How Middle Eastern banks can embrace the full potential of digital

 Ross Gallagher photo
Ross Gallagher Principal Consultant and Delivery Lead at 11:FS
5min read

There’s been no shortage of attention paid to the emergence of fintech in the Middle East recently. In fact, we wrote about the ‘perfect storm’ that was brewing in the region and recently gave an overview of the digital challengers emerging to meet these needs.

But despite the growth of the fintech sector in the region, incumbents have typically failed to embrace the true potential of digital. Most have digitised existing services and enabled customers to carry out basic functions, like money transfers, online.

More complex activities, however, like applying for a new financial product, remain branch-centric. These limited digitised solutions fall short of customer expectations, for example, a study by Deloitte found “limited alignment” between customer expectations and bank offerings, with banks failing to leverage fintech solutions and features to address customers’ needs to enhance the daily banking journey and experience.

How did we get here?

Unfortunately, the regional ecosystem required to supercharge the growth of the fintech sector remains relatively nascent. And that’s largely due to the regulators.

Local regulators have made lots of progress over the past couple of years in their mission to support the growth of fintech. International fintech bridges, accelerators and digital sandboxes have helped lay some of the necessary groundwork. But regulators have been too slow to adapt their processes to allow them to effectively engage with new challengers and help them get to market.

The UAE Central Bank, for example, has outsourced innovation on regulatory frameworks to the FSRA and DSFA, offshore regulators who have no authority over the banks licensed by the Central Bank. This has slowed progress and contributed to a sense of jurisdictional uncertainty that only serves to maintain the status quo.

Without regulatory frameworks that are fit for purpose, the only option available to challengers for getting to market is to partner with established incumbents and use their license. But these types of partnerships are rarely a priority for the incumbent partner.

Fintechs very often service the needs of marginalised and less-affluent customers, whereas legacy banks in the region have focused almost exclusively on the needs of more affluent segments to help offset high operational costs.

Regulators have been slow to adapt their processes to allow them to effectively engage with new challengers.

Customer problems remain unsolved

Growth of online purchases is accelerating across the region. However, 76% of Saudi consumers that shopped online, for instance, chose to pay by cash on delivery, suggesting that trust is a key consideration. UAE-based Buy Now Pay Later fintech Tabby has addressed this concern by allowing customers to pay after receiving their purchase.

Financial exclusion also remains a huge problem. The World Bank estimates that around 168 million MENA adults lack access to basic banking services, so there’s scope for someone to step in and change this.

Incumbents might feel threatened by the emergence of these new disruptive fintechs, but rapidly-evolving customer needs and expectations are increasing the size of the overall pie and creating opportunities for both challengers and big banks.

In Saudi Arabia, for example, social media has organically given rise to brand new cottage industries and female entrepreneurship is rising sharply. These emerging segments need tailored financial services to meet their unique needs.

It’s also tempting to think short-term. Yes, the current regulatory situation preserves the status quo which favours incumbents. But this isn’t intentional - or likely to last! Regulators will fully embrace modern technologies and produce the necessary frameworks. And when they do, things will change pretty quickly.

Value left on the table will inevitably be picked up. If not by you, then by somebody else.

Regulators are already signalling their intent for expanding local fintech ecosystems with the launch of ambitious new initiatives. The Saudi Arabian Monetary Authority (SAMA) recently announced it was launching Fintech Saudi, designed to help Saudi create a fintech hub to rival those already established in Dubai, Abu Dhabi and Bahrain. Fintech Saudi will deliver a range of supporting infrastructure to help accelerate the growth of fintech in the region.

Building the ecosystem: the virtuous circle

Defining an approach to partnering with fintechs that is truly fit for purpose is a good first step for incumbents.

Adopting a truly collaborative approach to how you partner with emerging fintech challengers and working with them to understand what they do well that you do not, and vice versa, will allow you to create meaningful, valuable partnerships.

Redefining internal procurement processes to more easily accommodate such partnerships and embedding agile ways of working will help to deliver longer-term value and make sure ventures are set up to succeed. Embracing challengers in this way and helping them get to market will ultimately help to create a richer and more valuable partner landscape in the region.

Over time, this will expand to include systems architecture and core services vendors that can power modern core banking stacks and enable the next generation of truly digital financial services.

This industry-leading work will, in turn, begin to attract the best talent, who want to work on interesting projects and make a difference. This growing ecosystem will also help to boost investor confidence, giving rise to even greater levels of investment and fuelling its continued expansion.

So, how do you win?

As a big bank, there are a number of ways to harness the success of fintech in the Middle East:

  • Fall in love with your customers’ problems and use these to inform everything you do

  • Consider emerging segments, key cultural trends and the impact of regulation to identify domains where you can deliver value and solve customer problems

  • Apply Jobs to be Done to identify key underserved needs within these domains

  • Understand the role played by national identities and traditional values and use these to inform product design

  • Build multi-disciplinary teams

  • Foster a culture built on curiosity and a relentless obsession with the customer problem

  • Embed regular user-testing cadences and establish short feedback loops to guide product development

  • Build a community of early users and foster this community as the product scales

  • Align internal processes to enable these agile ways of working

  • Empower delivery teams to act quickly while mitigating risk (for example within a specified risk appetite)

Outstanding service and face-to-face connection is more important in the Middle East than in other parts of the world. So simply recreating in-person experiences online isn’t enough.

In the same way that social media has enhanced relationship building and networking in the region, it’s important that digital financial solutions recreate that human connection. Solutions must be real-time, intelligent and contextual to capture that human connection. UAE-based Jingle Pay, for instance, manages to combine responsive banking services with social engagement elements to deliver delightful experiences to customers.

Once you’ve done that, you can:

  • Create a comprehensive partner strategy

  • Develop an in-depth understanding of the vendor landscape

  • Define the best technology partners to help you to enable this next generation of truly digital financial services

  • Identify what you already do well and how this could be augmented by the right partner

  • Develop a fit-for-purpose engagement model to support these partnerships and ensure they are set up to deliver against their potential

Simply recreating in-person experiences online isn’t enough.

By following these steps, you’ll stand in good stead to build authentic, hyper-localised products with the power to solve real customer problems in today’s digital world.

And if you need help building a better bank, we've got the recipe! Our How to Build a Bank report will help you navigate the waters of financial services to successfully create truly digital propositions your customers will love. Download the free report now.

 Ross Gallagher
About the author

Ross Gallagher

Ross has considerable experience designing and optimising card payment and other digital banking services for tier 1 banks. At 11:FS his focus is working with global brands to build world-class digital challenger banks.

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