How can Middle Eastern banks overhaul their business models to create digital ecosystems?

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The Middle East is undergoing a digital transformation, with the banking sector at the forefront of this change. The smartphone penetration among the major market population stands at — 75% in Qatar, 73% in UAE and 60% in KSA and coupled with the rise in digital payments, augur well for the promotion of new digital banking models. As per an Oliver Wyman survey, those between 15 and 24 years of age — 93% of females and 83 % of males remain unbanked in Middle East despite a high level of digital penetration. Therefore, there exists a significant potential to tap this target segment through digital banking products and services.

The middle eastern banks are trying to attract the evolved ‘Digital’ customers and the following image shows some of the recent major initiatives taken by banks to provide digital banking products and services in the region to these customers—

Examples sourced from various news sources and bank websites.

Middle Eastern Banks are looking for ways to create digital ecosystems that can provide customers with a wide range of financial services and products. To achieve this, banks in the Middle East can implement a variety of strategies that leverage the latest digital technologies. These strategies can include leveraging the region’s demographics, investing in mobile banking, partnering with fintech firms, implementing digital payment systems, offering services in Arabic, investing in security and risk management, and investing in Islamic finance.

Few strategies that banks in the Middle East can implement to create digital ecosystems:

1. Leveraging the Region’s Demographics: The Middle East has a young and tech-savvy population that is comfortable with digital technologies. Banks can leverage this demographic to develop digital channels and services that appeal to this population. Also, according to an Oliver Wyman Survey, the middle east millennials have a strong opinion on traditional ways of banking. Around 30% of millennials don’t believe that they will need a physical bank in the future, 53% don’t think that their bank offers anything different than what other banks offer and nearly half are looking for tech start-ups to overhaul banking in middle east.
2. Investing in Mobile Banking: The region has a high penetration of mobile phone users, and mobile banking can be an effective way to reach this population. Banks can invest in mobile banking infrastructure and develop mobile apps to provide customers with banking services on the go.
3. Embrace Open Banking: Middle Eastern banks can leverage the power of open banking to create digital ecosystems that offer customers access to a wider range of financial products and services. Open banking enables banks to share customer data securely with third-party providers, which can create new revenue streams and improve the customer experience.
4. Implementing Digital Payment Systems: Banks can invest in digital payment systems such as mobile payments and e-wallets to promote digital transactions. Banks can educate customers on how to use these systems and provide incentives for customers to adopt them. The success stories of UPI, BBPS and RuPay in India are a source of inspiration.
5. Partner with Fintech Startups: Middle Eastern banks can partner with fintech startups to offer innovative financial products and services. Fintech startups can provide banks with access to new technologies and customer segments, while banks can offer startups regulatory expertise and access to their customer base.
6. Offering Services in Arabic: The Middle East is a primarily Arabic-speaking region, and many customers may be more comfortable communicating in Arabic. Banks can invest in technology that can provide customer support and other services in Arabic to improve customer experience.
7. Investing in Security and Risk Management: With the increasing number of digital transactions, the risk of cyber-attacks and fraud is also increasing. Banks should invest in robust security and risk management systems to protect against cyber threats, data breaches, and financial fraud.
8. Investing in Islamic Finance: The Middle East has a large market for Islamic finance, and banks can invest in Islamic finance products and services to appeal to this market. Banks can also use digital technologies to make these products and services more accessible to customers.
9. Leveraging the Region’s Growing E-commerce Market: The Middle East is experiencing rapid growth in e-commerce and digital payments. Banks can leverage this trend by developing digital channels and services that enable customers to make online purchases and manage their e-commerce transactions.
10. Investing in Digital Onboarding: Banks can invest in digital onboarding technologies such as video-based KYC and e-signatures to make the account opening process faster, more convenient, and more secure.
11. Investing in Blockchain Technology: Blockchain technology can be leveraged to improve the security and efficiency of banking operations, Banks in the Middle East can invest in blockchain technology to create digital ecosystems that are more secure, transparent, and efficient.
12. Developing Digital-Only Banks: Middle Eastern banks can create digital-only banks that are specifically designed to serve customers who prefer to do their banking online. These banks can offer a range of digital-only services and products, such as online account opening, online lending, and online investment services. Recently banks have started creating a separate digital bank of their own to address these lifestyle banking needs of customers. Ex- Liv digital bank of Emirates NBD.
13. Leverage the Power of Data to Offer Personalized Financial Products and Services: Banks can use data analytics to gain insights into customer behavior and preferences and use these insights to offer innovative financial products and services. This data can also be used to identify patterns of financial behavior and using this information banks can develop personalized financial products and services that meet the needs of individual customers.
14. Creating a Seamless Customer Experience: With millennials driving the digital banking adoption in the Middle East, it is crucial for banks to prioritize customer experience. Banks can use digital technologies such as artificial intelligence, chatbots, and digital assistants to create a seamless customer experience across all channels. This can help banks to provide customers with faster, more personalized, and more efficient banking services.
15. Implement Biometric Authentication: With security being a major concern for customers, Middle Eastern banks can implement biometric authentication such as facial recognition or fingerprint scanning to enhance security and convenience for customers.
16. Building Loyalty Programs: Banks can create loyalty programs that reward customers for using digital banking channels and services. This can help to encourage customers to adopt digital banking services and increase their usage over time.
17. Offer Digital Wealth Management Services: With increasing wealth in the Middle East, banks can offer digital wealth management services that provide customers with personalized investment advice and portfolio management.
18. Provide Digital Financial Education: Middle Eastern banks can use digital channels to offer financial education to customers, including information on budgeting, saving, and investing. This can help customers to make more informed financial decisions and improve their financial literacy.

By implementing these strategies, Middle Eastern banks can create a digital ecosystem that provides customers with a wide range of financial services and products and enhance their overall banking experience. Some banks have already started to adopt advanced technologies such as mobile banking, digital payment systems, and data analytics to improve customer experience and increase efficiency. However, they need to continue to invest in and adopt new technologies to stay competitive and meet customer needs in the future.

Conclusion
In the future, Middle Eastern banks should expect to see an increasing demand for digital banking services, such as online account opening, online lending, and online investment services. They should also expect to see an increasing demand for personalized financial products and services, as well as a greater emphasis on security and risk management.

To satisfy these evolving needs, Middle Eastern banks should focus on creating a seamless customer experience across all channels, building a culture of innovation and experimentation to stay ahead of the competition, and investments to improve the security, efficiency, and personalization of their services. This will require a combination of innovation mindset, organizational changes, and cultural shifts. By doing so, they will be well-positioned to meet the challenges of the digital age and take advantage of the opportunities that it presents.

References —
1. https://www.mastercardservices.com/en/reports-insights/bankings-digital-transformation-journey-middle-east-africa
2. https://ciospeak.com/articles/digital-banking-in-the-middle-east-present-and-future/
3.Digital banking in the Gulf, Mckinsey Report (2016) https://www.mckinsey.com/~/media/mckinsey/locations/europe%20and%20middle%20east/middle%20east/overview/insights/digital%20banking%20in%20the%20gulf/digital%20banking%20in%20the%20gulf%20161116%20digital.ashx
4. https://www.bcg.com/publications/2022/customer-value-and-banking-in-the-digital-age
5.https://www.bcg.com/consumer-sentiment-banking-infographic-ksa
6.Emerging market banks need to act now to attract less loyal millennials (consultancy-me.com)
7.Customer Engagement for Banking in the Middle East: Surge in Digital Payments and Need for Connected Banking Experiences | MoEngage