Kuwait’s Digital Transformation Journey

A historically strong banking system has been conservative in its approach to tech innovation, but that’s changing.

Over the years, Kuwait’s central bank (CBK) has been dynamic in promoting sound regulation in tandem with renewed economic growth and low inflation.

As a result, the nation’s lenders entered 2023 from a position of strength.

According to the International Monetary Fund (IMF), the nation boasts “strong bank buffers, prudent oversight and proactive monitoring of financial risks by the CBK.” Also, its banking system “has weathered the recent shocks well.”

But while Kuwaiti banks remain well-capitalized, liquid and among the country’s best performing companies, there is still room for improvement and growth.

“Our population is relatively small, but we still have underserved segments like blue-collar workers [low income] or small and midsize enterprises [SMEs],” says Abdullah Al-Tuwaijri, CEO of Consumer, Private & Digital Banking at Bank Boubyan, a local Shariah-compliant lender. “There is also a large need for credit products like buy-now-pay-later, microcredit and SME credit.”

The focus is on digitization. Kuwait is looking to leverage its historically strong banking sector to become a regional financial hub. When it comes to banking innovation, the country has not developed as fast as its neighbors like Dubai, Abu Dhabi or even Saudi Arabia. But the CBK has been pushing for years to bring Kuwait to the forefront.

So far, Kuwait has been somewhat conservative in its approach. Notwithstanding some successful local fintechs such as TapPayments and MyFatoorah, it is the traditional banks that are sitting in the driver’s seat.

According to Salah al-Fulaij, CEO of NBK-Kuwait, the country’s largest bank, the strategy is to “focus on putting technology first to unlock new revenue streams.”

“Over the years, we have committed investments and leadership attention to our digital transformation journey,” al-Fulaij says. “This is crucial considering Kuwait’s demographic structure, with over 50% of the population under the age of 25, presenting a massive potential for the fintech industry to boom. In 2023 and beyond, I believe that our proactive digital transformation strategy and expansion of our digital infrastructure will continue to drive our success.”

Testing New Concepts

The central bank has opened a regulatory sandbox to test new concepts. But what really shook things up was the Covid-19 pandemic, when Kuwait observed some of the world’s strictest confinement policies.

“The fintech evolution began in Kuwait pre-pandemic, but it took on another meaning—and a much greater sense of urgency—in light of our collective shift to remote lifestyles during quarantines and lockdowns,” says Raed Jawad Bukhamseen, vice chairman and CEO of Kuwait International Bank (KIB). “Our customers’ banking needs changed, and so did the way they banked. Today we no longer think of products and services, we think of solutions and experience.”

A majority of Kuwaiti banks now run their operations through mobile applications, have partnerships with global fintech solutions like Ripple or ApplePay and offer programs to support the local ecosystem. NBK, for instance, has the Digital Office, an innovation lab and accelerator.

“We consider our collaboration with fintech businesses as a two-way avenue,” explains al-Fulaij. About two-thirds of NBK’s transactions are handled through the application, he says.

“We gain from their services and products, and they benefit from our robust infrastructure, stable client base and our large investments,” al-Fulaij adds.

In 2021, Kuwait’s leading bank also launched Weyay. It was touted as a “comprehensive banking alternative” to the country’s ever-growing younger customer base. The new digital bank exceeded its client-acquisition goal by 300% in just a year, the bank says, and is expected to launch soon in new markets.

More disruption is expected to emerge out of Kuwait this year. In 2022, the CBK introduced new regulations on open banking, banking-as-a-service and cloud computing. It also started receiving applications from new digital banks and should issue licenses in 2023, potentially opening the way for challenger banks to step in. “This will certainly be a catalyst for faster and bigger changes in the banking system” Al-Tuwaijri says.

Also, newcomers to the customer base are expected to push traditional banks to accelerate their digital transformation even further, Al-Tuwaijri says. “We think competition is healthy,” he says. “It is already fierce in Kuwait.”

Targeted Segments

Kuwait is betting on local market specificities to develop services in targeted segments. Being one of the world’s five richest countries in terms of GDP per capita and home to the planet’s highest concentration of billionaires per capita, one of these segments is wealth and asset management. In their quest to cater to the needs of the ultrarich, Kuwaiti banks are developing cutting-edge technologies that consider the local culture.

Boubyan Bank is specifically looking to tap into that market locally with new products and services offered through its investment arm, Boubyan Capital. Through its Nomo subsidiary, a Shariah-compliant digital bank launched from the UK in 2021, Boubyan wants to help globalized Kuwaiti and Arab customers bank in Europe by “introducing access to UK properties through mortgage, as well as developing specific wealth management products that fit with the UK-based value proposition” says Al-Tuwaijri.

In late 2022, Burgan Bank, Kuwait’s third-largest lender, received a license from CMA to offer wealth management solutions to its clients.

In 2021, NBK restructured its wealth management division with the aim to increase market share in that segment. Faced with the growing number of high-net-worth individuals among its client base, the bank also launched a personalized investment mobile application.

“We identified an opportunity to introduce retail banking clients to investments via the NBK Mobile Banking application by adding SmartWealth [an online investment-services platform by NBK Capital] to the platform, with improved onboarding functions, simplified financial transfers for investing and the ability to have full online access to their portfolios,” says al-Fulaij.

Successful experiences at home can help Kuwaiti banks scale abroad, especially in countries where digital wealth management is a growing trend—such as Saudi Arabia, the Middle East/North Africa region’s biggest market.

“We expect to expand our wealth and asset management market share in both the local and international markets,” says al-Fulaij. In 2022, international operations in countries like the UAE, Egypt, as well as France, China or the UK accounted for 27% of NBK Group’s earnings.

Sustainable investing is also a top priority for Kuwaiti banks, with more lenders setting carbon-neutrality goals for themselves as the country works toward becoming net-zero by 2050.

Jehad al Humaidhi, CEO of Ahli United Bank–Kuwait, tells Global Finance that forecasting the future is “incredibly challenging” in such a period of uncertainty, but “I am optimistic about Kuwait banking capabilities to achieve higher and better results in 2023 [and] 2024.”