Tapping the financial potential
Financial institutions are eyeing the increasing number of tablet computer and smartphone users in the region to cut costs and enhance productivity.
After reducing losses incurred due to bad loans since late 2008, banks in the Arabian Gulf countries are back on their feet, investing increasingly in technologies that will further enhance productivity and cut operating costs.
With the region boasting the world’s highest mobile phone penetration rate, banks are using this thriving telecommunications sector to its advantage. Although mobile banking is quite popular and productive in the developed countries, the technology is still in its initial stages in the region, say industry insiders, adding that growth opportunities are immense for the banking technology companies.
Standing in long queues in a bank’s branch office to withdraw cash is a thing of the past, and very soon withdrawing cash from automated teller machines will be a distant memory too.
Misys, a British multinational company, specializing in banking software solutions, has 74 banks as its customer in the Middle East, and it says financial institutions are gradually adapting to new technologies and expanding their IT budgets. The software firm experienced an annual growth of 60 per cent in the last fiscal year, ending May 31.
Managing Director of Misys Middle East, Maruf Majed, says banks in the region have been quick to jump on the technological bandwagon. But all are not equal. “The regional banks are at different stages of technological advancement, some are ahead of the game, others a bit behind.”
To remain relevant, “banks have to make investments in infrastructure, digital channels, mobile applications and risk management services”, he says. Accenture – a global research and consultancy firm – summed up the march of the regional banks toward advanced technologies. It said: “The GCC banking sector, which traditionally focused on corporate lending, is now looking at the deployment of new-generation teller machines, contact centers and Internet-based banking to address emerging opportunities.
“Initiatives by banks to increase shareholder value by 2015 will be mostly around distribution channels, as 81 percent of respondents [Accenture survey] see rising synergies between distribution channels and core platforms to be key to increasing shareholder value.”
The UAE and Saudi Arabia are two of the biggest growth markets in terms of technology investments. “We saw a very good growth in the UAE and Saudi Arabia, but Qatar and Lebanon were not bad either. Out of 40 banks in Lebanon, 22 are our customers,” says Majed of Misys.
Emerging markets are investing more in the banking technology than the developed countries. Majed says: “Globally, the average annual technology investment growth in the banking sector is about four to five per cent.
“But when we look at emerging markets, the growth is close to 10 per cent.
“In the Middle East and North Africa region, Misys is growing between eight to 10 per cent, and given the economic and political circumstances. It is a good number,” he says.
The Western markets, who generally invest more in banking technology due to fierce competition, have tightened their pockets due to the global financial meltdown, says Mena managing director of Misys, adding that as regional banks started late in the development cycle, there are huge investment opportunities.
The GCC’s investment in banking technology is even higher than that of emerging markets. “Saudi Arabian banks have increased their IT budgets by 15 per cent, while the growth of IT investments in the UAE banks is close to 12 per cent,” says Majed.
Traditional investment in areas such as branch expansion is also growing, because the industry has not yet reached maturity levels seen in the West. Accenture says: “Given the emerging growth opportunities and the increasing technology adoption by potential customers, GCC banks can afford to leapfrog the traditional branch model and offer new, innovative options in terms of banking channels. Banks, however, still see growth through branch expansion.
“As the GCC has a higher commercial banking assets to GDP ratio (116 percent) compared with other emerging markets in Europe, the density of bank branches is correspondingly lower. There are only 17 branches per 100,000 adults compared to about 75 branches per 100,000 adults in the euro zone. Given this low branch density, it is not surprising that 76 per cent the banks surveyed are planning or are already making investments to enhance their distribution channels including branch and ATM networks,” it says.
Widening branch network is one of the many ways to reach customers, and with a helping hand from modern technology the bank-customer relations can be optimized effectively.
Accenture report says: “Mobile banking will be particularly useful in improving customer penetration and engagement. As urbanization rates are more than 80 per cent, mobile banking could encompass innovative services delivered over mobile devices.
“Globally, smartphones and tablets such as iPads and Galaxy are already driving innovative ways to maximize the customers’ accessibility to the bank. Take the case of Citibank, which has devised iPad applications allowing customers to search for discounts on non-financial products. Similarly, Commonwealth Bank’s iPhone apps allows access to sales data on real estate. Or, take the case of La Caixa, in Spain, which has designed a smartphone application to provide location-based discounts,” it said.
Targeted primarily at the youth, the application, which is also available for the iPhone, allows users to consult relevant commercial offers depending on where they are. Using a geo-location technology, the bank can send users tailored commercial offers via SMS, while also providing a map to get to the store, the report stated.
“The offers are specifically conceived for the target and propose discounts on a variety of areas such as music, concerts, movies, sports, bank products and education. The free application also allows people to access their bank account, make transfers, buy tickets online, and locate ATMs and branches. Indeed, mobile banking and payments are hot technologies currently, even in the GCC.”
As there is a huge expatriate workforce in the GCC region, some of the banks have launched money-transfer applications for smartphones and tablet devices. The apps allow account holders to remit money to their loved ones in their home countries – Doha Bank and Qatar National Bank are the two latest entries.
However, banks in the GCC will need to prepare for the next phase in mobile technologies. “To become high performers, banks will have to move up the maturity curve, along a progression from relaying information to customers, through enabling transactions, interacting with customers around their financial needs, being part of lifestyle management, and engaging in largely nonfinancial activities,” says Accenture, adding closer ties between banks and telecommunication service providers could deliver new channels quicker.
When it comes to the marriage of mobile technology and money, some customers continue to be apprehensive about the safety of their financial transactions and bank accounts. Majed says there is no need to worry. “The technology is very safe. I have been using mobile banking for eight to nine years, and I have never had an issue. I know some people had a few problems; the technology is not fool-proof.”
If the mobile banking is used cautiously, “the risk of convenience is greater than the risk of safety,” says Majed.