in-principal approval to ADQbacked digital banking platform, Wio, to launch operations. The development comes months after the country’s first independent digital banking platform, YAP, started operations.

Banks in the UAE have in recent years launched their own digital banking offerings targeted at digitally-savvy and younger users including Liv. by Emirates NBD, Mashreq Neo by Mashreq Bank and ADIB’s Amwali. The banks are digitalising complex processes and endto-end customer journeys across the front, middle and back offices to meet the evolving needs and expectations of customers that include the quest for self-service, seamless, automated, and omnichannel experience – with the minimal waiting time.

The Gulf state’s lenders have been increasingly expanding their operations across the Middle East region to sustain

growth. FAB submitted an offer to acquire a majority stake of “no less than 51%” in EFG Hermes Holding in February—a deal that is expected to be the Abu Dhabi-based lender’s second major transaction in Egypt after the acquisition of Bank Audi Egypt in April 2021.

Pulse of cryptos The oil-rich country has also intensified its push to boost the use of blockchain in recent years as Dubai, the GCC region’s financial hub is vying with Singapore and Switzerland to become a global crypto hub.

The Dubai World Trade Centre (DWTC) is set to become a crypto zone and regulator for cryptocurrencies and other virtual assets as part of the

$78.96 billion UAE 2022/26 budget Source: UAE Federal Government

government’s broader strategy to create new economic sectors and promote financial inclusion. The free zone signed a cooperation deal that is aimed at developing virtual asset regulations in the city with cryptocurrency exchange Binance last December.

The regulator for Dubai’s state-owned financial free zone, Dubai Financial Services Authority (DFSA), also unveiled the first part of a regulatory framework for digital tokens in October 2021. The move

by DFSA came months after Canadian bitcoin fund manager 3iQ listed its bitcoin exchange-traded fund “The Bitcoin Fund” on Nasdaq Dubai, becoming the region’s first indexed cryptocurrency digital assetbased fund in June 2021.

In January, the Abu Dhabi financial hub’s regulator y authorit y gave cryptocurrency exchange firm Rain an

in-principle approval (IPA) for financial services permission. ADGM introduced its first comprehensive virtual assets framework in 2018.

Debt markets The UAE’s federal government, which had not issued bonds before, raised $4 billion from its debt capital markets debut last October after orders for its three-tranche bond deal reached $22.5 billion. The debt is rated Aa2 by Moody’s—the third-highest investment grade and one step lower at AA- by Fitch Ratings.

The country’s cabinet approved its 2022-2026 federal budget of $78.96 billion in October 2021 and focused most of next year’s budget of $16 billion on spending on social benefits and development. The Gulf state said that 16% of the budget will go towards higher education, 6% to social affairs, 8.4% to the health sector and 3.8% to infrastructure and economic resources.

The Arab Gulf region has seen a surge of green or sustainable, debt sales as investor demand for eco-friendly deals balloons. Abu Dhabi-based Sweihan PV Power Company issued $700.8 million ‘mortising’ green bonds in January 2022 as the solar energy joint venture—which is 60% owned by TAQA seeks to save nine million metric tons of carbon dioxide from being emitted between 2020 and 2030.

DIB, the UAE’s biggest Islamic bank, sold $750 million in five-year senior unsecured Sukuk last month after the notes drew more than $1.6 billion in orders.

Stock exchanges in the UAE, the Abu Dhabi Securities Exchange (ADX) and the Dubai Financial Markets, are introducing initiatives that include flexibility on the minimum stake size required for share sales and promising to reduce or forgo listing fees in a bid to encourage more domestic listings. The Gulf state’s stock markets are bracing for yet another year of recording initial public offerings (IPOs) and the listings to look out for in 2022 include Emirates Global Aluminium, Empower, and Dubai Electricity and Water Authority. mea-finance.com

11

Ready for a new generation.

Advertisement

Smart banking solutions for the creators of a new tomorrow.

On-the-go Banking

Fast, Digital, Paperless

Agile Solutions for Business

+971 4 609 2222 | dib.ae

Dubai Islamic Bank (Public Joint Stock Company)

Kamco Invest in its GCC Equity Markets: 2021 report attributed ADX’s gains last year to a string of listing by several state-owned firms amid a climate of economic optimism. The UAE’s market regulator also approved the ADX’s regulatory framework for the listing of special-purpose acquisition companies (SPACs), as the country seeks to open the booming market to GCC investors.

Diversification drive The UAE, which broke ranks with the rest of the GCC region and shift its weekend to Saturday and Sunday in January, has taken measures over the past years to make its economy more attractive to foreign investment and talent. The country is introducing several initiatives such as ‘Make it in the Emirates’ and ‘Operation300bn’ to spur investment as part of its push to drive growth in the non-oil sector.

Under the ‘Operation300bn’, the government seeks to enhance the industrial sector’s contribution to the UAE’s economic output, from the current $36 billion (AED 133 billion) to $82 billion (AED 300 billion) over the next 10 years.

Last September, the UAE said it would spend $6.5 billion (AED 24 billion) on a package of benefits and subsidies that a re d es i g n e d to re d u c e c i t i ze n unemployment by making private sector jobs more attractive. Just like its Arab Gulf neighbours, UAE has a large proportion of citizens working in state jobs that offer better pay and shorter hours.

Small and Medium Enterprises (SMEs) and startups represent a significant part of the UAE’s non-oil private sector and are one of the strongest drivers of economic development, innovation and employment.

Following the establishment of the Ministry of State for Entrepreneurship and SMEs in July 2020, the Gulf state unveiled the Entrepreneurial Nation project last November as part of the government’s broader strategy to become home to 20 startups worth more than $1 billion each, unicorns, in the next decade.

Together with other GCC petrostates, the UAE made a seismic shift by unveiling

DESPITE THE GLOBAL AND LOCAL UNCERTAINTY AROUND THE ECONOMIC RECOVERY, THE UAE’S STRONG REFORM MOMENTUM PROVIDES AN UPSIDE RISK TO GROWTH – International Monetary Fund

a raft of measures to eliminate planetwarming emissions within its borders last October. The government said that it would invest $163 billion (AED 600 billion) in renewable energy as part of its strategy to achieve net-zero emissions by 2050. The Gulf state is also extensively investing in nuclear energy, solar plants and sustainable transport.

Expo 2020 The World Bank expects Dubai’s hosting of the World Expo to stimulate sustainable growth in the UAE driven by economic stimulus measures being implemented at an emirate level by the Dubai and Abu Dhabi governments.

“Expo 2020 Dubai and its legacy are expected to contribute $33 billion (AED 122.6 billion) of gross value added (GVA) to the UAE’s economy from 2013–31 as well as support up to 905,200 full-time equivalents (FTE) job-years, which is equal to approximately 49,700 FTE jobs per annum,” according to a report published by EY before the outbreak of the coronavirus.

The Dubai Expo site, which will be redeveloped to District 2020 after the expo, is also projected to play a critical role in the country’s future vision by supporting sustainable economic development as the UAE moves towards an innovative-driven economy while creating a business environment to support key growth sectors such as logistics and transport, travel and tourism and property development.

Structural reforms In a major policy shift, the UAE said it will levy a 9% federal corporate tax on business profits for the first time starting

from June 1, 2023, ditching the tax-free regime that made it the Middle East region’s business hub but attracted international scrutiny over transparency.

Fitch Ratings cautioned that the UAE’s federal corporate tax could have uneven credit implications on rated corporates, with privately-owned corporates and government-related entities rated on a bottom-up basis most affected.

Moody’s said that although the introduction of a corporate tax will broaden the federal government’s income base, it would negatively affect the credit profiles of companies operating in the country.

The government also revamped its Commercial Companies Law by scrapping a law that required an Emirati shareholder or agent when foreigners are opening a company in the country. The UAE’s new company law came into effect last June and it is expected to boost the country’s economic competitiveness.

The UAE plans to offer Emirati citizenship and passport to a set group of foreigners, including investors, professionals, and special talents – a first in the Gulf region as the government looks to give its huge expat population a bigger stake in the economy to drive growth. The country also unveiled a new class of visas ‘Green Visa’ last September, the Gulf state’s latest step in a series of efforts aimed at attracting talent and boosting growth.

Over the years, the UAE has implemented a raft of economic and structural reforms, including issuing citizenship to foreigners, to attract investment, foreign talent, enhance competitiveness and maintain its regional trade and business hub status amid growing economic rivalry from its Gulf neighbours. mea-finance.com

13

WEALTH MANAGEMENT & PRIVATE BANKING

ON THE CUSP OF CHANGE:

Wealth in the Middle East The prolonged COVID-19 pandemic is accelerating pre-existing trends in the industry as private bankers and wealth managers are shifting the way they deliver advice and serve clients

T

he private banking and wealth management sector is evolving and the market within the Middle East region is no exception.

According to Capgemini Research Institute’s World Wealth Report 2021, the population of high-net-worth individuals (HNWIs) in the Middle East region grew by 6.8% to 800,000, while their wealth soared by 10.7% to $3.2 trillion in 2020.

Two years into the pandemic, there is no doubt that 2021 was profitable for private banks and wealth managers as mainstream markets have continued to perform and investors in the region are diversifying further into private and alternative assets. The outbreak of the coronavirus created some exceptional

14

challenges for all industries and in the private banking and wealth management sector, it is driving pre-existing trends as wealth managers are changing the way they deliver advice and serve clients.

“The acceleration in market and competitive wealth management trends, along with the confidence many firms have gained in their remote delivery capability, have set the stage for a strategic reset of firm operating models,” said Deloitte.

Meanwhile, the changes in demographics, technology, environment and social behaviors have set the ground for rapid transformation in the private banking and wealth management industry. Private bankers and wealth managers are being confronted by the

Banking and Finance news in the MEA market

task of balancing the traditional approach to risk management with the need to respond quickly to the ongoing health crisis that has created massive changes to their operating environment.

BlackRock said that the pandemic i s a c c e l e ra t i n g d i g i t i s a t i o n o f processes and client propositions, a shift towards centralized portfolio and risk management amid increasing focus on responsible investing while e m p h a s i z i n g t h e ro l e of we a l t h m a n a g e rs i n s u p p o r t i n g s o c i o economic ecosystems.

O n e of t h e b i g g e st e m e rg i n g trends last year was environmental, social, and governance (ESG). The investment theme is increasingly attracting attention from both investors and lawmakers alike, thanks to the strategy’s promise of utilising a range of non-financial information to better align finance with long-term value and societal values. “ W i t h t h e p ro l i fe ra t i o n of investment products, digitalisation, the heterogeneous nature of client bases and the need to integrate strong sustainability

criteria into their business, the private banker’s role has become even more complex,” said BNP Paribas.

Family offices are also an integral part of a high-end subset of the private wealth management business in the Middle East. Over the years, they have become increasingly important to the region’s entire financial services industry, not just because of the business potential inherent in their massive assets under management (AUM), but also as evidence of the region’s overall wealth management capabilities.

Sustainable investing Sustainable investing has come a long way and had over the years gained more interest amongst institutional investors.

However, more wealthy individuals are now aware of these issues and want to understand how their investments can drive change against a backdrop in which climate change, good governance, culture and strong accountability are now central to many post-2008/9 global financial crisis conduct frameworks.

The increasingly growing demand for sustainable investing from investors is driving some private banks and wealth management firms to develop sustainable investing strategies as public attention towards the global sustainability agenda is also rising.

BNP Paribas said that clients have become increasingly demanding in the complex world of private banking and wealth management, driven by younger investors such as NextGen and Gen Z clients.

Wealthy individuals and family offices are ideally suited to the kind of approach that the investment theme requires owing to the group’s large pools of capital and multi-generational objectives that support a long-term strategy. Earlier in January, the World Economic Forum (WEF) said in a report that HNWIs and family wealth are uniquely positioned to leverage private capital to drive growth in the ESG sector by supporting long-term societal goals and ambitions.

Compared to institutional investors that may be subject to commercial policies or have limited decision-making due to mandated trusts, HNWIs and family offices can be flexible in how they approach investments in terms of size, geographies and asset classes.

The overwhelming majority of studies in the field of sustainable investing shows that the outbreak of COVID-19 ramped up interest in sustainable investments.

McKinsey said that for sustainable investment strategies to succeed in this dynamic operating environment, ESG objectives or considerations must be derived from a financial institution’s overall mandate.

JPMorgan Chase & Co. in May 2021 unveiled its carbon reduction goals for clients in line with the Paris financing commitments as the investment bank is facing mounting pressure from shareholder activists to align its funding activities with their climate change commitments. Meanwhile, Standard Chartered in October 2021 set new targets for reducing its funding to carbonintensive sectors by 2030, including plans to mobilise $300 billion in green and transition finance as part of the bank’s broader goal to reach net-zero emissions for itself and its clients by 2050.

However, sustainable investing is subjective because there are as many clients as there are sustainability preferences and for impact investments to inject new capital to help solve social and environmental challenges, the private banking and wealth management sector is the most effective option.

Digital transformation 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. Private banking and wealth 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 old-fashioned 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 shift to digitisation is inevitable and industry experts expect it to radically transform the industry in the coming decade.

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. “Wealth managers are unlikely to be able to serve modern clients effectively without a digitised operating model,” said McKinsey.

Digitalisation in the private banking 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 firms a head starts in leveraging stronger client relationships, reduced operating 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.

The fountain of growth The growth of “automated wealth m a n a g e rs” o r Ro b o - a d v i s o rs i s revolutionising the wealth management industry with unprecedented force. By leveraging algorithms to offer financial advice for a fraction of the price of a real-life client advisor, Robo-advisors are growing at a rapid pace, doubling mea-finance.com

15

Trust the power of AI-enabled technology in the cloud

SmartStream’s fully integrated suite of solutions and platform services for middle- and back-office operations are more relevant than ever – allowing our customers to gain greater control, reduce costs, mitigate risk and accurately comply with regulation.

With AI and machine learning growing in maturity, these technologies are now being embedded in all of our solutions and can be consumed faster than ever either as managed services or in the cloud.

Find out why over 70 of the world’s top 100 banks rely on SmartStream.

info@smartstream-stp.com smartstream-stp.com

their assets under management every few months.

“In 2030, up to 80% of new wealth management clients will want to access advice in a Netflix-style model, that is, datadriven, hyper-personalized, continuous, and, potentially, by subscription,” said McKinsey. The emergence of a tailored and personalised model underpinned by data can be observed across industries and for wealth managers, continuous access and automatic hyperpersonalisation are expected to shift the terms of success.

The Middle East private banking and wealth management market had undergone a dramatic shift long before COVID-19 as regulators were embracing Robo-advisors or digital financial advisories. The Central Bank of Bahrain issued directives on Robo-advisory in 2019 as the Gulf state affirms its position itself as a leading digital financial hub.

Saudi Arabia market regulator gave two firms, Wahed Capital and Haseed Investing Company, the green light to test their digital financial advisory services in 2019 as part of the kingdom’s broader financial technologies adoption strategy in line with its economic diversification drive.

“Robo-advisors translate client input into investment logic such as risk or liquidity factors and propose adequate investment opportunities well beyond simply highlighting a handful of ETFs out of a few thousand of possibilities,” said Deloitte.

The Abu Dhabi Global Market’s Financial Services Regulatory Authority issued its regulatory framework for digital investment managers operating in the financial hub in 2019. The move was hailed by rating agency Moody’s which said it safeguards systemic stability through a well-regulated environment for fintechs.

Commercial Bank of Dubai also unveiled its Robo-advisory app CBD Investr in April 2021. The platform offers the bank’s clients access to globally diversified and personalized portfolios of stocks, bonds and other asset classes

using low-cost exchange-traded funds.

Meanwhile, the regulatory push for open API infrastructures across the Middle East is expected to make it easier for wealth managers to deliver consolidated client views of multiple relationships.

Trends in the Middle East The Middle East, one of the world’s hotbeds of wealth creation, has seen an acceleration in trends relating to succession planning, alternate investment vehicles such as private equity, wealth preservation and an increased interest in sustainable investing. Swiss wealth

conflict resolution, business valuations and other key issues to preserve wealth and ensure a smooth transition between generations. Abu Dhabi issued a new family business ownership governance law in January that prevents selling shares or dividends of family-owned businesses to individuals or companies outside the family. The law also requires prior approval from family partners before a shareholder sells an equity stake to a non-family member.

Family firms in the Middle East are also turning to foundations owing to how they provide a dynamic option that can

WITH THE PROLIFERATION OF INVESTMENT PRODUCTS, DIGITALISATION, THE HETEROGENEOUS NATURE OF CLIENT BASES AND THE NEED TO INTEGRATE STRONG SUSTAINABILITY CRITERIA INTO THEIR BUSINESS, THE PRIVATE BANKER’S ROLE HAS BECOME EVEN MORE COMPLEX – BNP Paribas

manager, Julius Baer, said that there is a substantial shift in client base as women and younger investors are having an increasingly larger role in the wealth manager’s discussions in the region.

Family wealth in the Middle East makes up a sizeable proportion of the region’s non-oil economy and in these challenging times the need for adaptability and action to ensure that potential isn’t wasted, and the future is secured has never been paramount. “As HNW business families in the Middle East are quite young (led by first/ second generation), succession planning will become increasingly important as these families grow,” said KPMG. Though succession demand is low, Middle East HNW families are adopting protocols to regulate succession,

accommodate a family’s transformation priorities and values. Nina Auchoybur, the Managing Director at Ocorian said that foundations were first introduced in the UAE in 2017 and they have since grown to become an integral part of the Gulf state’s wealth management offering. There are currently more than 170 foundations registered in the UAE. The proliferation of investment products, digitalisation, the heterogeneous nature of client bases and the need to integrate strong sustainability criteria in business is making the role of private bankers and wealth managers even more complex. Banks must be in a position to offer private clients appropriate and personalised advice on sustainable investment issues. mea-finance.com

17

WEALTH MANAGEMENT & PRIVATE BANKING

Well Placed Confidence Mubashar Ayoob Head of Wealth Management for the Gulf region at Deutsche Bank clearly describes solidity, depth and sophistication in the regional wealth management market, which is set decisively on a growth path

T

he demographics and demand exist, but are all the services in place to support a mature private banking and wealth management sector in the region?

I believe clients have access to a strong repertoire of top-class wealth management services regionally. At Deutsche Bank we recognize how important it is to offer highly sophisticated potential solutions to support our clients across all asset classes. Many of our clients have long-standing relationships with us and we have been able to support them through various stages of their wealth-cycle. Importantly, we are able to advise clients on both the asset and liability side of their balance sheet and this is in my opinion a key differentiator. Furthermore, in addition to our investment solutions, many clients come to us because of our expertise on the lending side. Our clients are sophisticated and expect a best-inclass holistic approach to address their wealth management needs.

Have events in the past two years affected the demand for optionality in client’s portfolios?

There has certainly been significant

18

demand from our clients for optionality in recent years. Derivatives and specifically options have become a great tool for potentially preserving and protecting our clients’ portfolios. We use them extensively. As a concrete example, we offer a Risk Return Engineering (RRE) approach as a further risk control tool, which allows the investor not only to stay invested and protect their portfolios from sharp declines, but also to take the extra risk needed to generate sustainable and above-average returns in the current low-yield environment.

Additional risk overlays and further risk controls will all play an important part in portfolios. Effective risk management of portfolios needs to be complemented by longer-term considerations of portfolio aims and composition. This is an important time to focus on strategic asset allocation as employing market timing in complex processes of change, in my opinion, will not be enough. Hence, a way to

Mubashar Ayoob, Head of Wealth Management, Gulf region, Deutsche Bank

Banking and Finance news in the MEA market

potentially reduce risk could be to use options with a sophisticated source of long-term returns.

How frequently do clients ask you to factor ESG considerations into their investments?

This is a topic that more and more clients are looking into and expressing not only interest but a real demand for. ESG considerations have become mainstream as a further dimension to traditional financial statement analysis and increasingly central to the investment universe. One of our ten longterm investment themes is ESG and we highlight four interesting long-term ESG sub-themes (blue economy, resource stewardship, water, and green hydrogen).

Incorporating ESG should also allow for

a much more holistic decision-making process, facilitating risk identification and enhancing the quality of investment decisions. We therefore conducted a major survey of our clients in 2021 to gain a better understanding of existing investor attitudes to ESG investments.

Over 75% of respondents agreed that investments should create positive change in the world.

In May 2021, we announced that we would make ESG the default choice for investment solutions from 2022. We are continuously adding ESG products, converting our traditional multi-asset Discretionary Portfolio Management (DPM) strategies to ones that are ESG compliant, and ensuring that our teams receive regular ESG training. ESG has become an essential component of the way we assess investments. But there may still be a need to make sure biodiversity sits centre-stage in our discussions around ESG. We all need to recognise that biodiversity is an essential factor behind – and a potential mitigator of – issues such as climate change and environmental degradation.

Applying education and knowledge will make sure this happens, with improvements in data, taxonomy and standards encouraging further investor interest in this essential area. Last week, the Deutsche Bank Ocean Resilience Philanthropy Fund, the first philanthropic fund of its kind, opened for contributions.

The Fund enables ocean conservation efforts to be supported via a dedicated framework that facilitates donations globally. We are also partnering with Ocean Risk and Resilience Action Alliance (ORRAA), Cambridge University, and other renowned organisations to contribute thought leadership through research, publications, and events.

Are the majority of clients in the region ready or happy to use digital only channels?

It depends on a number of factors including age demographic, wealth segment and complexity of service

required. Wealth Management for the UHNW segment has always been a relationship business and I don’t see that changing. Many of our clients are already using digital channels for standard services like wire transfers, equity trading and foreign exchange. However, for those clients who require bespoke advice around their corporate assets, lending, hedging or alternative investments, our priority will always be to support them with an experienced and knowledgeable wealth management team. The future success of wealth management firms in an increasingly technology driven world, will be determined by their ability to keep up with the pace of change and deliver digital solutions like robo-and hybrid advisory to meet clients evolving expectations especially in the HNW segment. Therefore, I do expect digital advice models to grow in this region like other markets.

On average, what proportion of HNWI client’s portfolios would you say are focused on international assets?

Our clients are predominantly focused on international assets which are embedded in global investment strategies – one of our core competencies. Clients can benefit from our global footprint that is characterised by local reach and country/ region-specific expertise as our teams of Strategists and Portfolio Managers are spread around the globe. This platform is the foundation for delivering global portfolio strategies and investments that are based on in-depth local analysis.

It is worth noting that an international scope naturally implies a much broader investment universe and at the same time offers more flexibility when it comes to global diversification. Most investors are looking for an attractive balance between returns/volatility – in this context a broad global diversification is indispensable in our view. Our Strategic Asset Allocation (SAA) strategies based on globally diversified multi-asset portfolios have proven their risk/return trade-off as

well as their robustness in achieving return targets.

Are there any unique qualities that make the Middle East a hotspot for private banking & wealth services?

I first started covering clients in the Middle East around 25 years ago and have seen a remarkable transformation and growth of this region over the years. As Head of Gulf Region for Deutsche Bank’s Wealth Management arm, I have witnessed this growth first hand. We have had significant increase in our Assets Under Management (AuMs) and exponential revenue growth over the last year.

Not only are wealth levels are increasing, clients are also becoming more sophisticated and understand the importance of having an internationally diversified strategy. Many families have put governance structures in place and set up family offices to manage their assets. Various third-party reports confirm the trend. According to a 2020 report from BCG, Assets Under Management in the region reached $1.2 Trillion in 2020 representing a 11% YoY growth rate driven by both institutional and private clients. The number of Middle East UHNWIs with assets is predicted to grow by a quarter over the next five years and the region will remain the fourth largest wealth hub in the world according to Knight Frank’s 2021 Wealth Report. In addition, governments in countries like the UAE managed their Covid response incredibly well and this has translated to strong inflows of UHNWIs into cities like Dubai where the global elite are taking advantage residency programs like the Golden Visa. Higher oil & gas prices, although volatile, are still the key drivers of wealth in the region, accounting for 70% of total exports in the GCC according to the World Bank. However, encouragingly we are also seeing growth in other segments such as technology, real estate, tourism, hospitality and aviation. With this backdrop, I believe the Middle East will continue to be a hotspot for our industry. mea-finance.com

19

WEALTH MANAGEMENT & PRIVATE BANKING

Purpose in Prosperity Naushid Mithani Head of GSAC West and Private Bank Head, UAE at Standard Chartered Bank, notes that while the digitalisation of wealth management is gathering pace, the availability of the human touch remains a preferred option, and that today’s HNWIs are becoming more demanding, more involved, and seek purpose in their investments

T

he demographics and demand exist, but are all the services in place to support a mature private banking and wealth management sector in the region?

Over the last few years, we have seen regional banks invest significantly in creating a robust wealth management offering, in response to customer needs. We are increasingly seeing a more sophisticated wealth management approach taken by players in the region; one that is built on relationships, digital solutions and unique product offerings.

There is also a growing appetite in the market to go beyond conventional asset classes, that is seeing a rapid interest in exploring new investments around ESG, venture capital, private equity and specific tailored products – with a strong desire to explore diverse forms of investment.

At Standard Chartered, our investment philosophy hinges on the art and science of human behaviour, supported by high-end digital offerings. One of the

20

Naushid Mithani, Head of GSAC West and Private Bank Head, UAE

personalised advisory services we offer our private banking clients entails running different scenarios to give a historical statistical perspective of asset class returns under each of these scenarios,

Banking and Finance news in the MEA market

offering customers the right information to ensure the best decision is made for their portfolio.

Have events in the past two years affected the demand for optionality in client’s portfolios?

The Covid-19 pandemic has required changes in behaviour from both clients and their advisors and placed greater emphasis on digital solutions enabling remote engagement rather than face to face interactions. Looking specifically in the Middle East, a change in the trajectory of the wealth management model has been evident for quite some time. According to a study1 conducted by EY, 25 per cent of wealth management clients in the region receive financial advice through mobile applications.

Similarly, 53 per cent of clients placed more importance on wealth managers that are digitally savvy, signifying an increased prominence on technological ability.

It is becoming clearer that firms that can provide an automated platform with periodic access to a human advisor is the most preferred scenario across a range of investor profiles, combining the best of both worlds for clients.

The adoption rate for digital wealth management solutions has increased dramatically. Standard Chartered launched a mobile fixed income platform in selected African markets at the beginning of 2020. By July, up to 50% of fixed income transactions were completed using the mobile app.

The diversification of digital product offerings in investments has given clients the option to choose where to invest based on market volatility.

However, customers still care for an

experienced professional who will translate and explain the strategies proposed by the systems, while offering support in the decision-making process.

Relationship - driven models with channels such as telephone, email and face-to-face meetings will not become obsolete, but there will be a shift from personal interaction to digitally enabled client interactions.2

How frequently do clients ask you to factor ESG considerations into their investments?

Sustainable investing and a focus on ESG performance is becoming critical to successful investing in the Middle East. The 2021 IFC report 3 estimates total sustainability-related assets under management in MENA are at $54.25 billion - higher than in China and India. With the UAE and Saudi Arabia announcing their net zero strategic initiatives by 2050 and 2060, respectively, in addition to ESG considerations forming an important part of the private sector senior mandate, there is an incredible potential in the value and growth of ESGfocused funds.

Customers also increasingly look for purpose while investing their money.

According to EY’s 2021 Global Wealth Research Report4, 76 per cent of Middle Eastern clients have sustainability goals, and 48 per cent say they factor climate change and carbon emissions in their investments. Be it with green finance, social impact investing or Islamic finance.

Our Sustainable Investing Report also shows that 80 per cent of UAE investors expressed an interest in ESG investments with a demand for ESGfunds i.e., funds deployed in a targeted

References:

manner into the shares and bonds of companies that focus on ESG aspects.

Industry research tells us that younger generations are twice as likely to invest in companies or funds with ESG outcomes, and over 80 per cent cite investing with a focus on ESG impact as central to their investment decision making, as they increasingly look to make a lasting impact through the portfolios they choose. At Standard Chartered, we use best-in-class or positive screening filters when choosing our clients’ ESG investments, and companies that have strong ESG indicators will likely perform better.

Are the majority of clients in the region ready or happy to use digital only channels?

Wealth management at its core requires a strong, personalised customer-client based relationship. We are seeing that increased digital capabilities have given clients greater flexibility to choose where to invest. In June 2020 alone, product sales rose to an all-time high as a result of the increased accessibility through digital channels. Diversification of a digital products offering can extend beyond helping clients to grow their wealth to also enabling clients to protect their wealth.

In 2020, through our SC Mobile App, we saw a 250% increase in wealth management transactions booked between March and April, when COVID19 hit the African markets. Whilst digital transactions increased during COVID-19 for Mobile Motor and Home Insurance. On a monthly average, the transactions were 160% higher in 2020 on the Mobile App in Kenya, compared to 2019 for a monthly average sale.

1. https://www.ey.com/en_ae/news/2020/01/23-of-wealth-management-clients-in-the-middle-east-are-looking-to-switch-providersover-the-next-three-years 2. https://www2.deloitte.com/content/dam/Deloitte/de/Documents/financial-services/Wealth%20Management%20Digitalization.pdf 3. https://www.ifc.org/wps/wcm/connect/fb3b4f55-10b4-4db7-9bdd-0757d6188b53/IFC_Brief_MENA_Web.pdf?MOD=AJPERES&CAC HEID=ROOTWORKSPACE-fb3b4f55-10b4-4db7-9bdd-0757d6188b53-jqeKVYa 4. https://www.ey.com/en_ae/wealth-management-research 5. https://content.knightfrank.com/research/83/documents/en/the-wealth-report-2021-7865.pdf 6. https://worldwealthreport.com/reports/asset-allocation/middle-east/

On average, what proportion of HNWI client’s portfolios would you say are focused on international assets?

Today’s HNWIs are more involved in their investments and demanding how to grow their new, largely tech driven wealth. As seen during the 2002 tech bubble collapse and the 2008 global recession, HNWIs seek safer asset classes when financial markets are precarious. Even those who invest in equity in this environment prefer value stocks over growth stocks. In the Middle East, equities formed the major portion of the HNWIs’ investment i.e. 22.6%, while the second most attractive asset class was cash and cash equivalents (21.3%).

The remaining portfolio was allocated to real estate (19.9%), fixed income (19.3%), and alternative investments (16.9%), according to World Wealth Report6.

Are there any unique qualities that make the Middle East a hotspot for private banking & wealth services?

The Middle East is home to some of the world’s wealthiest countries and people, with the region expecting to see a 25 per cent growth according to Knight Frank5. Given the rapid pace at which the region is developing, and rise in HNWI, we expect to see investment inflows to continue to increase in the region. The UAE in particular is home to highly reputed and financial markets such as DIFC and ADGM, with clear regulations, offering high quality environments in place to ensure market confidence, backed by an excellent healthcare system, safe environment, state-of-the-art connectivity and world-class infrastructure, all of which make the region an attractive market to operate in and create a favourable investment environment. Furthermore, UAE regulators have eased several legislations and put in place regulations that have opened up world class products to the public, that are comparable to other mature markets like Geneva, London or Singapore. mea-finance.com

21

WEALTH MANAGEMENT & PRIVATE BANKING

Arnaud Leclercq, Partner Holding Privé and Head of New Markets, Lombard Odier

Modern and Mature

Having been active in the region for fifty years, Lombard Odier are well placed to notice growth in the sophistication of the market and the evolution of client requirements. Arnaud Leclercq Partner Holding Privé and Head of New Markets at Lombard Odier, talks with MEA Finance about the changing wealth management environment

T

he demographics and demand exist, but are all the services in place to support a mature private banking and wealth management sector in the region?

The Gulf Cooperation Council (GCC) and broader Middle East have made great

24

strides in implementing structures to develop a regulated and professional wealth management offer. Central banks, together with regulators and financial services authorities, are increasingly collaborating to create a dynamic ecosystem, providing investors with diversified solutions for their private

Banking and Finance news in the MEA market

banking requirements. Abu Dhabi Global Market (ADGM) and Dubai International Financial Centre (DIFC) have also introduced innovative measures to provide investors with diversified opportunities and greater liquidity – from new, alternative assets and securities to green finance and crypto. This is underpinned by an evolving regulatory framework to expand access to emerging investment opportunities such as tech and fintech. The introduction of a Virtual Assets Regulatory Framework is another recent move that regional investors have welcomed.

To take account of this development, we opened in 2019 our office in Abu Dhabi to serve our local clients better with bespoke onshore wealth solutions. In fact, we were the first Swiss private bank to open in the prestigious Abu Dhabi Global Market. We are committed to building a strong presence in the Middle East, and the UAE is one of its largest wealth markets. Having opened our office in Dubai in 2007, our Abu Dhabi branch is testament to our faith in the growth and economic stability of the region and our confidence in the Emirates’ future as a key business location and wealth generator.

Since 2012, we have also offered clients investment solutions in-line with the principles of Islamic Finance and have developed a discretionary mandate which has been officially certified as Shariah-compliant.

Have events in the past two years affected the demand for diversification in clients’ portfolios?

We are noticing that the next generation of investors is increasingly sophisticated in terms of investment outlook, and they are keen to diversify their investments to offset market volatility. Over the last two years, we have seen ongoing investments in global public and private equities and fixed income, alongside more risk averse strategies such as ETFs and Index funds.

An underlying theme once again has been a requirement for wealth management advice. This advice should be macro

in its outlook, supported by a digital ecosystem allowing investors to access their investments, along with tailored financial information to facilitate ongoing investment decisions. The pandemic has also demonstrated that as well as investing in what works today, investors need one eye on tomorrow, and that means ensuring sufficient diversification and exposure to evolving assets such as technology, emerging markets, ESG and more. This is where the advice of a trusted advisor is key, enabling investors to receive the guidance to make the right investment decisions.

We see sustained and growing d e m a n d fo r S h a r i a h C o m p l i a nt investments. Whilst Shariah finance has long been a mainstay in the Gulf, the pandemic has further accelerated appetite for Islamic finance on account of its stability and alignment with many ESG criteria. Ongoing market volatility has prompted many investors to place greater emphasis on more ethically focused, ESG compliant strategies, many properties of which are shared by Shariah assets. As such, we have witnessed the pandemic drive further capital into Shariah finance, led especially by younger generations of investors looking to preserve their family wealth and build on their inheritance for the long term.

In this context, Lombard Odier decided to partner with SEDCO Capital. Since our investment solutions expertise is aligned with SEDCO’s on the principles of both Islamic finance and sustainability, we decided to work with them to create a Shariah compliant equity fund following ESG principles. This ground-breaking investment strategy is also in line with European UCITS standards.

How do your clients in the region feel about using digital channels?

At Lombard Odier, we have a strong digital offering. However, we are first and foremost a business based on human relationships, and our technology fundamentally serves to enhance this.

Lombard Odier has been active in the

region for 50 years, forging long-term relationships with clients. It is of the utmost importance for us that we listen to our clients in order to understand their risk appetite, the time horizon of their investment and aspirations, and in turn to provide them with the best possible investment advice and solutions. This is the professional and personal touch for which we are known. Once we have discussed and agreed an investment strategy, our digital tools empower our clients to have active or passive participation, as they desire.

We invest substantially, year after year, in our state-of-the-art proprietary banking technology platform, to provide an outstanding user experience and

ESG-driven equities or natural capital investments, we not only focus on our core values by investing for the benefit of the planet, but also deliver better longterm performance for our clients.

In 2019, we became the first global asset wealth manager to attain certified B Corp status, one of the world’s most advanced ratings for corporate sustainability. On the investment side, all of our research is done progressively through the filter of sustainability, which we are now embedding into all our investment processes. We are industry leaders in this regard. In line with Shariah, we seek to have a positive impact on society and the environment. As a family business with long-standing legacy values

SUSTAINABLE INVESTING AND THE ENVIRONMENT ARE ALSO GAINING IMPORTANCE IN THE MIDDLE EAST IN GENERAL, AS EVIDENCED

BY EGYPT AND UAE HOSTING COP 27 & 28 RESPECTIVELY investment execution. Our ‘My LO’ interface, online and in app format, also allows clients to view and manage their assets across multiple accounts and countries supporting them in their digital journey

How frequently do clients ask you to factor ESG considerations into their investments?

Essentially all of our client discussions now address sustainability or ESG factors in some way. At Lombard Odier, sustainability is in our DNA and has been our core philosophy throughout our 226-year history. Our Islamic finance solution is naturally embedded in our sustainability approach because they share a number of common values, such as social responsibility. By offering a sustainable range of investments, from green and climate-oriented bonds,

built around sustainability, independence and its role in society, Lombard Odier’s offering is about building on this more than two-century legacy.

Sustainable investing and the environment are also gaining importance in the Middle East in general, as evidenced

by Egypt and UAE hosting COP 27 & 28 respectively. Indeed, sustainability has risen to the top of policy agendas, driven by population growth, increased consumption, swift development, an arid climate, a lack of water and arable land and a need to shift economies away from oil dependence. We have seen a shift in investors’ mindsets, who now believe that sustainable investing will be crucial to unlock future returns. Lombard Odier is here to support them with our tailored approach, which focuses on preserving and growing our clients’ wealth over the long-term. mea-finance.com

25

WEALTH MANAGEMENT & PRIVATE BANKING

A Sunny Outlook Philippe de Backer Managing Partner and Global Practice Leader of Financial Services at Arthur D. Little describes key facets and features of the region, pointing out the unique characteristics found here that give it a bright future in the world of wealth management and private banking

T

Philippe de Backer, Managing Partner and Global Practice Leader of Financial Services at Arthur D. Little

26

he demographics and demand exist, but are all the services in place to support a mature private banking and wealth management sector in the region?

Private banking and wealth management were traditionally driven by local fiscal considerations, yet the GCC countries depend rather on expert knowledge capabilities – the region is placed in a highly advantageous position to accommodate the rapidly changing demographics, today supplemented by high-net-worth individuals, where savers, investors and advisors tend to be younger. Moreover,

Banking and Finance news in the MEA market

in times where asset management and private banking relied less and less on discretionary mandates, clients today are much more personally active in the management of their portfolio.

As private banking matures, certain myths need to be debunked. First that expert assistance is unavailable in the region, second that investors only seek alternative asset classes in more mainstream and active markets like the US. Indeed, Venture capital activities are growing fast in the GCC but still represent a small percentage of an investor’s overall portfolio. Currently, the bulk of resident assets remain concentrated

in real estate, equities and alternative assets, with HNWIs still choosing though to deploy funds and seek financial advice in other more global financial centers.

Have events in the past two years affected the demand for optionality in client’s portfolios?

Looking at larger financial markets such as the US, we see a continued rise in value in capital markets however with increased leverage like on NYSE. As lower interest rates drove investors to seek new options and take more risks, this has in turn pumped a lot of liquidity into all the markets globally. Indeed, most governments had to inject considerable liquidity in their respective markets in order to overcome the consequences and fallout of the COVID-19 pandemic.

As a result, the inevitable trend towards higher interest rates will drive a shift from equities to bonds and we are likely to see inventors double down on other asset classes, including real estate which is perceived to this day to represent a natural hedge against inflation. Alternative asset classes will continue however to draw considerable capital give the expected risk/return profile versus traditional financial assets.

How frequently do clients ask you to factor ESG considerations into their investments?

ESG is no longer simply an ethical investment consideration: it is an opportunity for value creation. A sustainable economy means the transformation of all industries, so each sector will have to transform their business model which creates huge investment opportunities, which in turn creates value.

Sustainable finance is linked to sustainable economy. From packaging to tools and machinery, industries undergoing transformation will have huge capital needs. This funding can come from long term investment funds (ever green) to short-term working capital providers i.e., from funds, asset managers and banks alike.

ESG IS NO LONGER SIMPLY AN ETHICAL INVESTMENT CONSIDERATION: IT IS AN OPPORTUNITY FOR VALUE CREATION This transformational shift of the global economy will touch absolutely ever y sector, including financial services, which will facilitate the funding of this transformation. Private clients understand where value is created and they steer their portfolio where that transformation is taking place, creating investment opportunities including in new disruptors. So, we can expect to see an increase demand of ESG to be factored in clients’ portfolio allocation.

Are the majority of clients in the region ready or happy to use digital only channels?

Digital readiness is extremely high in the GCC region as attested by leading with indicators such as internet penetration and digital usage. Earlier, most financial institutions had few digital services available, limited to checking balance, making payments and remittance.

This has changed dramatically over the past two to three years and now digital platforms aim to link different categories of services into one integrated value proposition. We now see seamless integration between daily banking, online brokerage, fund management and portfolio management.

If digital adoption is high, there is still a need for human interaction as Ultra High Net Worth Individuals want to have access to alternative asset classes

THE GCC HAS ALSO SEEN AN INFLUX OF TALENT FROM HISTORICAL PRIVATE BANKING CENTERS

which are not always available online for large transactions and that requires complex coordination.

On average, what proportion of HNWI client’s portfolios would you say are focused on international assets?

Individual clients are focused on international assets. Although the Middle East is a growing, very attractive market, certain asset classes are not prominent in the region yet. The key purpose of an investment portfolio is to diversify risk and be able to seize opportunities where they are, so investors tend to be active in different geographies and international financial markets.

Many investors in the region do not just focus on local assets and opportunities.

Many HNW clients have an appetite for international assets and diverse asset classes as exemplified by the rise of venture capital and private equity activity that is growing rapidly alongside traditional real estate.

Are there any unique qualities that make the Middle East a hotspot for private banking & wealth services?

The Middle East has a unique geographic location which puts it in an ideal position to attract funds and assets from both Southeast Asia and Africa. In the world of private banking, the ability to access capabilities is important. The Middle East, namely Dubai, Bahrain and Riyadh are locations where talent can be drawn. The GCC has also seen an influx of talent from historical private banking centers. Finally, the well capitalized regional financial institutions provide the right reassurance that they will not disappear overnight. So, as far as I can see, the future is bright. mea-finance.com

27

MEAFINANCE

Su mmit & Aw a rd s 20 22 19 May 2022

Armani Hotel, Burj Khalifa, Dubai United Arab Emirates

Continuing Innovation in Banking & Finance The exclusive annual forum connecting leading bankers and technology professionals to debate new developments in digitisation and identify emerging trends and opportunities in the regional financial markets.

Join more than 200 top executives from leading banks, financial institutions and technology providers from across MENA. SPEAKERS INCLUDE:

Ali Imran

Amit Malhotra

Head of Transaction Banking & Digital Services

General Manager Personal Banking Group

Mohammed Abdel Razek

Mohamed Roushdy

Commercial Bank of Dubai

CIO – Africa, Middle East & Islamic Banking

Standard Chartered Bank

Commercial Bank of Dubai

Founder

Fintech Bazaar

Anthony Habis

Managing Director Head of Middle East & Africa

Bank of New York Mellon

Olivier Crespin

Co-Founder & CEO

Zand

Arjun Vir Singh Head of Financial Services – MENA

Mirna Sleiman Founder & CEO

Fintech Galaxy

Arthur D. Little

Onur Ozan

Managing Director / Regional Head - MENA and Turkey

SWIFT

Devid Jegerson

Head of Customer Experience and Platform Development

National Bank of Fujairah PJSC

Sanjay Khanna

Chief Information Officer

RAKBANK

Vincent Kilcoyne EVP Head of Product Management

SmartStream Technologies

The awards programme will recognise the commendable achievements of the region’s leading banks, financial institutions and technology businesses for their delivery of smarter banking solutions and for their ability to drive real growth in an increasingly competitive regional market.

Financial Institutions

Award Categories

1.

Digital Banking Innovation of the Year

2.

Best Digital Innovation in Islamic Banking of the Year

3.

Best Neobank

Technology Vendors 1.

Digital Banking Provider of the Year

2.

Islamic Digital Banking Provider of the Year

4.

Best Core Banking Solutions Provider

3.

Best Cybersecurity Provider

4.

Best Cybersecurity and Risk Management Implementation

5.

Best Core Banking Technology Implementation

6.

Best Data Management Solution Provider

Best Data Management

8.

Best Analytics Solution Provider

6.

7.

8.

9.

10

11.

12.

13.

14.

15.

16.

17.

18.

19.

Best Islamic Banking System Implementation Best Analytics System

Best Cloud Implementation

12.

Most Innovative Emerging Technology Implementation Best Innovation in User Experience

Best Innovation in Investment Banking

16.

Best Regulation Technology Solution

18.

Best AML/KYC Solution

20.

Best Innovation in Corporate Banking and Finance

Best Innovation in Trade Finance

Most Innovative Trading Platform

15.

17.

19.

21.

Best User Experience Solution Provider

Best Risk Management Solution Provider Most Innovative Cloud Services Provider Most Innovative Mobile Banking App Best RegTech Solution Provider

Bset Trading Infrastructure Provider Best AML/KYC Solution Provider

Best Communications Infrastructure Provider Best Open Banking & API Solutions Provider

Most Innovative Payment Solutions Provider

Best Wealth and Investment Technology Provider Most Innovative Digital Wallet Deployment

Best Digital Transformation Consultancy Firm Tech CEO of the Year

Financial Services Technology Leadership Award

Best Islamic Fintech Solutions Implementation

23.

Best Open Banking & API implementation

25.

Best Corporate Payment Service

27.

Best Retail Payment Implementation

29.

13.

14.

Best AI Technology Implementation

28.

11.

Best Innovation in Retail Banking

22.

26.

9.

Best Mobile Banking Services

Best FinTech Solutions Implementation

24.

7.

10.

20.

21.

5.

Best Branch Digitisation Implementation

Best Risk & Compliance Implementation Best Treasury Management Implementation Technology Leadership Award

HOW TO ENTER

Step 1: Choose your category.

It is important to review the individual descriptions and criteria before choosing your category.

Step 2: Upload relevant financial performance documents, case studies, or other relevant information.

Step 3: Confirm submission of your entry.

*All nominations shall be submitted on or before 8th April deadline.

GOLD SPONSORS

SILVER SPONSOR

LUNCH SPONSOR

For inquiries, call +971 50 1005488 / +971 50 9313236 or email: info@mea-finance.com

COVER INTERVIEW

Shaping the Future Dr. Adnan Chilwan Group CEO, Dubai Islamic Bank, talks with MEA Finance, describing how DIB has successfully navigated the pitfalls of recent times, gone on to launch a new digital banking service driven by a new ethos, and explains how Islamic Finance is more closely in sync with today’s changing values

30

Banking and Finance news in the MEA market

I

n 2021, DIB enjoyed an impressive 39% growth in net profits. What was behind this result?

Amidst the headwinds that the global economies are still facing, DIB has remained resilient with a remarkable 39% growth in profitability. This solid p e r fo r m a n c e d e m o n st ra te s t h e robustness of our strategy which allowed us to deliver results despite the prevailing economic conditions. Right across the business, DIB performed well in 2021 not just in terms of increased activity, but also through the application of strict cost controls and cash management.

Those included lower impairment charges and a sustained reduction in

operating expenses. We have basically built a leaner, agile and overall efficient organization that is ready to capitalize on any opportunity with maximum insulation from environmental hurdles.

We ended the year with a strong growth in net profit of AED 4.4 billion – up from AED 3.1 billion in 2020. This solid performance is also due in part to the Bank’s ability to manage its cost and book new underwriting of over AED 36 billion despite a still challenging year– this has been fundamental to our ability to create value for all our stakeholders.

Overall, DIB’s earnings and its healthy balance sheet are indicative of the power of the Bank’s repositioned and well-diversified business, which saw a significant rebound in earnings per share, return on equity, return on assets and capital ratios. Our strong growth in our international operations has also contributed to our overall performance.

Allowing for the different post COVID-19 conditions of 2021, will DIB equal or exceed its previous yearly performance in 2022?

We enter the year 2022 with a new 5-year strategy that will propel the bank to strengthen and grow the business over the period. Building on the progress that we have made, DIB will transition into a more sustainable business model and create further capacity to generate stronger returns for our shareholders whilst simultaneously ensuring a superior banking experience for all our customers.

The Bank’s stable performance in 2021, particularly compared to other banks in the UAE and the wider region, bodes well for our ability to create value in 2022.

Whilst there are numerous dynamics at play in today’s market – not least the challenge of inflation and subsequent rate rises in other world markets – the Bank is well placed to pursue new opportunities in 2022 as we leverage an improving local economic climate to deliver solid returns to all our valued shareholders.

Our success in entrenching our position as a market leader in Islamic

with stronger earnings contributions from each of our business lines, demonstrates that we have operational resilience structurally and strategically built-in, giving us the bandwidth to withstand future challenges whilst remaining profitable.

Can you tell us your key plans for the coming twelve months?

Dr. Adnan Chilwan, Group CEO, Dubai Islamic Bank

financing and capital markets in 2021 is a great example of how far we have come – and how well prepared we are for growth.

In 2021 we achieved nearly $25 billion in combined deal value and were appointed in more than 20 Sukuk and syndicated financing transactions for supranational, sovereigns, quasi-sovereigns, corporates and financial institutions. We have also been consistently amongst the top-ranked banks on the Bloomberg league tables.

I think it is also important for DIB to continue to focus on diversification, which served us well in 2021. Our well-diversified strategy of resource deployment,

LET’S BE CLEAR; A BANK DOES NOT HAVE TO BE ISLAMIC TO BE RESPONSIBLE

Our future vision is a commitment to aligning our operations with that of the UAE by embarking on a new journey, with a renewed purpose and revamped positioning – #ReadyForTheNew. This new approach sets out a strategy for how we engage with both internal and external stakeholders. #ReadyForTheNew means placing human capital and the interests of our customers at the centre of every decision we make as a business – a kind of banking that proactively and ahead of time innovates solutions to meet the real-time needs of our colleagues and those we serve in the community.

Practically, this means ensuring the Bank’s customer services and digital solutions are aligned with the vast opportunities inherent within the digital economy, suppor ting entrepreneurialism, SME development and financial inclusion.

This latter point is particularly important and a powerful strategic driver because financial inclusion is the key to unlocking social mobility. What we must do (indeed every bank has a responsibility to do) is create inclusive opportunities for social mobility. This outlook filters through what #ReadyForTheNew means, representing a shift in DIB’s operations to proactively seek social impact; and that is of course part and parcel of our approach to entrenching environment, social and governance principles in what we do.

Environmental, Social and Governance principles are fundamental to the Bank’s approach to sustainable business operations, an integral part of our longterm strategy to create and unlock further value for us as well as the mea-finance.com

31

COVER INTERVIEW

industry we operate in. An ESG roadmap is in place now for the bank to embark on strengthening DIB’s capabilities as amongst the leading sustainable financial institutions in the country and strengthen alignment with the global sustainable development goals. Today, our vision, purpose and values are fully aligned with the bank’s sustainability journey ensuring that our people remain committed to delivering on the promise of sustainable economic growth and prosperity.

We recognize of course that as the digital economy matures, we will be bringing greater numbers of developers, industry partners and nonfinancial services providers into the DIB ecosystem – this is the nature of Banking as a Service – but that comes with risk.

When we collaborate and co-create, we inevitably share data across platforms.

So as DIB’s digital capabilities mature, so too will its work to combat cybercrime, including across the digitized trade finance ecosystem, which is accelerating at pace.

That is why we kicked off 2022 as we mean to go on, by joining the UAE’s first commercialized trade and trade finance blockchain platform, UAE Trade Connect, as a Partner Bank. The platform protects against double financing and fraud on pre-sales invoices and helps in handling multiple types of trade-related documents that are inspected, validated, and tested for authenticity. The benefits that UAE Trade Connect delivers will not only serve to protect DIB customers and the wider banking system but enhance trade around the world. As such it acts as an enabling technology that has the capacity to make trade financing more accessible, affordable and equitable.

Tell us about rabbit, who it is aimed at, how it has performed since launch and what makes it a unique digital banking experience?

At DIB, we pride ourselves in being a truly “Digitally Intelligent Bank” and have always focused our efforts on enhancing

32

customer experience. We will continue embracing the latest technological innovations, as we believe in their ability to complement our growth strategy, increase efficiencies in our operations, diversify revenue streams and strengthen our agility in the market. A clear example is the launch of rabbit.

RABBIT IS A NEW DIGITALLY NATIVE BRAND FROM DIB, AIMED AND TAILORED TOWARDS THE MILLENNIAL AGE AND MINDSET rabbit is a new digitally native brand from DIB, aimed and tailored towards the millennial age and mindset. It’s simple, easy, agile and fun for the connected generation; a fun-filled experience that has never before been witnessed in the region. We call it a “FUNTECH” brand that aims to demystify finance by marrying

Banking and Finance news in the MEA market

money and digital tech with a sprinkling of fun to leave a smile on the face of our adopters.

Our objective is to take this important platform beyond the UAE to the different markets we are operating in. These are huge markets, places like Indonesia, Pakistan and Kenya, with very young populations that will benefit from an accessible funtech platform. It is available through Apple and Android stores and offers current account facilities with a globally accepted debit card, payments and transfers in addition to rewarding customers with loyalty and discounts.

Over time and as we roll out to other regions, the platform will grow to offer other financial services.

Islamic Finance is taking an increasing share of the global banking market, what do you think is driving this growth?

If you drill down to the fundamental purpose of Islamic finance it becomes blatantly obvious that there are synergies between Sharia values and ESG objectives. And now, because consumers of all kinds are demanding responsibility from those they do business with, Sharia principles are delivering what Muslim and non-Muslim consumers want.

Regulatory frameworks on Islamic finance have now been more than ever supportive across major jurisdictions and regions globally including new markets such as Europe and the Far East and Central Asia. The development of these new regulations has further supported the growth of the industry worldwide.

And, whilst it is a statement of fact that the religious foundations might be of less interest to non-Muslims, all of humanity shares the same interest in building a world that is fairer, more inclusive and responsible. You can call it Islamic finance or responsible banking; the point is that more and more people of all cultural and spiritual backgrounds are yearning for a more accountable world of work and greater accountability in how our capital markets operate.

The digital revolution has also created new opportunities for us as a bank which

it returned to the international Sukuk market with a US$350 million Sustainable Basle-III Compliant Tier II Sukuk.

We also have a significant and growing international presence as a torchbearer i n p ro m o t i n g S h a r i a - c o m p l i a n t financial services across a number of markets worldwide.

recognition we receive around the world. DIB has been named the Best Islamic Bank in various prestigious ceremonies and recognized for its outstanding performance amongst the world’s Islamic Banks, marking it a clear indication of the bank’s leadership position in the Islamic finance sector.

Does Sharia Finance have an inbuilt edge over conventional banking now that ESG considerations are now inherent to all aspects of the industry?

What are the major challenges you foresee for the Islamic Banking industry in 2022 and what is your outlook for the coming years?

Let’s be clear; a bank does not have to be Islamic to be responsible. But Sharia finance is inherently structured differently, so we come from a different starting point. As an Islamic bank, we have certain values and ways of doing things that are baked into our DNA. Perhaps the best-understood principle is that

The global pandemic has brought the world and the global financial markets to a standstill. Whilst we are now seeing the gradual recovery of global economies, risks still remain with potential new variants and geopolitical instability. We have seen digital players step up their game in this region and offerings on the digital space has significantly increased over the past few years. This coupled with the greater challenge for Islamic banks to keep up with the emergence of fintech while maintaining a business model flexible enough to maneuver within its Shariah-compliance boundaries has proven to be a significant challenge for the industry.

But I have absolute confidence in the ability of this region to navigate through upcoming challenges. It continues to attract the best and brightest talent from around the globe, encouraging the sharing of new ideas and producing leaders and business-savvy individuals.

After an incredibly active deals market in 2021, which I believe took many by surprise, there will almost certainly be more mergers and acquisitions in 2022 as companies look for opportunities to consolidate, achieve scale and combat inflationary factors that may continue to weigh down the global economy.

This growth, enriched by opportunities in fintech, will serve our region’s entrepreneurs, investors and retail customers in ways that have never been seen before.

THE STRENGTH OF OUR PROPOSITION IS REFLECTED IN THE CONTINUED RECOGNITION WE RECEIVE AROUND THE WORLD is why in seven world markets, from Turkey to the Far East and multiple countries in between, DIB is transforming and expanding the Islamic financial services landscape. That is why DIB has specifically worked to extend its operations and enter into new partnerships in other markets over the past year.

Key markets include Turkey, a country that we have been present in since 2005 but that has become significantly more active for us as a Bank over recent years.

In 2021 DIB led the syndication for a $2.5 billion five-year Sukuk in the international markets from Turkey’s Ministry of Treasury and Finance. We saw those Islamic bonds draw more than $9.3 billion in orders.

And, in September 2021, we acted as joint lead managers and bookrunners for Kuveyt Türk Katilim Bankasi (KTKB) when

of paying profit. Profit rates change all the time, and we are going to see the impact of such changes this year. Savers and those who have taken out nonfixed interest rate-related financing are more vulnerable.

Those with Sharia products have the security of knowing that whatever happens with rates isn’t going to hurt them. What does this boil down to? Transparency, certainty and a commitment to putting the customer’s interests at the center, and that brings us back to the conversation about DIB’s #ReadyForTheNew strategy.

This is a strategy that I believe reflects DIB’s ultimate goal of making Islamic banking the norm rather than a niche alternative. The strength of our proposition is reflected in the continued

mea-finance.com

33

CLOUD TECHNOLOGY

The Cloud is Lifting The increasing demands from digitally savvy corporate and consumer customers are forcing financial services providers to fundamentally calibrate their operating and business models, and it is cloud-based solutions that will bring banks the scope to provide smarter and more agile services

D

igital transformation has been a key battleground for banks in the Middle East region—a competition that was intensified by the outbreak of the COVID-19 pandemic. Cloud adoption is the backbone of digital innovation and it is shaping the future of the financial services sector. The cloud gives banks access to on-demand resources, such as networks, servers, storage and application programming interfaces (APIs) that can be rapidly provisioned

34

and released with minimal management or service provider interaction.

“Digital banking and cloud computing are changing how we bank,” said IBM Industries. The financial services sector in the region is abuzz with talk and activity on digitalisation strategies including a high level of cloud adoption, open banking, digital payments and customer digital onboarding as part of a broader strategy to meet customers’ evolving needs and demands and enhance the experience.

Banking and Finance news in the MEA market

The advancements in cloud-native capabilities powered by artificial intelligence (AI), real-time analytics, machine learning (ML) and blockchain are creating ideal conditions for financial services providers to enhance their services and products from the front, middle and back-office.

As banking shifts online and to mobile devices amid changing customer preferences, financial institutions are increasingly looking to outside partners for help tapping into emerging technologies and designing new customer experiences.

The increasing demands from digitally s a v v y c o r p o ra te a n d c o n s u m e r customers are forcing financial services providers to fundamentally calibrate their operating and business models.

Cloud computing offers a dynamic platform to develop, trial and offer innovative services, driving operating and business model transformation.

It enables banks to store and process data in remote servers instead of local systems while offering several benefits

such as increased security, faster processing speeds and lower costs.

“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-premise systems,” said PwC. Whether a bank is considering migrating or modernising mobile applications, scaling digital banking operations, making data-driven pricing decisions or securing customer’s mission-critical data, cloud banking is the most effective and cost-efficient way to do it without the need for skilled, in-house talent.

Cloud banking The cloud is moving to the forefront as the focal point for information technology leaders, C-suite executives and board members as the future of financial services is digital. “Facing changing consumer expectations, emerging technologies and alternative business models, banks need to start putting strategies in place now to help them prepare for this future,” said Deloitte.

Leaders in the banking and financial service sector across the Middle East are increasingly recognising that the cloud is more than technology, but is a destination for financial institutions to store data and applications and access advanced software applications.

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.

Open Banking Open banking is shifting the financial services industry toward hyper-relevant, platform-based distribution while offering banks a window to expand their ecosystems and extend their reach. The innovation is being driven by regulatory requirements, technology and competitive dynamics that are calling for banks to

use APIs to make certain customer data available to non-bank third parties.

Built on the cloud, open banking platforms are facilitating ever-increasing on-demand needs of financial data including transactions and consumer experience for third-party providers, payment initiation service providers and account information service providers, said IBM Industries.

The Middle East region is one example of an emerging global open-banking microcosm. PwC projected that the innovation has the potential to reshape the financial services landscape and several financial centres in the emerging markets are making considerable moves in this space.

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 kingdom’s approach is inclined towards a more formal regulatory framework though its regulations don’t follow Bahrain in requiring the opening up of APIs, which facilitate data sharing, or in mandating security standards.

N ew Yo r k- b a s e d Ti g e r G l o b a l Management led a $12 million funding round for Tarabut Gateway last November as the fintech firm seeks to expand its open banking platform into Saudi Arabia and North Africa.

Omni-channel experience Meanwhile, the ongoing coronavirus crisis has undeniably disrupted the customer experience in financial services driven by technological innovations that introduced more options for consumers to interact with banks.

Though digital banking has become the norm in the financial services sector, there are still customers who value the personal touch and banks need to borrow a page from industries that value customer experience such

as e-commerce. “As banks continue to make progress in digitising the customer experience, they must also remember that omnichannel includes the critical human side of the equation,” said McKinsey.

For banks, the adoption of multichannel banking to ‘seamlessly’ and ‘consistently’ interact with customers is a ticket to compete and maintain a competitive edge in a crowded market such as the Middle East region.

Customer data Cloud technology has always had 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. Cloud technology and especially the software as a service (saas) model offers banks several opportunities such as easier customer data analytics and sharing, improved marketing time, cost reduction and enhanced flexibility and operational efficiency.

D a ta ’s wo r t h d e p e n d s o n i t s accessibilit y and application as customer insight plays a critical role in product development and customer communication in the banking sector.

“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.

The use of cloud computing has been an enabler of advanced analytics, as these computer system resources provide a space to both store and analyse large quantities of data in a scalable way, including through easy connectivity to mobile applications used by customers.

Data is the manual that provides banks the insight to meet customers’ preferences and expectations. Similarly, it is from customers’ data that financial institutions explore new avenues of growth or new business models.

With several cloud solution providers such as Microsoft, Oracle and Amazon Web Service expanding their footprint in the Middle East, banks are tapping into mea-finance.com

35

Every Experience Matters

Why simply satisfy your customers when you can thoroughly impress them? More meaningful relationships and lasting impressions drive experience excellence. Deliver this new standard to your employees and customers—everywhere in your business.

avaya.com

the cloud to boosts operational efficiency while improving their ability to partner, source and collaborate with fintechs.

“Data security concerns are top of mind for bank leaders,” said Deloitte.

Industry experts say that an important part of understanding cloud computing is considering how legacy banks’ infrastructure and capabilities may be limiting their ability to detect and address new risks and vulnerabilities, and how cloud technology can help.

Migrating to the cloud enhances an institution’s data security due to the tools that are native to each cloud service provider’s environment and the fact that cloud-based platform providers typically take responsibility for the security of the lower-level infrastructure layers.

McKinsey said to make effective risk decisions, banks have always had to convert customer data into insights, but the requirements in the current operating environment are massive and cloud-based solutions provide risk management teams the potential to easily and quickly integrate different data sources and systems.

the software as needed without having to own or maintain it themselves, while serverless architecture removes the need for financial institutions to run their own servers, freeing up time and resources for customers and operations.

“Payments-as-a-service players operate cutting-edge cloud-based platforms to provide specialized services, such as card issuing, payments clearing, crossborder payments, disbursements and e-commerce gateways,” said McKinsey.

The technological advancements

Digital payments

together with the evolving customer requirements have driven major innovations in the payments industry.

It is also offering financial institutions a window to be more innovative and efficient in delivering services.

As the demands from digitally savvy corporate and consumer customers increase amid competition and increased regulation, financial services providers are being forced to fundamentally calibrate their operating and business models.

Cloud adoption has been driving innovation across the payment services sector enabling high data security and cost-effectiveness as financial institutions keep on introducing new services and products to maintain their market position and meet customers’ evolving demands and expectations.

IBM said, “Beyond cost reduction and scalability, speed to market is perceived as the major benefit by cloud users.”

Payments represent the most frequent touchpoints between banks and their clients, making investing in the sector more important than ever. Paymentsas-a-service (PaaS) allows banks to use

a critically important capability in an industry where cross-border transactions are the norm.

Migrating to a cloud-enabled platform can also help banks conduct intraday liquidity and risk calculations and mine trade surveillance data to detect antimoney laundering and other fraud-related issues. Technological advancements such as the cloud are opening countless opportunities for banks, giving them room and flexibility to innovate, without the time and resource commitments that are

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-PREMISE SYSTEMS – PwC

Banking with success Though several specific technical challenges such as latency, data residency and transactions, personally identifiable information and regulatory risk impede wider cloud adoption in the financial industry, having cloud-native services offers more security advantages allowing banks to meet local regulations, such as data hosting.

Banks in the Middle East region such as Qatar National Bank, First Abu Dhabi Bank and the Saudi National Bank operate in multiple jurisdictions and cloud computing allows them to meet evolving regulatory reporting requirements,

unavoidable with on-premise systems.

Cloud solutions also allow banks to streamline upgrades by reducing the substantial time and effort that is spent configuring new upgrades and capabilities on disconnected legacy systems by allowing an enterprise’s technology partners to handle both the software and hardware upgrades.

The move lowers recurring technology operating costs and minimises the risk of obsolescence in an age of rapid evolution.

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). mea-finance.com

37

CLOUD TECHNOLOGY

The Age of The Cloud In his answers to MEA Finance, Naim Yazbeck Regional Director, Enterprise and Partner Group at Microsoft UAE, succinctly sums up the essential role that Cloud Technology plays across the banking and financial markets, and wider industry, highlighted by the increase in spending on its services in the past few years and the features, security and opportunities it offers for businesses and their customers

38

Banking and Finance news in the MEA market

I

t’s estimated that cloud infrastructure accounts for one-third of banks’ IT spending.

Will this proportion reduce or expand in the coming years?

In the past couple of years, the banking and finance sector has heavily invested in technology. Today, it is important for organizations across all industries to be digitally advanced in order to cope with the demands of the new normal. It has been observed that the majority of the leading businesses have migrated their workloads to the cloud and that this trend will further continue ahead into the years to come. Even the finance sector has benefitted from the features of cloud services like scalability and flexibility, amongst many others. According to predictions from Gartner, global spending on cloud services is expected to reach over US$482 billion in 2022, up from US$313 billion in 2020. Cloud computing infrastructure is the backbone of the delivery pipeline of just about every digital

Are fintech’s taking an increased role in providing cloud-based managed ser vices and will this lead to more engagement between banks and fintech?

service there is, from social media and streaming entertainment to connected cars and autonomous internet of things (IoT) infrastructure. Looking at these figures it is proved that a significant portion of the IT budgets for banks will be directed to cloud operations.

Through the Software as a service (SaaS) delivery model, Fintech can undoubtedly add significant value to the banking experience. The efficiency of this model can only be attained by securing alignment from compliance, regulations and by integrating systems to provide agility, easy access to market and the saving of time.

Is cloud-based computing becoming strategically important for banks and financial institutions?

A bs o l u te l y. Ba nks a nd fi na nci a l institutions need resiliency, and greater reliance on mission-critical applications.

They have to serve both businesses and individuals which means their operation needs to be seamless where financial transactions are concerned. Hence, banks and financial organizations need to be highly secured and accessible through their services. In the case of any technical failures, whether from internal or external factors, banks need to have a stronger security infrastructure and the cloud can fulfill this need better than any other IT technology available today.

Businesses can use scalability, a key feature of cloud computing, to expedite the time-to-market process in addition

Naim Yazbeck, Regional Director, Enterprise and Partner Group (EPG), Microsoft UAE

the key factors that will enable banks and financial institutions to adopt cloud solutions.

As digitization takes hold, are more critical front office banking services being migrated to the cloud?

Cloud technology is the enabler for applications that must run continuously

GLOBAL SPENDING ON CLOUD SERVICES IS EXPECTED TO REACH OVER US$482 BILLION IN 2022, UP FROM US$313 BILLION IN 2020

to adaptability. This will introduce new ideas and services to existing markets, which will eventually spread to newer markets. From the advanced workloads’ perspective, the cloud also utilizes the power of AI and machine learning to understand customer behaviors and business insights. These are some of

for businesses to succeed. Similarly, scalabilit y is linked to front-end applications that operate based on consumer demand. These can greatly benefit from the cloud’s hyperscale feature, which allows businesses to plan for seasonal demand in a cost-effective manner.

Has the cloud improved banks’ data storage and analytics gathering capabilities?

For businesses that deal with large amounts of data, cloud technology has been a game changer. Banking and financial services have benefited largely from this technological advancement, resulting in an improved customer experience. Cloud services have enabled data lakes and data meshes, allowing the collection of high volumes of data from various sources in a unified pool. This has further helped banks in data processing, data visualization, gaining insights and developing user cases and predicting the future with the help of AI and machine learning.

What are the security advantages of having services based in the cloud?

Cloud services are designed and managed to comply with the needs of the enterprises in today’s day and age.

Companies across sectors need to adopt cloud computing and reinforce their security stance across various layers of operations. Microsoft continues to remain at the forefront of the most industry-leading security standards that provide assurance and key benefits for financial institutions using cloud services. Features of cloud technology like flexibility, affordability, scalability and ease-of- access are some of the most important advantages of having services based in the cloud. mea-finance.com

39

CLOUD TECHNOLOGY

Ahead in the Cloud Making the case for the use of cloud based services in banking, Miljan Stamenkovic, General Manager, MENA at Mambu highlights that its improved service and cost efficiencies will add positively to customer experiences as they seek greater transparency and on-demand services, and that it will provide a smart and secure environment for both them and banks too

I

t’s estimated that cloud infrastructure accounts for one-third of banks IT spending.

Will this proportion reduce or expand in the coming years?

We anticipate the investment into cloud infrastructure will continually increase, driven by the growing risks associated with legacy infrastructures and the shift to digitally enabled financial institutions.

In 2020 alone, cloud computing s p e n d i n g i n c re a s e d by 3 3 % ,

40

predominantly driven by Amazon Web Services (AWS), Google Cloud and Microsoft Azure. These cloud service providers enable banks to access data storage and processing power from their own data centres dotted around the globe.

After moving to the cloud, banks can always access their data online and use the cloud providers’ computing capacity when needed, instead of running their own servers all year-round.

Banking and Finance news in the MEA market

Is cloud-based computing becoming strategically important to banks and financial institutions?

Banks and financial institutions accelerated their digitisation strategies during the pandemic due to the limitations of in-branch services and the changes in consumer behaviour seen in recent years.

Customers are increasingly demanding fast processes, greater transparency and on-demand services that are delivered through a seamless user interface.

Legacy banks have been facing a serious dilemma post pandemic: evolve or eventually become extinct. To stay ahead, many companies are using the principles of composability to secure banking licences and/or deliver a wider range of digital services; incumbent banks are taking note of neobanks because of their long-term threat and ability to adapt.

In short, digital banks are becoming consumers’ primary financial providers at the same rate that traditionals banks are becoming secondary. According to the Global Digital Banking Index by N26 and Accenture, Saudi Arabia (54%) and UAE

It also saves time. Incumbent IT architectures often require hours to pull out consumers’ data. Because the cloud runs on an ecosystem of API’s, banks are now able to optimise processes for both employees and consumers within a matter of seconds or minutes through real-time processing.

(51%) lead the way with the highest share of customers in their financial services markets already having a purely digital bank account. This is also something we increasingly see among millennials globally, as 73% would rather use a digital brand than a bank.

As digitisation takes hold, are more critical front office banking ser vices being migrated to the cloud?

Since the beginning of the COVID-19 pandemic, 58% of customer interactions with companies worldwide are now digital.

This means banks and other businesses have had to pivot and present their customer service through different methods. In financial services for example, we’ve seen in-branch services becoming automated through selfdeposit machines for cheques or cash.

The introduction of digitally-enhanced service offerings allows the cloud to break down operational and data silos across customer support. Banks can now be more agile than ever with the analysis of any individual customer readily available.

This allows banks to deploy products and services that drive conversion, increase engagement and build loyalty.

Are fintech’s taking an increased role in providing cloud-based managed ser vices and will this lead to more engagement between banks and fintech?

Cloud-native fintech’s are able to support traditional banks as they migrate from existing legacy IT architectures to a more modern and agile arena through digital spinoffs. It’s something we’ve seen through the likes of ABN AMRO with their launch of digital speedboat, New10, as well as ADQ and FAB with the introduction of their next-gen banking platform named WIO. Fintechs are taking an increased role in providing cloudbased services, which will continue to drive engagement between banks and fintechs going forward. Interestingly, 94% of financial service companies said they

What are the security advantages of having services based in the cloud?

Miljan Stamenkovic, General Manager, MENA at Mambu

are confident fintechs would help them grow their company revenue over the next two years.

Has the cloud improved banks’ data storage and analytics gathering capabilities?

Banks that embrace cloud-based computing to deliver products and services are able to achieve faster growth

The exper tis e a n d c u t t in g- edge resources that cloud-based software providers offer drastically reduce the risk of data tampering compared to on-premises facilities. Cloud based services can provide the advantage of real-time monitoring around the clock, 365 days a year, ensuring reliable functional infrastructure and services, which reduces the vulnerability to security breaches.

The banking industry, one already characterised by heavy regulatory presence, is now also facing increased pressure to level up their security systems. Those who don’t could face hefty fines. This is what happened with

FINTECHS ARE TAKING AN INCREASED ROLE IN PROVIDING CLOUDBASED SERVICES, WHICH WILL CONTINUE TO DRIVE ENGAGEMENT BETWEEN BANKS AND FINTECHS GOING FORWARD due to cost efficiencies, convenience, speed and increased security. Transferring consumer data to a cloud infrastructure significantly reduces banks’ overheads as it removes the need for physical data centres. And when the average yearly cost of running a data centre ranges from $10–25 million, it’s safe to say the cloud removes a significant weight from the shoulders of banks.

Capital One bank, which in 2019, suffered one of the biggest data thefts, exposing personal information data of millions of banking users. However, after migrating to a cloud infrastructure produced by AWS, things couldn’t be better for Capital One. They have since closed eight data centres and adapted to seasonal demands by renting servers as opposed to running them all year round. mea-finance.com

41

PARTNER CONTENT

THE POWER OF THREE:

APIs, eventing and analytics take cloud higher K. R. Venkatraman VP, Head of Product Architecture, Infosys Finacle, talks about how a confluence of modern technologies can power the next wave of cloud advancement

C

loud is one of, if not the most important tools of transformation in the digital world. Over the years, it has proved its worth by enabling agile delivery, providing compute on demand, transitioning infrastructure costs from Capex to Opex, and in the specific context of banking, enabling financial institutions to evolve from consuming infrastructure-as-a-service to providing banking-as-a-service. Also, from a technology standpoint, platform-as-aservice models have been influential in changing the technology-cum-business focus of banking IT to a pure-play digital and domain focus by relieving banks of the responsibility of managing their IT infrastructure.

42

K. R. Venkatraman, VP, Head of Product Architecture, Infosys Finacle

Banking and Finance news in the MEA market

Meanwhile, digital technologies have progressed rapidly to achieve unprecedented levels of adoption. A great example is how these technologies have supported the proliferation of UPI payments in India, which crossed 4.6 billion transactions in January 2022 1.

While none of this would have been possible without cloud, traditional cloud technologies alone can no longer sustain this kind of growth.

So now it is time for enterprises to take cloud (and cloud-led transformation) to the next level. From a technology perspective, three cloud-complementary technologies, namely APIs, event-driven architecture and data analytics, are crucial to this agenda.

APIs: APIs are valuable because being standards-based, they are easily governable from an access point of view, and easy to support from a data transformation point of view. The availability of standardized frameworks around the API model is a crucial factor in delivering data at scale and driving innovation on cloud.

The best way to understand this is by looking at successful implementations.

Emirates NBD was the first bank in the U.A.E. to launch an API sandbox, so it could capitalize on the open banking opportunity. With the help of more than 70 Finacle-powered APIs, ENBD’s Fintech partners were able to create several proofs of concept on the Bank’s platform2.

Nigeria’s pan-African financial services group, United Bank for Africa (UBA), leveraged REST APIs to integrate Finacle core banking with a customer’s ERP and reconcile branch transactions w i t h i ts d a ta b a s e. Th i s e n a b l e d transactions in more than 700 branches to flow into the customer’s database and facilitated tracking by printing details, such as the transaction number, on depositors’ acknowledgment slips.

It also made it easier for customers to reconcile sales and inventory online3.

Goldman Sachs took a cloud-based approach to disrupt the retail banking segment when they launched Marcus.

Marcus offers extensive self-service capabilities on digital channels to design truly personalized products, giving endconsumers the flexibility to choose lending terms such as repayment a m o u n t a n d te n o r. M a rc u s h a s designed and built modern technology operations by ensuring straight-throughprocessing across digital channels to its core banking solution, which leveraged the technical architecture of Marcus, along with its REST APIs and process orchestration capabilities to optimize operations4.

Event-driven architecture: The advantage of this technology is that it decouples data production from consumption, such that data produced in a certain format in a certain location can be easily consumed in an entirely different format somewhere else. For

example, transaction data generated in a bank’s legacy system on-premises may be consumed by a cloud-based analytics system to deliver insights via an API-driven ecosystem provided by a Fintech innovator.

As banks gradually transform their traditional architecture, eventing will be

enterprises can derive insights from this data to deliver greater value – for example, by personalizing an offering that is contextualized to a customer’s need.

B a n k Ra k ya t I n d o n e s i a t o o k advantage of analytics on cloud to help small borrowers seeking unsecured

AS BANKS GRADUALLY TRANSFORM THEIR TRADITIONAL ARCHITECTURE, EVENTING WILL BE KEY TO BRIDGING THE DATA GAP THAT EXISTS TODAY BETWEEN THE LEGACY AND MODERN WORLDS. IN CONJUNCTION WITH APIS, THIS TECHNOLOGY WILL PLAY A HUGE ROLE IN TAKING DATA AND DELIVERING IT AT SCALE IN THE DIGITAL WORLD

key to bridging the data gap that exists today between the legacy and modern worlds. In conjunction with APIs, this technology will play a huge role in taking data and delivering it at scale in the digital world.

Data analytics: Data is the lifeblood of the digital economy and is central to everything. That’s why it is being touted as the new oil. In banking, for instance, it enables everything from product development to backoffice operations to cybersecurity to customer engagement. With all kinds of applications migrating to cloud, it acts as a repository of rich producer and consumer data. Using analytics,

Sources: https://www.npci.org.in/what-we-do/upi/product-statistics https://www.edgeverve.com/finacle/wp-content/uploads/2020/08/Driving_Open_Banking_Emirates.pdf https://www.edgeverve.com/finacle/casestudy/united-bank-africa/ https://www.edgeverve.com/finacle/news/marcus-goldman-sachs-deploys-finacle-cloud/ https://www.edgeverve.com/finacle/wp-content/uploads/2021/04/Bank_BRI_Digital_Transformation_Story.pdf

loans (up to IDR 20 million) to tide over personal and business requirements.

This was a clear area of opportunity, largely ignored by the countr y ’s formal banking system. BRI crafted an automated digital lending solution leveraging the Finacle Lending solution and the Finacle Digital Engagement Hub which issued loans in about 10 minutes5.

Stepping up to the next level In the initial phase, cloud delivered its promise of cost efficiency, agility and flexibility. But now, it needs to step up to deliver data at scale and the enormous on-demand processing needs that come with it. This is only possible by bolstering cloud with the power of complementary technologies, such as APIs and event-driven architecture.

These technologies, along with data analytics, will drive the next wave of cloud advancement. And also, the next wave of banking transformation. mea-finance.com

43

DATA SECURITY PAYMENTS SOLUTIONS

The Middle East payments matrix Technological innovation in the financial services industry is the cornerstone of fintech development and will continue to drive disruptive business models in the payments space globally

D

igital payments are gaining popularity as cash usage wanes around the world.

Though debit/credit card payments still dominate in several countries across the Middle East region, digital products like payment apps, digital wallets, buy now pay later (BNPL) and account-to-account payments are gaining traction.

The digital payments space had been gaining significant traction in the region before the shift to the “digital-

44

first” approach that gained prominence after the outbreak of COVID-19 two years ago. However, the onset of the pandemic saw the volume of digital payments soaring to record highs and generating as much as 10 years’ worth of growth in just 24 months.

Globally, payments remain among the best-performing financial services product segments but unfortunately for banks - traditionally the main providers of payments services—this momentum is no longer extending to most of them

Banking and Finance news in the MEA market

especially under the current operating conditions. “Fintech firms are the primary innovators in the payments space and banks are struggling to keep pace,” said EY. For financial institutions in the region to maintain a competitive edge in the payment ecosystem, success will depend on how they thoughtfully assess capabilities, determine the role of payments in market strategies and appropriately align payments operations to achieve the required performance improvements.

The surge in global payments volumes is also being driven by the growth in e-commerce as the pandemic is pushing more shoppers online and changing customer preferences and demands among the young tech-savvy customer base.

“Leading e-commerce and technology companies have set a high bar for the financial services industry to create better experiences and simple, seamless integrations that can make traditional banking, digital payments, and other related activities easier to accomplish,” said Deloitte.

Th e p a y m e nts s e cto r i s a l s o benefiting from the ongoing shift towards subscription-based billing—a boon for the region’s payments-as-aservice (PaaS) and software-as-a-service (SaaS) solution providers. McKinsey said that open-source software, serverless architecture, and SaaS have become must-haves for technology players and traditional financial institutions launching new fintech businesses.

Meanwhile, the ongoing digital transformation initiatives that are being implemented by regional governments are also driving the growth in the payments industry as banks are leveraging these adoption rates to advance their digital transformation strategies.

Innovation in payments Technological innovation in the financial services sector is the cornerstone of fintech development and will continue

to drive disruptive business models in the payments space globally. “Driven by changes in digital technology, consumer demand and competitive forces, the way people make payments is evolving faster than any other area of financial services,” said EY. The last two years have undoubtedly seen an acceleration in a string of existing trends in both consumer and business behaviors while introducing new developments that saw the use of digital payment methods surpassing the use of cash and debit cards.

Open banking Open banking is playing a significant role in the rise of the open data economy as it makes payments easier and more transparent while loosening i n c u m b e n t b a n ks ’ t i g h t c o n t ro l of customer data and their near monopoly over payment services. The European Union’s revised Payment Services Directive (PSD2) and open banking make it much easier for new entrants to launch new products and services while transforming the ways certain banking propositions work, according to global management consulting firm Kearney.

The GCC region is one example of an emerging global open-banking microcosm. Bahrain is implementing a European-style regulation-driven approach and the UAE has adopted an American-style 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 kingdom’s approach is inclined towards a more formal regulatory framework though its regulations don’t follow Bahrain in requiring the opening up of APIs which facilitate data sharing, or in mandating security standards.

With open banking coming into effect in the first quarter of 2022 in Saudi Arabia, Strategy&, part of the PwC network, said that legacy banks may

lose their dominancy in the payment services sector.

Outside the GCC region, several countries including India, Japan, Singapore, and South Korea are implementing a market-driven approach.

These countries do not currently have formal or compulsory open banking regimes, but their policymakers are introducing wide-ranging measures to promote and accelerate data-sharing frameworks in the financial service

SaaS The fact that payments represent the most frequent touchpoints between banks and their clients makes investment in the sector more important than ever.

SaaS allows banks to use the software as needed without having to own or maintain it themselves, while serverless architecture removes the need for financial institutions to run their own servers, freeing up time and resources for customers and operations.

McKinsey said that serverless architecture fosters flexible scaling that avoids idling and loss, improving development efficiency. The adoption of open-source software is a godsend for Middle East retail banks that are looking at scaling up their digital transformation as it provides free-to-use source code that gives developers a head start in programming their own applications.

The collaboration between paymentsas-a-service (PaaS) solution providers and banks is also crucial for the financial sector as it allows players in the industry to calibrate their business models while enabling them to bundle some of the solutions available on the market to meet customers’ demands. PaaS players operate cutting-edge cloud-based platforms to provide specialized services, such as card issuing, payments clearing, cross-border payments, disbursements and e-commerce gateways.

The innovative technologies offer resiliency, cost-effectiveness and accelerate customer onboarding, allowing organizations to focus their

operating and business models while meeting customers’ demands.

Leveraging the cloud The emergence of new technologies is offering retail banks a window to be more innovative and efficient in-service delivery, but it is also opening up the industry to new entrants such as fintechs, global retail giants as well as card networks and neobanks.

Cloud computing offers a dynamic platform to develop, trial and offer innovative services, driving operating and business model transformation. The cloud has been driving innovation across the payment services sector enabling high data security, cost-effectiveness on the part of banks and it also drives innovation as financial institutions keep on introducing new services and products to maintain their market position and meet customers’ evolving demands and expectations.

Trends in MENA The changing customer behaviours and reimagined customer experiences, marked by an increasing desire for frictionless, more seamless and intuitive value-added banking experiences, are driving incumbents to develop open, collaborative financial ecosystems.

Several regional banks are leading or participating in several accelerators, incubators and training programs to advance their access to instant payment technologies to enhance service delivery. For fintechs and start-up’s, such partnerships provide easy access to resources, data, funding, space and networking opportunities to test and showcase their prototypes.

Last March, Buna, the cross-border and multi-currency payment system owned by the Arab Monetary Fund, said that it is considering launching instant payments at a later stage, in addition to trade finance solutions, securities settlement and ATM/ POS processing service. The move is expected to complement Buna’s current offering of multi-currency crossmea-finance.com mea-finance.com

45

border interbank payments, commercial payments and consumer remittances.

Meanwhile, treating payments as a stand-alone entity for example in the case of Emirates NBD’s Network International and First Abu Dhabi Bank’s Magnati allows for the expansion of services across the financial services sector and opens the service to a broader array of customers. FAB spun off its payments unit into a stand-alone operational entity called ‘Magnati’ in April last year. Aside from its payment services, Magnati seeks to provide enhanced capabilities to partner with fintechs on product and service innovation.

“Carving out the payments business allows a more flexible approach to growth while also establishing a currency that makes subsequent consolidation possible, as carve-outs can tap into the higher valuation afforded payments companies,” said McKinsey.

T h e o n g o i n g s h i f t s towa rd e-commerce, digital payments (including contactless), instant payments and cash displacement have all been significantly boosted in the last two years as support from governments is making it imperative for banks to provide frictionless payments solutions.

Commercial Bank of Dubai (CBD) signed a debt financing agreement with Postpay in January, a deal that will see the bank supporting the BPNL solutions provider on several fronts including transaction banking, debt funding and e-commerce solutions. The debt financing deal between CBD and Postpay is an example of how fintech and incumbent banks are partnering to enhance digital payments and the entire suite of financial products offered in the market.

Gulf region countries are spearheading different digital payments initiatives such as Oman’s Mobile Payments Clearing and Settlement System, UAE’s e-Dirham, DubaiPay, BenefitPay in Bahrain and Saudi Arabia’s Sarie – all of which are meant to enable service providers and government entities to offer payment facilities around the clock.

FINTECH FIRMS ARE THE PRIMARY INNOVATORS IN THE PAYMENTS SPACE AND BANKS ARE STRUGGLING TO KEEP PACE – EY

Challenges faced by banks:

Regulation & competition The rapid pace of change in the digital payments sector, which includes innovative technologies, entry of nontraditional payments providers into mainstream markets and the rise of digital currencies, is causing an untenable shift to operations and risks within compliance departments.

McKinsey said that for financial watchdogs weighing digital payments’ benefits and risks, the challenge is to find the right balance between supporting innovation and protecting consumers.

Regulators are often perceived as innovation killers by several players in the financial services industry in their quest to strike the right balance between protecting customers’ interests, financial institutions’ risks and other policy objectives to enhance sustainable growth.

The UAE central bank last July unveiled the Retail Payment Services and Card Schemes Regulation, the regulator’s fourth regulation, as part of its broader strategy to prepare the Gulf state for a new era of digital payments.

On the competition front, the wave of digitalisation in the financial services industry following the outbreak of the pandemic is driving corresponding shifts in customer demands that have upended service delivery for most retail banks globally. KPMG said that as financial institutions across the payments value chain seek to adapt to the winds of change, they find themselves in increasing competition and in shifting partnerships with fintechs, non-banks as well as some of the world’s leading retailers.

Network International joined forces with Amazon to provide merchants

across the UAE with access to Amazon Payment Services gateway and payment solutions and enhanced fraud monitoring.

Amazon Payment Services’ merchants are also set to benefit from Network’s acquiring and settlement solutions.

Security concerns The entrance of technology superpowers and fintech into the payments space is driving competition, lowering transactions costs and enhancing product offerings but its integration with a variety of consumer services that rely intensively on user data has raised security concerns.

The increase in digital payment options together with skyrocketing adoption rates are being met with a surge in cybercriminal activity as hackers are becoming more sophisticated and aggressive, making it imperative for banks to invest in cybersecurity. KPMG stated that the proliferation of digital channels following the outbreak of the pandemic has also led to increased cyber-risk exposure.

Cybercrime and malicious hacking cases have also intensified since the outbreak of the pandemic.

However, retail banks are investing in the next generation of digital payments vehicles that will not only be embedded within smart devices but will also have to offer increased securitization, such as tokenization and strong authentication.

The growth of instant payments services in the Middle East region is being driven by several factors including their popularity among SMEs and start-up’s. Digital payments are expected to revolutionise the payments sector and its application into the retail industry and standard B2B transactions. mea-finance.com mea-finance.com

47

DATA SECURITY PAYMENTS SOLUTIONS

Consumer Led Change Payments and the way they are made in the region are changing rapidly with consumers spurring demand. Martijn Van Os Senior Vice President, Mastercard Payment Gateway Services explains how and why

corporations and financial institutions pledging digital-first strategies.

The trend towards increased digital adoption has continued despite lockdowns being lifted. According to the Mastercard New Payments Index, 95% of consumers in the Middle East and North Africa (MENA) are considering emerging payments such as wearables, biometrics, digital wallets and currencies, and QR code, in addition to Contactless. It revealed that 88% of MENA consumers have access to more ways to pay compared to 2020, while 3 out of 4 MENA consumers said digital payments methods helped them save money.

At the government level, many countries are driving forward their digitization agendas. In the UAE there is the National Digital Government Strategy, and the National Strategy for Digital Transformation in Saudi Arabia.

This is helping to create an attractive and sustainable environment towards digitization and, as a result, we are witnessing a proliferation of fintech entrepreneurs calling MENA home.

How much further can retail payments go in terms of innovation and what might we expect to see next?

Martijn Van Os, Senior Vice President, Mastercard Payment Gateway Services (MPGS)

D

escribe what makes payments such fertile ground for innovation in Middle East banking.

In a world coming to terms with the impact of the COVID-19 pandemic, farreaching business digitalization has been the bridge between the old and the new normal. As countries implemented measures to contain the pandemic, meetings went online, more transactions

48

became contactless, experiences became virtual and shopping morphed into e-commerce, enabling the world to maintain a business trajectory while also setting the foundation for the future. It is difficult to imagine how a pre-digital world would have coped with the extreme level of mandated physical distancing, without the option to digitalize.

Payment innovation in the region had already been flourishing, with larger

Banking and Finance news in the MEA market

As a multi-rail company that serves merchants, banks, telcos, fintechs and governments, we at Mastercard are redefining the future of payments.

Our vision for the future of payments is one that doesn’t only improve current payment systems, but also takes them to a whole new level.

Mastercard Installments, launched in the UAE and Saudi Arabia in January 2022, is a perfect example. It uses the power of our trusted network to make Buy Now, Pay Later (BNPL) available to millions of consumers and merchants worldwide. It enables banks, lenders, fintechs and wallets to offer a variety of flexible instalment options to consumers, including a zero percent interest, pay-infour model.

There is a greater expectation for businesses to provide multiple ways to shop and pay during the pandemic.

In fact, 61% of MENA consumers say they would avoid businesses that do not accept electronic payments of any kind, according to the Mastercard New Payments Index.

What are the main challenges banks face in providing or advancing payment services and solutions?

The challenges are similar all over the world – cybercrime is becoming much more sophisticated. As an industry, we have to work in partnership with financial institutions and fintechs to develop new ways of monitoring the type of activity conducted by merchants.

In December 2021, Mastercard joined the Dubai Financial Services Authority (DFSA) Threat Intelligence Platform (TIP).

The collaboration cemented Mastercard’s commitment to construct intelligence-led,

On the SME front which constitutes large number of merchants, servicing them with the right tools that apply to their specific industry is another challenge.

Mastercard’s Simplify Commerce has been developed to cater to these important SME market dynamics and needs. Acquiring banks can easily integrate this all-in-one small business ecommerce platform and allow their merchants to sell online and accept payments quickly and securely.

How far along are regional bank payments solutions when compared with other parts of the world?

Digital bank transformation has been on the top of the agenda of most global organizations. But, like retail, the pandemic accelerated the need for banks to innovate their digital payments as they faced increased competition from the usual players, as well as fintechs and nontraditional banking entrants.

Banks in the MEA region are in varying stages of their digital journeys, which

IN FACT, 61% OF MENA CONSUMERS SAY THEY WOULD AVOID BUSINESSES THAT DO NOT ACCEPT ELECTRONIC PAYMENTS OF ANY KIND public-private partnerships and boost cyber resilience across the Middle East, Africa and South Asia region.

Mastercard, through acquisitions such as Brighterion, is innovating AI-based capabilities to support PSPs and gateways.

Brighterion has revolutionized AI, enabling Mastercard to stop payment and acquirer fraud, waste, abuse and more.

Merchant education in developing markets is also incredibly important right now. Advising merchants on best practices, such as developing frictionless checkout journeys, will make a sizeable difference.

can be impacted by resources available, country specific regulations, and the bank’s appetite for change. However, the interest in digital transformation spans traditional banks and fintechs – all striving to leverage the shift to disrupt traditional models. Many of the banks that have already embarked on digital transformations have been able to respond to the consumer demand for innovation in payments.

Banks in the region that have migrated customers and transactions to digital channels have seen digital transactions increase from 70% of all transactions to 90%.

Our White Label payment gateway has been designed to help acquiring banks enhance their merchant payment products and offer consolidated payment platform with the latest digital technology without the need of in-house development.

Open Banking is also gaining momentum in the Middle East, particularly in Bahrain, whose regulator started its open banking journey in 2018 and followed this up with the Bahrain Open Banking framework in 2020 which gives consumers more choice when it comes to managing their money.

How important a builder of customer loyalty are fast and easy payments solutions?

A Mastercard consumer spending study conducted in late 2020 revealed an accelerated growth in online shopping, with 73% of consumers across MEA reporting a move online since the start of the pandemic. More than half also credited the fast, convenient and secure transaction features of e-payments as additional drivers to shopping online.

Today’s consumer is connected. We need to meet consumers where they are, when and how they want to engage.

This means connecting them across channels in a meaningful way and bringing them high-value services. These are the building blocks for robust, loyalty programs today and into the future.

Businesses that can offer a quick and reliable way to pay will see their customers returning time and time again. Click to Pay is the next generation of eCommerce technology, to make it easy and safe for consumers to instantly check out without the need to enter their card credentials and passwords across various Click to Pay-enabled sites.

The same rule applies to in-store payments where contactless not only speeds up the payment process, but also makes it more likely for consumers to visit again. As Mastercard has recently announced, one in two in-person Mastercard transactions worldwide are now contactless. mea-finance.com mea-finance.com

49

DATA SECURITY PAYMENTS SOLUTIONS

Defining the Future of Innovative Payment Solutions in Middle East – Lessons from Asia Rajashekara V Maiya Vice President and Head, Business Consulting Group, Infosys Finacle, talks with MEA Finance about the opportunities and challenges for banks to drive innovations in payments in the Middle East region, taking inspiration from some developments in other Asian economies such as India and China

D

escribe what makes payments such fertile ground for innovation in Middle East banking.

Globally, the total value of digital payment transactions is projected to touch US$ 7.86 tn 2022 and grow at a CAGR of 10.88% to reach over US$10.7 tn by 2025.

With the Middle East being one of the biggest and most stable trading hubs connecting Europe, Africa, and Asia, the number of payment transactions is bound to grow in this region. The Expat community in the Middle East is one the largest in the world. For instance, Dubai is said to have people from 120 nationalities. These huge expat

50

communities regularly send money back to their respective home countries.

In addition to Dubai, we’re seeing infrastructure investments in emerging financial hubs such as Doha, Abu Dhabi, and Riyadh. The hubs are bound to attract considerable investment and participation.

At the same time, we’re seeing the growth of smart cities or cognitive cities that incorporate smart finance, smart payments, smart remittances, smart manufacturing, smart trading and more, which require a digital impetus. These cities will also attract more talent and a digitally capable workforce that will then drive the transformation of cash-based economies into digital economies.

Banking and Finance news in the MEA market

Rajashekara V Maiya, Vice President and Head, Business Consulting Group, Infosys Finacle

Together, all these factors will build considerable expectations around payment and remittance innovations to make them faster, cheaper and more transparent. To enable these, banks in the Middle East must move away from the traditional hub and spoke transaction models to distributed, network-based transactions based on distributed ledger technologies.

This will be true for both domestic and international transactions.

How much further can retail payments go in terms of innovation and what might we expect to see next?

In a recent Efma – Infosys report on ‘Innovation in Retail Banking Beyond the Pandemic’ the respondents were asked to pick players whom they believed would lead innovation in the area of payments and cards in the next five years. Surprisingly, 30% picked leading digital commerce platforms such as Amazon and Alibaba; 22% picked fintech start-ups and a mere 1 4% p i c ke d i n c u m b e nt f i n a n c i a l institutions. Over the coming years, we are likely to see third-party channels play an increasingly prominent role as open banking and embedded finance gain popularity.

India is a great example. In August 2021 India saw monthly payment transactions carried out on its open payments network, Unified Payment Interface (UPI), touch 3.3 billion with 91% of these originating on apps such as PhonePe, Google Pay, and Paytm. The biggest reason is that there is a payment corridor and payment infrastructure that is available to the market, allowing them to develop innovative ways of doing transactions at a cheaper rate.

In the future, we can expect to see these channels being used in the Middle East too, not just for domestic transactions but international as well.

Also, the entry of big tech companies such as Apple, Amazon, Google and Alibaba will completely disrupt the payments space.

What are the main challenges banks face in providing or advancing payment services and solutions?

One of the biggest challenges is the legacy environment that banks operate in. Unlike fintechs that are nimble and agile, most large banks have systems that are batch-oriented and ill-equipped to handle online real-time transactions.

Therefore, these banks must collaborate with fintechs and lay the groundwork to

address new disruptions, while they build a modern infrastructure internally.

Also, payments and remittances lend themselves well to platform business models which enable banks to render these services in a cheaper and faster way. Banks must invest in building an ecosystem with the right kinds of partnerships, whether transactional or transformational, to boost international remittance and crossborder payments.

the Middle East. Emirates NBD is a great example. It not only established its Future Lab to accelerate the development of innovative banking services but also became the first bank in UAE to pilot the launch of a blockchain network for international remittances and trade finance.

For international trade, Finacle Trade Connect which has been implemented as a consortium of banks– running on

BLOCKCHAIN AND DISTRIBUTED LEDGER TECHNOLOGIES WILL PLAY A KEY ROLE IN ENABLING REALTIME PAYMENTS AND AS WELL AS INNOVATIVE PAYMENT OFFERINGS Blockchain and distributed ledger technologies will play a key role in enabling real-time payments and as well as innovative payment offerings.

Banks must also work alongside regulatory authorities to safeguard and secure transactions while enabling new and reimagined business innovations such as ‘payment as a service’ or ‘remittance as a service to generate new revenue opportunities. In addition, the ability to enable real-time liquidity, cash management and a multi-country view for corporate customers will also emerge as a priority.

How do you maintain your competitive edge in the busy regional banking payments market?

Finacle Payments Connect, a blockchainbased solution for payments and remittances is already running live in the Middle East – India corridor. This can be extended to other Asian economies such as the Philippines, Indonesia etc. that have an active trade corridor with

Blockchain banks can use these to conduct international transactions using Blockchain. Banks have an opportunity to offer both Finacle Payment Connect and Finacle Trade Connect to customers as a service, enabling them to transition towards a platform business.

When it comes to payments, there is a huge opportunity in the area of corporate payments.

Finacle offers comprehensive digital cash management which has been leveraged by several banks such as Qatar National Bank (QNB). With Finacle’s enterprise-class payments hub solution, QNB has been able to leverage a realtime payments platform. The platform provides seamless interoperability across various global and local payment networks, clearing ser vices, and comprehensive support for multiple payment types and instruments.

Overall, Finacle’s cloud-native, API-first, customer-first and digital-first products built on cutting-edge technologies can allow banks in the Middle East to build powerful digital banking strategies. mea-finance.com mea-finance.com

51

DATA SECURITY PAYMENTS SOLUTIONS

Payments Plan Houssam Chaker Regional Sales Head, Volante Technologies explains that banks in the Middle East are in the midst of significant digital changes that bring many challenges, but by educating their clients about new processes, they can smooth the path to developing smarter and faster payments systems and their accompanying benefits

D

escribe what makes payments such fertile ground for innovation in Middle East banking.

Payments in the Middle East are picking up pace, fast. As the region continues its path toward instant payments,

52

banks need to develop faster and more sophisticated technology platforms to comply with regulations and meet customer demands. With all the developments taking place, UAE NPSS, KSA IPS, BUNA, GCC RTGS, SWIFT gpi, to name a few, banks in the Middle

Banking and Finance news in the MEA market

East have many competing priorities to contend with. The Middle East has recently seen significant growth as a FinTech hub both for investors and techsavvy innovators - broadly speaking, the Middle East is amid profound digital change.

Geographical Advantage Egypt holds a unique opportunity within the Middle East region due to its geographical placement, bridging the gap between the two major regions and beyond. Cross-border payments are important in the Middle East, with two of the world’s three largest remittance corridors located in the UAE and Saudi Arabia. According to Mckinsey & Company, they handled $78 billion dollars in payments in 2020, equating to 7 percent of the GDP of the two nations combined. Two-thirds of survey respondents (67 percent) said bilateral arrangements between countries for

real-time settlement and the scaling up of digital money-transfer operators will be key drivers in cross-border transactions over the next five years.

How much further can retail p a y m e nt s g o i n te r m s of innovation and what might we expect to see next?

Approximately one third of retail transactions are conducted electronically, thanks to factors such as underdeveloped digital-payments infrastructure and services, underbanked consumer and merchant segments and a cultural bias toward “cash is king”. However, new regulation and government initiatives are driving further innovations in the retail payments sector. Under the supervision of the Saudi Central Bank (SAMA), the launch of Saudi Arabia’s instant payments system ‘sarie’ was announced in 2021. The introduction of ‘sarie’ is in line with Saudi Arabia’s Financial Sector Development Program (FSDP) under Saudi Vision 2030, which targets achieving 70% non-cash transactions by 2030.

Business ecosystems are evolving promoting a frictionless payment experience for consumers. New products, services and transaction models enable next-generation payments, such as proxy payments, QR code payment, Request to Pay etc.

What are the main challenges banks face in providing or advancing payment services and solutions?

Banks across the Middle East region are facing the pressure of tighter liquidity and increasing competition amidst a more challenging macroeconomic backdrop.

The shift to modernising technology is putting banks under great pressure as they evolve rapidly to support the growing needs of their clients. There is a great deal of balance that is required to operate day to day business while exploring how to leverage new, innovative developments.

Banks in the Middle East face the challenge of enhancing legacy systems

Houssam Chaker Regional Sales Head, Volante Technologies

THE SHIFT TO MODERNISING TECHNOLOGY IS PUTTING BANKS UNDER GREAT PRESSURE AS THEY EVOLVE RAPIDLY TO SUPPORT THE GROWING NEEDS OF THEIR CLIENTS

to achieve faster, more streamlined processes. This has led banks to invest in initiatives like real-time payments and SWIFT gpi.

In addition to the technology and services and providing the technology

tools, banks also have an important role to play in educating clients, whose own processes are built around legacy systems. It is crucial to find a partner that can offer the opportunity for banks to accelerate its learning curve as well as saving time and resources in bringing products to market.

Schemes: ISO 20022 is sweeping the financial industry, fast and nowhere more so than the Middle East. Banks in the region must manage multiple ISO 20022 modernization programmes fo r b ot h d o m est i c a n d c ros sborder payments: SWIFT, BUNA, GCC RTGS, and instant payments schemes like those being rolled out in various countries in the region.

The motivation for banks is in part the recognition of a need for more advanced, flexible platforms that can improve innovation and meet client demands, using digital scale for better fraud protection and client intelligence, all with minimal effort.

How do you maintain your competitive edge in the busy regional banking payment market?

Platforms and ecosystems: To meet to d a y ’s c u sto m e r d e m a n d s a n d re g u l a to r y m a n d a te s , f i n a n c i a l institutions need to modernise their payments infrastructures and partner with innovative payment providers, c o - c re a t i n g a d i g i ta l p a y m e n t s ecosystem based on newer hub models.

When doing so, they should look for platforms that are cloud-native and cloud-ready, microservices-based, and API-enabled. Continuous real-time operation and 24×7 availability are essential components.

Payments features: Instant Payments systems offer unprecedented transaction speeds with a maximum execution time of a few seconds; they are ISO 20022-compatible, which means they carry reams of valuable data; and they instantly notify customers and provide immediate access to funds. mea-finance.com mea-finance.com

53

DATA SECURITY PAYMENTS SOLUTIONS

Growing Payments Nabil Ibenbrahim Managing Director at HPS says that the regional payments environment is heading into a period of rapid development led by growing demand from more digitally savvy generations, which will bring with it a new set of challenges for banks

D

escribe what makes payments such fertile ground for innovation in Middle East banking.

Until 2020 the Middle East was highly dependent on cash, with the pandemic providing the main catalyst for widespread digital adoption. Last year, in leading markets, smartphone penetration reached almost 90%, and so for the region’s digitally savvy population, convenience speed, and reliability are important to them. To cater to the growing appetite, many governments like the UAE and KSA have embraced

54

regulatory changes to allow for digital payments firms to develop and license their products, also investing heavily in infrastructure to boost innovation in the space. Other drivers to the region’s rapid progress include population growth, diversity and increased affordability and accessibility to digital products.

In 2020, right at the dawn of the pandemic, we were appointed by Saudi Payments, Nabil Ibenbrahim, Managing Director, HPS

Banking and Finance news in the MEA market

a subsidiary of Saudi Arabia Monetary Authority (SAMA), to provide a QR code platform for banks, wallet providers and fintechs to interact seamlessly.

The aim of the unified QR code platform was to enable banks, wallet providers and fintech companies to interact within an interoperable platform thereby leading to the enhancement of the electronic payment sector.

Thanks to this, all parties now benefit from an integrated payment environment that allows for an open-loop payment environment based on the latest messaging standards, ISO 20022. It means merchants, individual customers, and service providers are linked together to complete payments using the same, EMVco compliant, QR code.

The development of a national QR code payment system is in alignment with the Financial Sector Development Program (FSDP) initiatives on digital transformation, entrepreneurship support and financial technology development, aimed at meeting the aspirations of Vision 2030 and a cashless society in the Kingdom.

How much further can retail payments go in term of innovation and what might we expect to see next?

While cash payments have traditionally dominated, there has been a steady shift towards digital payments as end customers expect this mode to be more flexible, efficient and customer centric.

Some of the factors contributing to this growth include the rising proliferation of smartphones, internet penetration and the adoption of modernized technology.

The ongoing Covid-19 pandemic has further accelerated the adoption of digital payments as more people are migrating to digital banking channels due to their flexibility and ease of use. This has given rise to the emergence of new players in the market that are disrupting the payments landscape.

To leverage the rising demand for digital banking solutions, financial institutions in the Gulf Cooperation Council (GCC) are collaborating with

CHANGING DEMOGRAPHICS PLAY A MAJOR ROLE IN CHANGING EXPECTATIONS AS WITH EACH NEW GENERATION COMES A MORE “DIGITAL NATIVE” CUSTOMER AND INCREASED EXPECTATIONS IN TERMS OF TECHNOLOGY technology solution providers. The Middle East digital payments market is expected to register an estimated CAGR of 5-6% for the period 2021 - 2025.

With the market and the number of participants in it growing as rapidly as ever, the potential for innovation remains abundant and AI technologies and data will be manifested to develop new payments systems and improve existing ones.

Looking ahead to 2022, I expect we’ll see more interoperability. This is when customers send money across disparate networks to ensure the least interchanges possible, and with the volume of digital transactions from business to business continuing to rise sharply, it’s natural to assume that there will be a greater demand for it. I think payments firms will find new and innovative ways to leverage their data to hyper-personalise the customer experience, enhancing their ability to sell value-added products and services.

What are the main challenges banks face in providing or advancing payment services and solutions?

One of the main challenges facing banks is coming from the increased competition from non-bank challengers in the market. Widespread digital adoption has also meant rapidly changing customer payments needs and the banks will need to ensure that they are meeting them, otherwise they will be outsmarted by new, more agile competition. Non-bank firms market themselves as being able to provide more user-friendly ways of handling payments and have seen increasing popularity with younger populations globally,

ultimately eroding the influence of the banks in the market. They should look to selectively collaborate with payments providers, global card networks, and rival institutions and acquire new fintech to ensure they don’t get left behind.

Th i s i s es p e c i a l l y c r u c i a l a s demographics are also changing. Today’s consumers are more digitally savvy than ever before and expect a lot of personalization and convenience from their banking journey. Changing demographics play a major role in changing expectations as with each new generation comes a more “digital native” customer and increased expectations in terms of technology.

Millennials have led the charge to digitization, being the first to interact with brands on social media on mass. They also now make up the largest percentage of mobile users anywhere in the world.

New generations, like Gen Z, will be even more demanding and expect a completely seamless, omnichannel banking and payments experience.

How do you maintain your competitive edge in the busy regional banking payments market?

At HPS, we understand the challenges of regional banking and payments markets.

We are continually developing our solutions to enable a modern and flexible technology architecture to stay at the front of the rapid evolution of the industry.

We work closely with clients and major industry players to ensure proactive responsiveness to market evolutions and strengthen our geographic proximity with our clients by local implementations and global partnerships. mea-finance.com mea-finance.com

55

ISLAMIC FINANCE

Nigeria Sukuk As part of its policy to diversify its sources of public debt financing, the Federal Government of Nigeria (FGN) is turning to sukuk issuance as a viable alternative fund-raising instrument, linked exclusively to road infrastructure development

By Mushtak Parker

A

ccording to Fitch Ratings, “Sukuk instruments have been made part of the government’s debt management strategy for 2020-2023.”

In February 2022, Patience Oniha, the Director-General, of the Debt Management Office (DMO) at the Ministry of Finance, together with the Minister for the Federal Capital Territory (FCT) Malam Muhammad Musa Bello,

56

launched the FCT Sukuk Technical Committee “towards the issuance of the FCT’s debut sukuk in the nearest future.”

Compared with the DMO’s prolific FGN conventional bond issuance, Nigeria’s local sukuk market, says Fitch, remains in its early stages of development, with its share of the global sukuk market low at 0.15% at end-2020. However, Nigeria’s sukuk market global share was the highest among African countries, ahead

Banking and Finance news in the MEA market

of Egypt (0.04%), Senegal (0.04%), and Morocco (0.02%).

But “local-currency sukuk issuance,” added Fitch, “is expected to pick up in the medium term, as the sovereign seeks alternative funding sources and domestic investor appetite for sukuk as an alternative asset class increases.

The Islamic finance industry in Nigeria is expected to continue its moderate growth trajectory in 2022-2023. Growth will be driven by top-down government support for the sector, sukuk issuance by the federal government, asset growth by newly-established Islamic banks and enabling regulations.”

In February 2022, Oniha handed over a cheque for N250bn ($610m) to Nigerian Finance Minister Dr Zainab Shamsuna Ahmed and the Minister for Works and Housing Raji Babatunde Fashola, the proceeds from the DMO’s latest benchmark 10-year Sukuk Ijarah sovereign domestic offering at end December 2021.

The FGN sukuk embodies two key sustainability features – infrastructure and financial inclusion. “We consider sukuk to be one of the useful and accepted products for raising funds,” explains Oniha. “The proceeds from the issuance will be used solely for the construction and rehabilitation of 44 arterial roads across the six geopolitical zones of the country. Issuing further Sukuk in 2022, will depend on eligible projects in the 2022 Appropriation Act.” According to Oniha, sovereign Sukuk diversifies the product range available to investors in the domestic financial market, widens the investor base and promotes financial inclusion by attracting several first-time retail investors. This latest 10-year sukuk is the fourth such offering of the DMO to date, bringing Nigeria’s aggregate naira-denominated sukuk issuance to N612.57bn ($1.49bn), building up a yield curve for the instrument in the process.

The sukuk are guaranteed by the FGN and is priced at a fixed rental rate of 12.8% per annum. The transaction involved

several local-based financial institutions.

The lead arrangers of the transaction were Greenwich Merchant Bank, Stanbic IBTC Capital and Vetiva Capital Management with the placement agents including the country’s two dedicated non-interest (Islamic) banks Taj Bank and Jaiz Bank, as well as local subsidiaries of the UK’s Standard Chartered Bank and South Africa’s Standard Bank, namely Stanbic IBTC Bank.

The growing investor appetite for sukuk, as Fitch maintains, is underlined by the “unprecedented subscription level of over N865bn ($2.09bn),” which means the issuance was oversubscribed by 346%.

The Sukuk certificates are available to both institutional and retail investors.

Demand for FGN securities in the domestic market, stresses Oniha, is strong. The minimum subscription for retail investors for the latest N250bn offering is only N10,000 (US$24.38).

DMO analysis reveals high levels of subscription from banks and fund managers (including pension funds), as well as non-interest (Islamic) financial institutions, ethical funds, cooperative societies and retail investors.

The journey of retail investors is revealing – 5% for the debut issuance in 2017, followed by 17.33% for the second issuance in 2018, to over 18% for the third issuance in 2020.

The increasing level of participation by a more diverse and larger number of investors, stressed the DMO, “is a confirmation that the DMO’s objectives of issuing sovereign Sukuk to grow the domestic investor base and promote financial inclusion is being achieved. In addition, the high subscription level is proof of investors’ acknowledgement of the impact the first three Sukuk issuances totalling N362.577bn ($880m) issued between 2017 and 2020 has had on the development of road infrastructure in Nigeria.”

The disappointing aspect of Nigeria’s first mover advantage in infrastructure linked Sukuk is that it has failed to spur a market for quasi-sovereign, corporate

and social issuances. In 2021, the two lone corporate sukuk issuer was the debut sukuk by Family Homes Funds and the first ‘green sukuk’ by OneWattSolar.

According to Nigerian banking sources, Dangote Cement, a major player in the country’s road infrastructure reconstruction programme in its capacity as the country’s major cement producer, was contemplating a debut Sukuk just prior to the onset of the coronavirus pandemic. But market conditions most likely put paid to that ambition, albeit the potential is good depending on the

the certificates are guaranteed by the FGN; liquidity since the certificates can be traded on the two top local stock exchanges and qualify as liquid assets for banks and other institutions; and the Sukuk certificates may be used as collateral for securing credit facilities from financial institutions.

The Sukuk certificates are listed on the FMDQ Securities Exchange, Nigeria’s largest bourse, and the Nigerian Exchange Limited. With the listing, Sukuk certificate holders can trade them while new investors have an

WE CONSIDER SUKUK TO BE ONE OF THE USEFUL AND ACCEPTED PRODUCTS FOR RAISING FUNDS

reputation and financial stability of the issuer. There are also reports of more state governments following Osun State in issuing Sukuk.

An important development is the opening up of investment in FGN Sukuk by the 22 or so pension providers regulated by the National Pension Commission (PenCom) subject to its eligibility criteria.

In fact, Patience Oniha, Director-General of the DMO, met with senior PenCom officials in December 2021 and January 2022 and discussed inter alia “recent developments in the sector and the plans for the two institutions to cooperate in areas of mutual interest.”

According to the DMO, FGN Sukuk IV has several sustainability and ethical attributes. These include responsible investing (the proceeds are dedicated to tangible road infrastructure projects; financial inclusion for non-interest investors with the aim also of further developing the savings culture in Nigeria; ethical investment for investors who are ethically minded; low risk as

opportunity to buy the certificates in the secondary market, thus unlocking vital liquidity in the capital market.

The development impact of Sukuk is clearly visible - improved road infrastructure within and outside Nigerian cities, timely completion of designated projects and the multiplier effects associated with construction of capital projects such as roads. This, says the DMO, “has brought reprieve to road users, improved travel times between major commercial cities, linked borrowing and government expenditure to specific critical projects, helped increase the flow of cargo and passenger traffic across major cities, and improved infrastructure delivery across the country.

“The impact of the sovereign Sukuk on road infrastructure in terms of job creation, travel time, safety and movement of goods have made the Sukuk a beneficial financial instrument fo r f i n a n c i n g e c o n o m i c g row t h and development.” mea-finance.com

57

LIFESTYLE

AGILE AND EXCLUSIVE:

Porsche presents the first Macan T Macan T, 2022

T

he Macan T has now been added to the successful Porsche model range. This is the first four-door sports car that will bear the special designation, which was previously the reserve of the 911 and 718 models.

The letter T has represented a unique form of dynamic driving at Porsche since the 1960s. It stands for ‘Touring’ and identifies models that offer an especially authentic driving experience thanks to precise tuning, exclusive equipment and efficient engines.

Lightweight, for an agile response The two-litre, four-cylinder turbo engine of the Macan T combines great agility, low weight and a compact design to create a package that offers an ideal balance of weight and performance. Compared to the 2.9-litre biturbo V6 engine in the Macan S and GTS models, the powertrain in the Macan T weighs 58.8 kg less on the front axle. This gives the vehicle an excellent start-off performance and optimum cornering ability.

The Macan T has an output of 195 kW (265 PS) and 400 Nm of torque

EXECUTIVE DIRECTOR AND PUBLISHER Kenneth Mitchen ken.mitchen@mea-finance.com GROUP COMMERCIAL DIRECTOR Nap Estampador nap.estampador@mea-finance.com Tel : +971 50 100 5488 DIRECTOR Andrew Cover andrew.cover@mea-finance.com Tel: +971 50 931 3236

58

– characteristics that suit the precise vehicle design and deliver an exhilarating drive. As is generally the case with the compact SUV, the engine is coupled with a fast-switching seven-speed dual clutch transmission (PDK) and the Porsche Traction Management (PTM) all-wheel drive system. A broad spread of torque provides responsive acceleration in all driving situations. When fitted with the standard Sport Chrono Package including the mode switch and Sport Response button on the steering wheel, the Macan T accelerates from 0 to 100 km/h in 6.2 seconds and reaches a top speed of 232 km/h.

Exclusive details inside and out Design elements painted in Agate Grey Metallic on the front, flank and rear of the Macan T differentiate the vehicle from other models in the series. The exclusive contrast colour can be seen on the painted front trim, exterior mirrors, side blades, roof spoiler and logos on the rear. Sports tailpipes and side window trims in Black (high gloss) are included as standard and the side blades feature the ‘Macan

EVENTS AND MARKETING MANAGER Cris Balatbat crissyb@mea-finance.com Tel: +971 58 594 4818 ADMIN AND FINANCE MANAGER Marilyn Nainque marilyn@mea-finance.com Tel: +971 58 5025836

, Porsche AG

T’ logo in Black. Twenty-inch Macan S wheels, exclusively in dark titanium, come as standard. Customers can choose from a range of 13 plain, metallic and special colours for the exterior.

The interior of the Macan T has its own distinct ambience. The standard, eight-way electrically adjustable heated sports seats feature exclusive upholstery based on the Black leather package. The centres of the front seats and the outer rear seats are delivered with the Sport-Tex Stripe pattern and the front headrests each have an embossed Porsche crest.

The contrasting colour from the exterior continues inside the vehicle in the form of decorative silver stitching on the seats, headrests and steering wheel.

Standard equipment also includes a multifunction GT heated sports steering wheel and the Sport Chrono stopwatch in the upper part of the dashboard.

The door entry guards come in black aluminium as standard and feature a Macan T logo. Optional features include the multifunction GT sports steering wheel in Race-Tex with carbon trims and an ioniser.

FEATURE CONTRIBUTORS: Adrian Murdoch, Mushtak Parker, Walter Sebele editorial@mea-finance.com

WEB ASSISTANT Marie Orayan web@mea-finance.com

Banking and Finance news in the MEA market

Dubai office: #404, Building B, Al Saaha Offices, Old Town Island Burj Khalifa District PO Box 487177, Dubai, UAE Email: info@mea-finance.com

WEALTH MANAGEMENT AS INDIVIDUAL AS YOU

At OCS International Finance Ltd we pride ourselves on the personal care of our clients. As a competent and reliable partner, we offer bespoke financial solutions, built on truly personalized relationships and a solid foundation of financial expertise.

OUR EXPERIENCE - YOUR FINANCIAL SUCCESS OCS International Finance Ltd +971 4 525 0600 | info@ocs-finance.net | ocs-finance.net

Regulated by the DFSA

This information is provided by OCS International Finance Ltd (“OCS”), a private company, established under the laws of the Dubai International Financial Centre as a Category 3C Authorized Firm that is regulated by the Dubai Financial Services Authority (“DFSA”). This information is intended only for Professional Clients or Market Counterparties (as defined in the DFSA Rulebook – Conduct of Business Module – Section 2.3) and no other person should rely or act upon it. This information is provided for general information purposes only and is not intended to be relied upon as advice or a recommendation and does not take into account the investment objectives, financial situation or needs of any particular investor. An investor should seek independent professional advice when deciding if an investment is appropriate.

ªTap into 100+ globally managed mutual fundsº Buy, sell, access performance history and track your portfolio anytime, anywhere with our Online Mutual Funds platform.

Find out how we can help you manage and grow your wealth.

Scan to book an appointment with our Wealth Specialists today.

Disclaimer: This information is neither an offer to sell, purchase or subscribe for any investment nor a solicitation of such an offer. This information is general and does not take into account a person’s individual circumstances, objectives or needs. Investments carry risk and values may go up as well as down.