FinTech trends in GCC banking

Over the course of the past few years, significant macro-economic factors led by the slump in oil prices have buffeted the GCC economies and the GCC
banking industry.

Banks are experiencing a slowdown in growth and a rise in the risk profile of their assets. These factors have also forced the GCC banking industry to review its business models, focus on operating efficiency and adopt new technologies to get the customer’s wallet share.

Financial technology (FinTech) has played a key role in such transformation initiatives. Traditional systems deployed across the eight layers of a typical banking architecture are also undergoing significant changes. These ‘hotspots’ are witnessing a high level of activity in the form of diagnosis, build versus buy decisions and the procurement of new technologies.

FinTech hotspots in the GCC

A quick look at a typical banking architecture reveals a few common areas that most banks in GCC are considering for a transformation:

* Self-service
* Innovation of products
* Digitisation
* Straight-through processing
* Risk management
* Customer insights and analytics
* Disintermediation for cost savings

There are specific issues within each layer of the architecture that must be considered more closely.

Channel layer

With the growth of digital channels, banks are moving their IT investments from programmes focused on back-end systems to transformation initiatives on digital channels. User experience and straight-through processing are also emerging as key focus areas for technology investments. While offering an expanded set of services through digital channels, banks also need to ensure a uniform customer experience. Hence UAE banks are investing in convergence technologies that enable customers to move seamlessly from one digital channel to another.

Front office layer

With operating profits under pressure, banks are recognising the importance of branch efficiency and adherence to service levels. To achieve this, banks are investing heavily in business process management (BPM) and branch automation solutions. Also, cross selling of additional business to existing customers is emerging as a key growth driver. Cross selling requires significant investments in customer relationship management solutions that provide a 360-degree view of the customer. The need for better customer insights is also driven by regulations such as Know Your Customers (KYC) and the Foreign Accounts Tax Compliance Act (FATCA).

Mid-office layer

With the higher risk profile of banks’ assets, the focus on risk management and diligence is greater than ever. Regulators are demanding higher KYC capabilities from the banks, and imposing strict guidelines on anti-money laundering and risk-management capabilities. So most GCC banks are investing in new capabilities for analysing customer profiles and transaction patterns.

Back-office layer

The implication of a deep focus on operational efficiency is that UAE banks are reviewing their core banking and back-office systems capabilities and determining their ability to support operational efficiency. Monolithic legacy systems that were built and sustained on high customisations and operational workarounds are now being replaced with lean and robust systems that integrate seamlessly with channel systems through an enterprise service bus.

Analytics layer

A natural corollary of the growth in digital banking and cross selling is that banks require deep insights on customer behaviour and preferences. Also, regulators are demanding that UAE banks be capable of responding to any queries related to customer segmentation and risk profile. Thus, banks are investing in new capabilities on predictive analytics, big data, enterprise performance management and data warehousing

External layer

The payments domain has witnessed perhaps the most technological transformation in 2017. Banks have started recognising that new technologies such as blockchain could disintermediate them, and are taking pro-active measures to be early adopters of the technology. Some leading banks in the UAE have already conducted proof of concept on blockchain with trusted counterparties.

All stakeholders in the value chain of banking (customers, banks, intermediaries, counterparties and technology suppliers) will be watching the development of blockchain technologies very closely, and will undertake further programmes in 2017.

Conclusion

The remainder of 2017 promises to be eventful for the FinTech industry, as their banking customers learn to collaborate, compete and adopt technologies that have the potential to disrupt the entire banking industry. By its leadership position in the region, the UAE banking market is likely to be at the centre of all this action.

Sudeep Nair is senior director at Cedar Management Consulting International