Building on a Pre-existing Strong Foundation for Digitisation

In the past decade, the emergence of new technologies and evolution of client expectations has spurred a rapid drive towards digitisation. Every industry is on track to redefine itself, eager to utilise innovative technology to thrive and grow.

However, it was really the global lockdown and movement restrictions brought by the Covid-19 pandemic that shook the world to its core, forcing every sector to reconsider the way it operates.

Companies in the financial sector were forced to accelerate years’ worth of digital adoption in a limited time, risking lagging behind its peers otherwise.

While many firms initially adopted digitisation to help facilitate their business continuity, customers have now become more accustomed to the accessibility and simplicity of digital financial services. The urgency for digitisation, catalysed by the pandemic, has paved the way for sceptics and previously unbanked people to be able to finally utilise these services and reap the benefits.

In ensuring individuals were well-equipped to weather through the storm and serving the financially underserved, digital financial services have become a saviour during a time of crisis.

Digital capabilities 

When paying with cash and hand-to-hand money exchanges were swiftly discouraged at the peak of the pandemic, digitisation allowed for cashless transactions, which have turbocharged across the world since.

Today, digital banking platforms are pulling clients away from traditional financial service firms through new technology, placing emphasis on an enhanced and simplified client experience. However, the transition to digitisation at the onset of the pandemic was not necessarily a seamless and easy one for all.

Jorge Camarate, partner at Strategy& and leader of the firm’s financial services practice in the Middle East, states that before the pandemic, many operational roles were not enabled for remote working.

“Many banks scrambled to procure laptops, enable remote working software and set-up the necessary cybersecurity protection when lockdowns were first announced,” he says.

With that being said, digitisation has always been a focus for financial institutions regionally, with its value and importance being recognised long before the pandemic.

“Most UAE banks were already implementing large digital initiatives before the start of the Covid-19 pandemic, especially regarding the development of online and mobile functionality for retail, SME and corporate customers,” comments Camarate.

Camarate said these new digital capabilities have been built on a strong foundation that already existed within financial institutions in the region. Those with strong and agile digital underpinnings have been able to digitise many of their existing processes effortlessly.

“Today, we see that many of our clients are choosing to operate with a significant share of their staff working remotely for long periods of time, without any major impact on day-to-day operations,” he says.

“The lockdown triggered by the pandemic highlighted the need to accelerate these initiatives, as illustrated by the roll-out of digital propositions such as Mashreq’s NeoBiz or ENBD’s E20.”

Jorge Camarate, partner at Strategy& (left), and Ahmed Abdelaal, group CEO of Mashreq

For Ahmed Abdelaal, group CEO of Mashreq Bank, the lender’s digital transformation was very well advanced prior to the pandemic, which allowed for a seamless shift to pure digital operations.

Banking and financial institutions that were already investing in digital financial services were better placed to respond to the pandemic and rebounded faster.

“During the early days of the pandemic in 2020, when 97 percent of Mashreq staff were working from home, we offered our customers uninterrupted services and seamlessly transitioned them towards digital banking,” he says.

“Over the last few years, we have invested heavily in digital innovation, particularly data analytics, AI, and the use of robotics to automate processes. We strongly believe that leveraging these technologies will give us an advantage in adapting to future disruptions by creating intuitive user experiences that delight and deliver.”

Similarly, Philip King, Abu Dhabi Islamic Bank’s global head of retail, says that it was the bank’s ongoing digital transformation journey that supported its quick adoption of digital financial services. “ADIB has been very fortunate that the investments we made in our digital capabilities prior to the outbreak of Covid-19 put us in a strong position to meet the rapidly evolving needs of customers,” he explains.

The pandemic as a catalyst for much-needed change in the sector 

While digitisation in the banking sector was not a new concept prior to the pandemic, its immense importance, rather indispensability, could not have been recognised more than now.

Abdelaal explains that digital is playing an increasingly crucial role as banks in the region are going through rapid transformation.

“Consumer habits continue to change at an unprecedented pace; and there is a large and growing appetite for digital services. The pandemic has further accelerated the adoption of digital banking services,” he says.

Alongside meeting consumer preferences, being at the centre of the global economic mayhem, digital upscaling has enabled banks to continue operating as essential services and extend the critical support for consumers, as well businesses, to meet the crises at hand.

While some of these digital measures may have been a short-term response, many hold immense long-term value, and nearly all of them have lessons to give in crisis management.

“Given the ever evolving needs of our customers and their transactional behaviour, we expect traditional branch banking to be transformed. While Mashreq will increasingly look at digital avenues to offer banking services to its customers, there remains a role for traditional brick and mortar branches,” adds Abdelaal.

Serving the financially underserved 

Alongside traditional banks developing their digital capabilities, fintechs and neobanks have been disruptive forces during the pandemic, greatly supporting the underbanked demographic.

Neobanks are online-only financial institutions with no physical branches, operating solely digitally. Many of these digital banks cater to niche market segments, such as immigrants, teenagers, and freelancers, and are essential in ensuring that these segments remain afloat during the pandemic.

Another advocate for the underbanked are fintechs which have been leading the way for financial inclusion at a time where the pandemic has discriminated against the economically underprivileged.

Over the past decade, fintechs have been rapidly transforming the global financial services sector from digital payments, lending, and insurance, to asset and wealth management.

As the broader economy shifts from “respond” to “recover”, and the increasing focus on fostering a cashless economy persists, the potential for even further fintech growth is promising.

Seeing the value in their innovative drive, many banking institutions are partnering with fintech firms to enhance their current banking functionalities. Banks are soon realising that the value of consumer brand loyalty is withering, while demand for high tech, speed, accuracy, and transparency is rising.

ADIB’s global head of retail shared that adapting to market demands, including acknowledging the need for fintech services, is crucial in today’s post Covid-19 digital age.

“ADIB was an early investor in fintech, recognising the fundamental shift in customer preferences,” King states.

How fintechs revolutionised the customer experience

With intense lockdowns called across borders, organisations scrambled to support their customers amidst the crisis. Amongst these issues was a lack of cash flow – an issue addressed by fintech company Rise.

Digitisation adds immense value not only in accelerating growth in finance technology, but also in aiding people cope with the pandemic

Padmini Gupta co-founded Dubai-based Rise in 2017 with the vision of providing migrants access to basic and easy financial products. With Rise being a digital platform, the team banked upon the inevitable shift to digital spending to gain more users over the years. This shift, however, was hastened at the behest of the global pandemic.

“The pandemic accelerated both the transition to digital as well as the speed at which this transition is happening and while finance has had to adapt to this pace of change, unfortunate reality is that it has not kept pace yet,” says Gupta.

“Finance is the largest, most profitable industry globally and it drives the global economy and investing in accelerating financial digitisation drives the whole economy forward.”

The pandemic resulted in a shortfall in disposable income for migrant communities, leaving them unable to send money abroad to their family. In addition, as consumers were urged to stay home, the popularity of mobile remittance apps and online remittance platforms surged, becoming the safest and most convenient way to transfer money.

“It has changed our lives forever. Cash has become a four-letter word and segments which did not have access to a cashless ecosystem have struggled.

“Migrants who depended on sending cash remittances to their families back home, when Covid hit – they really struggled to send money home or even have the family spend that cash. That led us to build Xare – which essentially enables people to share their financial resources with their tribe across the globe without any cost.”

Digitisation adds immense value not only in accelerating growth in finance technology, but also in aiding people cope with the pandemic, the Rise co-founder adds.

“If the pandemic is pushing people to move more and more towards technology, the same is helping people to get through these difficult times. For example, one of our users is using Xare to share his credit card with his brother back home who has lost his job. Another using Xare to give her son in Philippines a budget to buy his new phone online. Another is sharing card with her employees to do business expenses. We have users in more than 100 countries, and we find it incredible how they are using Xare in making their day to day lives easier,” she states.

Philip King, global head of retail at Abu Dhabi Islamic Bank (ADIB).

Promising results and growth

The digital evolution continues to be well-received regionally, with financial institutions reporting promising results and sustained growth.

“The fruits of our investment in digital are clearly reflected in the robust 30 percent increase in digitally active customers during the first half of the year. Over 700,000 of our customers are now digitally enabled and use our digital channels either on a daily or weekly basis,” says King on ADIB’s digital performance.

“At the same time, cash withdrawals and cheque deposits made through branches have decreased 8 percent and 6 percent respectively, with more than 95 percent of both these types of transactions executed online. In the past year and a half, we have also witnessed an 88 percent upsurge in digital money transfers.”

Similarly, Mashreq bank continues to witness a strong digital presence, which its CEO, Abdelaal, attributes to the strength of the bank’s digital offerings.

“Today, 65 percent of our customers are on boarded via digital channels, clear evidence that customers increasingly prefer using our digital services and welcome transformational approach. This significant shift to digital is a key reason for reshaping our branch network. Also, 92 percent of our customer base have online and mobile banking credentials. This is an indicator in the strength of our digital offerings and our clear position as a digital leader,” he says.

Sectors such as e-commerce are driving the digital economy in the region

Fintech’s role in decentralising the financial world 

From banks limiting their branch access and hours, to the fear of Covid-19 contaminating paper bills and coins, the Covid-19 pandemic has transformed the relationship between consumers and their banks.

At the pace that fintechs are evolving and changing, it does not look any less than a revolution, one that has already been sparked by the Covid-19 pandemic.

“Finance is becoming increasingly decentralised. The era of few large, centralised banks is coming to an end. Fintechs are bringing more and more niche products to smaller and smaller communities. In that sense, the future of finance is social, decentralised and instant,” Padmini says.

COURTESY: arabianbusiness.com/