News Column

Banking sector and technology in the UAE

July 16, 2014

Over recent years, enormous amounts of money have being invested in the banking sector with the objective of improving operational efficiency, product innovation and competitive ability.

Once, banks were built on the idea that people wanted to do business with institutions where the bank's employees greeted them by their first name, along with a cup of tea and where delivering outstanding customer service was more a core value than an advertising slogan.

And then technology reared its digital head. Whilst until the early 80s, no major breakthrough in technology was achieved within the industry, since then we have witnessed transformational change.

Over recent years, enormous amounts of money have being invested in the banking sector with the objective of improving operational efficiency, product innovation and competitive ability. As processes have been simplified, efficiency levels improved and a wider audience reached, new markets, products and services have emerged along with a plethora of new banking channels. This change was further driven by the 2008 global financial crisis when lenders began to focus on consumer operations, an easier market at a time when big corporate clients were struggling to pay old loans and could not take out new ones.

Banks have had no choice. Whilst there are fewer banks in total today thanks to industry consolidation, there has been an increase in the sheer number of competitors for each customer. Technology has enabled global banks to have a local reach and indeed, all banks to have a wider reach full stop.

Here in the UAE, we are no stranger to fast-paced growth and our 50-plus banks are investing in technology at unprecedented levels, largely to accommodate the likes of mobile banking, banking apps, mobile wallet and digital currency, Bitcoin. With our population of over nine million, we have the highest usage of smartphones in the world with penetration rates in excess of 75 per cent. This has effectively forced the banks to constantly reinvest in their strategies, in order to keep winning customer share and continually enhance the customer experience. Financial institutions of all shape, scope and size need to constantly search for creative solutions to provide a better service.

The UAE's federal government is certainly on side with their commitment to aid banks in making transactions hassle-free. The much-awaited Al Etihad Credit Bureau will further assist this, as will the e-government initiative and Dubai Smart Government's introduction of mPay.

With regards to apps, banking apps are increasingly overlapping with traditional institutions as there is an ever-rising drive to create apps that can be customised and personalised in order to meet customer preferences, needs and expectations.

In addition, what about the hype we've seen around digital currencies, such as Bitcoin. First appearing in 2009, Bitcoin is purported to be a more secure, fast and more affordable option for transferring funds from one party to another. Digital currencies as a whole have enjoyed a phenomenal growth to date and have certainly attracted a lot of interest with worldwide mobile payment transactions expected to total $325 billion this year (up 28 per cent from 2013 and 72 per cent from 2012) although the UAE continues to lag considerably behind the US.

Many feel the digital currency carries far more risk than reward due to various legal glitches to be overcome, price instabilities and concerns over valuation, given that it has no backing from a state or government nor any physical presence. Is it just a case of waiting until consumer confidence grows?

How does all this investment in technology translate to the end user experience? Quite simply, banking customers can today perform pretty much any banking transaction 24/7 with a touch of a button. The day-to-day hassles of banking from making deposits and transfers to opening new accounts and accessing cash are much reduced. As traffic, parking difficulties and queues become a distant memory, in their place customers can enjoy ease, speed and convenience. In turn, this makes for greater efficiency and cheaper transaction costs.

Has this technology adoption helped the banking sector in achieving profitable growth? Certainly operational capability has vastly increased without the need for additional manpower. Payment and settlement systems have also been improved and much research has shown a positive correlation between the level of implemented technology and both profitability and cost savings.

The question now is whether these technologies will render traditional branch banking obsolete. One prominent feature in the UAE cultural and commercial landscape is that of personal interaction and relationship building so some level of one-to-one service is likely to remain. This is perhaps where the greatest challenge will lie for our banks… finding that elusive balance.

Like it or loathe it, banking and technology is a development we must all embrace and whilst other financial trends come and go, this one is without doubt here to stay.

As customers demand new levels of personalised and prompt service, our banks must continually adapt and find new value in their existing systems whilst relentlessly improving the quality of their products and services.

The writer is a director at the UAE's leading finance comparison site Views expressed by him are his own and do not reflect the newspaper's policy.

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Source: Khaleej Times (United Arab Emirates)

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