GCC digital-only banks more than two years away

Digital-only banks are still some way off in the Gulf Cooperation Council, as the industry gets to grips with digitisation, according to a new report.

EY MENA financial services technology and transformation leader Paul Sommerin told Gulf Business that digital-only banks were still more than two years away, but would most likely spawn from existing institutions.

“The reason I say that is I couldn’t see a pure play digital bank, like Egg for example. It could be a spin off of a traditional bank with a different brand. Looking at the United States, GMAC Bank created a digital bank called Ally Bank. I could see that potentially but not a pure play no branches offering. Branches are still the lifeblood of banking in the GCC region.”

In a recent survey of more than 2,000 customers across the UAE, Saudi Arabia, Qatar and Kuwait, EY found that up to 64 per cent would feel comfortable switching to a digital-first bank. In addition, 78 per cent of customers said they would be ready to switch to a bank with a better digital experience.

“Through the survey we actually asked were you prepared to change banks or transfer banks and what came out loud and clear that yes people aren’t loyal to their banks.”

From this information the firm calculated that up to 50 per cent of retail banks’ net profits could be at stake if they fail to adequately digitise their offerings.

However, in terms of providing the convenient, fast and accurate digital experience demanded by customers many banks were found to be falling short.

Only 14 per cent of customers in the survey said they made regular banking interaction on their smartphone, despite regional smartphone penetration approaching 100 per cent.

“The survey said a lack of convenience [was to blame], it wasn’t intuitive and didn’t offer the full breadth of services,” said Sommerin.

He also highlighted a lack of digitisation in the payments cycle, the requirement of still having to go into a physical branch to setup an account and the need to update and automate backend IT systems as key issues.

More than 70 per cent of GCC customers said they would increase their usage of payments services if their banking relationship were made convenient, simple and accessible.

The survey, which also included analysis of 700,000 sentiments on social media and discussions with 30 leading banks and 80 banking leaders, concluded that the disconnect between customer expectations and what banks in the GCC can deliver is more distinct than ever.

“Mobile-first is the future of retail banking in the GCC, but it is not enough for banks to just introduce new digital channels. They must reinvent their customer processes to offer technology-enabled, simple, end-to-end banking experiences. The key solutions in demand that could benefit tremendously from digitisation are payments, account opening and mortgages, with a significant potential to increase value per customer for banks,” said Sommerin.