Digitisation strategies, technology adoption and integration of financial technologies (Fintech) are some of the common discussion points in the board rooms of GCC banks and financial institutions, which are competing for space in the highly competitive regional markets.
A number of banks in the region are allocating resources to adapt their business models to the fintech revolution, which could see incumbent banks losing market shares to technology innovators, at least in some segments of business in the not-so-distant future.
Emirates NBD, one of the leading banking groups in the region, recently announced that it will invest Dh500 million over the next three years towards digital innovation. The plan includes the launch of the UAE’s first digital bank.
“We are making a commitment to the future with our digital transformation plan. Our focus on technology innovation and adoption to create digital-only products is creating a new paradigm in the way people bank in the UAE,” said Shayne Nelson, Group CEO of Emirates NBD.
Emirates NBD has already launched major digital banking initiatives and the bank currently offers e-payment capabilities through all bank channels for over 25 major service providers, varying from telecom, utilities, transportation, card schemes, and education sectors, among others.
The disruptive potential of financial technology companies has already unnerved banking and financial services business across the world.
“The pace of disruption in the financial industry could accelerate as the market share of fintech companies reaches critical mass. Banks need to get innovation before fintech companies get distribution. Otherwise, considerable share shift is ahead,” said Ronit Ghose, managing director of Global Banks at Citi Research.
Relative to other industries such as media, music and travel where digital new entrants gained a significant market share of up to about 45 per cent over a decade, the banking industry is still at an early stage for digital disruption. An estimated 1 per cent of the US consumer banking industry has been disrupted by fintech today, but this could rise to 15-20 per cent by 2020.
The global banking industry currently spends $500 billion (Dh1.83 trillion) on technology. Most of the bank’s technology spending is focused on a business-as-usual approach such as updating legacy systems and back office solutions.
The fintech disruption is changing the way banks are spending money on technology to transform the way they do business.
The Middle East’s banking sector has been relatively slow in adopting deep and transformative digitisation compared to its global peers, according to recent survey of corporate banking customers worldwide by the Boston Consulting Group (BCG).
Globally, a growing number of corporate banks are expanding their digital offerings well beyond a basic web presence, according to BCG.
The study shows that over the next five years, corporate banks that remain digital laggards could see profits drop by as much as 15-30 per cent relative to their digitally fast-moving competitors.
As part of the study, BCG surveyed 660 companies in 13 developed and emerging markets and 23 industries. A total of 1,112 respondents from 14 countries — including the UAE, Saudi Arabia, France, Germany, Poland, the UK and the US — were surveyed.
“Already, globally, a handful of banks and non-traditional players with advanced digital platforms are gaining share with real-time, low-cost cross-border payments, preapproved credit and superior foreign exchange rates. In the process, they are generating 3-6 per cent more in annual cross-selling revenues than their peers.” said Markus Massi, a partner and managing director at BCG Middle East.
The momentum and experience gained by being early movers will make it significantly more difficult for slow-moving peers — such as Middle East banks — to acquire the talent and resources to catch up.