Home to more than 411 million people, with dynamic needs spread roughly across 17 countries, the Middle East banking sector is ripe for disruption, and the need of the hour is for financial institutions to become future-ready. While regional leaders have been making strides towards digital transformation, much like other markets, COVID-19 has amplified its pace.  

For years, entrenched incumbency in the banking sector had a detrimental effect on innovation and competition in multiple MENA markets. However, digitization has gone into overdrive over the past two years, steered by changing customer needs, the rise of neobanks and challenger banks, and increased competition in the financial sector from traditionally non-bank brands.  

Governments across MENA, recognizing that a well-developed financial system contributes to fostering growth, employment creation, and alleviating poverty, have provided strong support for digitization through new regulation, support, and guidance. 

With even more competition in an already highly concentrated banking sector in MENA, banks have come under additional stress to differentiate and compete to attract the younger customers of the future. 

So the question remains – how can banks and financial institutions across MENA transform themselves into future-ready institutions for modern consumers? That is exactly what we will be discussing in today’s blog post.   

The 7 Pillars of Transformation  

Studies over the years have documented why more than 84% of digital transformation efforts fail, with the most prominent reason being, the failed incorporation of technology. Thus, it goes without saying that to succeed, institutions should have a well-defined digital transformation strategy in place, and our experience dictates that the same be spread across seven key verticals.   

1.Comprehensive Customer Journeys  

Banks and traditional financial institutions, by design, are complex organizations. With increased dependence on legacy infrastructure, their ability to design personalized and frictionless journeys for the modern customer is severely limited. 

On the other hand, the modern customer demands an efficient and swift banking experience driven by lower transaction costs and an experience unique to them. Thus, as the first step of the process, it is crucial that banks analyze the needs of their current customers, first to accurately define their expectations, and then proceed toward designing future-ready digital banking experiences.  

A recent “Beyond Banking” Report by Arthur D. Little and M2P Finance highlighted that more than 61% of their respondents (aged 25 to 44) were ready to shift to peers if their primary banking partners failed to provide the desired banking experience. Around 28% of MENA’s population (representing 103 million people) is between the age of 15 to 29, and in most Arab countries, around 60% of the population is below the age of 25, representing a large segment of the bankable population that will switch financial brands if they needs are not met. The need to innovate to stay relevant for these customers cannot be overstated.  

2. Detailed Analytics  

A 2020 Salesforce survey revealed that more than 51% of banking customers expect their institutions to anticipate and personalize their banking experiences even before first contact. Although financial institutions have long been the custodians of sensitive and actionable customer information, little more has been achieved beyond storing data away in silos. However, now is the time to leverage state-of-the-art data analytics to not only gather greater insights on consumer preferences but also leverage them to curate hyper-personalized experiences right from account preferences to credit solutions. Not only can this create increased stickiness between a bank and its customers, but increase new-to-bank customers and usage over time. 

3. Goal-oriented Collaborations  

The future of global banking is collaborative as it enables institutions to serve customers better and improves their internal processes. A recent McKinsey survey reported that by strengthening partnerships across the board, banks can reduce customer onboarding time by 20 percent and associated costs by 15 percent and tap into underserved markets by leveraging technologies such as digital onboarding.   

However, a recent Deloitte survey among banks in the Middle East found that currently, only 5% of banks are partnering with FinTechs with an intention to win, while 15% are partnering to differentiate. This essentially means that while many prominent players have recognized the importance of forming strategic alliances with FinTechs, only a handful are willing to dedicate the time and resources to nurture them appropriately. But as we have pointed out, the future of banking is collaborative, and thus, to become future-ready, banks across the Middle East must nurture more effective strategic alliances. 

4. Agility and Resilience  

The modern consumer’s needs are ever-changing, and to maintain pace, it is crucial that banks adopt agile processes and technologies. According to a recent McKinsey report, adopting an agile architecture will enable financial institutions to accurately focus on customer centricity and position themselves for nurturing a novel culture within the organization. In addition, agile processes allow banks to efficiently and incrementally solve customer problems, thus engineering resilience for building at scale. Building technology solutions to solve today’s banking challenges is no longer enough. Banks have to change their mindsets and implement a culture of innovation similar to software companies with platforms and technology solutions that are agile and flexible to change with the times and customers’ evolving needs. 

5. Hiring & Retaining Future-ready Talent  

Attracting and retaining future-ready talent is at the heart of any digital transformation journey, irrespective of the industry, and this is especially true in the case of banking. Even before the pandemic, the global banking industry witnessed a shift in talent retention as an increasing number of their employees required reskilling to maintain competency, and the intensity has increased ever since.  

However, instead of leveraging the standard playbook of hiring and firing, an effective strategy would be to reskill existing employees with future-ready skills and continue investments in this domain to ensure retention in the long term.  

While the average bank branch size is expected to shrink from six to four full-time equivalents by 2030, McKinsey’s research predicts that consistent investments in reskilling will promote more than 20% yearly growth for bankers until 2030.  

6. Shift to Layered Technologies   

While investments in future-first technologies should be the center stage of every financial organization, in our opinion, what will separate the winners and losers in this race of digitization will be digital maturity.  

Simply put, digital maturity encompasses the ability to choose the appropriate technology for a particular use case, and in the case of banking, it should be the shift towards platform technologies. By actively moving away from horizontally layered technology stacks and adopting platform-based architectures, banks can ensure reduced cost of operations and continuous improvements through regular updates as the onus will shift from the financial institution to the platform provider.   

However, today, “Banking as a Service,” which forms the core of adopting platform-based technologies, is still nascent in the Middle East. As the recent Accenture report pointed out, while some regions like Bahrain and Saudi Arabia are on track to curate policies favoring platform banking, there remains a lot of ground to cover.  

Countries like Bahrain are making strides and emerging as regional leaders in digitization. Bahrain issued its Open Banking framework back in 2020; however, neighboring regions are quickly jumping on the proverbial digital bandwagon. 

7. Shielding Against Cyberattacks  

The recently published ninth “Annual Cost of Cybercrime Report” by Accenture puts into perspective the growing threat of cybercrime. For instance, the average number of breaches at multinational organizations increased from 130 in 2017 to 145 in 2018, and just over the last five years, cyberattacks have increased by 67%.  

While it is easy to guesstimate that cybercrime affects all industries equally, in reality, banking and financial services are often the hardest hit. For instance, between 2017-18, cyberattacks at leading financial institutions amounted to $16.55 and $18.37 million losses, respectively. And this doesn’t take into account the detrimental effect on a bank’s reputation as a result of a security breach. 

In addition to this, another report by PwC pointed out how regional financial institutions across the Middle East now share a higher threat of cyberattacks, as financial institutions rely on modern digital technologies to design new offerings. While prominent players such as UAE’s Central Bank are investing heavily in creating new cyber security centers, the metrics shared above display why continued investment in cybersecurity is crucial for financial institutions to safely transition into future-ready institutions.   

In Conclusion  

As the digital economy across MENA continues to prosper and modern consumers enter the banking ecosystem either by creating their own wealth or by inheritance, the need of the hour is for visionary banks and financial institutions across the region to transform themselves into future-ready banking institutions, and the seven pillars of transformation are a good starting point in that direction.