Banking For A New Era In The GCC

Across the GCC, banks are grappling with changing expectations driven by the new possibilities offered by technology.

More than a year after the pandemic began, the world is still living at a pace set by Covid-19. In some countries, new waves of contamination and highly transmittable variants suggest we are not at the end of the tunnel just yet. 

While we all dream of taking our masks off, some new habits are here to stay. For this year’s digital banking roundtable, Global Finance chose to explore effects of the pandemic on GCC banks’ digital transformation.

The event gathered distinguished speakers from three different countries: Wisam Mahmood, co-head of Global Transaction Banking at Mashreq Bank, from the UAE; Leonie Lethbridge, executive general manager and chief operating officer at Commercial Bank of Qatar; and Abdullah al Mehri, chief operating officer at Bank Boubyan, from Kuwait.

Panelists shared their experiences with innovation, changing consumer behavior and new technologies such as APIs, cloud computing and open banking. They also shared professional insights on changing regulatory landscapes, opportunities when partnering with fintechs and strategies to leverage tech to better scale abroad.

Global Finance: How did the pandemic fuel innovation and digital banking services?

Wisam Mahmood: It happened very suddenly—client expectations changed very quickly. We saw an 80% increase in digital adoption, while at the same time banks themselves were grappling with arrangements to work remotely. At Mashreq, we were able to assess the transformational potential of digitization. We started thinking robot processing at the back end, harnessing artificial intelligence from a reporting perspective, data capture for regulatory requirements. We now find that new technologies, although they have been introduced very abruptly, created momentum within the bank, and that is a real force going forward.

Leonie Lethbridge: The pandemic created new and urgent needs, but it also coincided with a period when new means were already available—for instance, physical cash being converted to data. At the same time, we saw clients needing services they had not previously required. For example, demand for sending money to families at home in other parts of the planet doubled last year. Within that overall need, we noticed segments where we could devise specialized solutions.

Abdullah al Mehri: Honestly, we were taken off guard, not from a digital services perspective but with our employees and staff. We were not ready to work remotely! We had to find innovative ways to do that.

GF: New technologies are changing the face of banking, notably open banking, APIs and cloud banking. Where do we stand in the MENA region?

Lethbridge: Open banking is, to some degree, a misnomer, and we’re at risk of confusing ourselves because what we’re really talking about is open flow of data: data about the clients, data about their financial transactions and data about their assets. We need to be thinking, what data do we have? What are the clients’ opportunities and needs? How do we deliver services seamlessly? How do we make ourselves almost invisible in the transaction? The distinction between open banking and open data is important, since it opens the field of view beyond banking to other fields, such as e-commerce. It also opens the pace of change—perhaps of all data in existence, 90% has been created in the last couple of years. If we talk about transfer of funds overseas and the remittance context, we need to make sure trust in those data flows is extremely high, and that means reliability, security and accuracy as well as, of course, timeliness. I think open banking is not an end, it’s simply a means. It’s not only a threat, but also an opportunity. And it’s fundamentally all about combining data flows with great client experience.

Mahmood: On cloud computing, I think the MENA region is slightly behind developed markets, but it’s coming fast. We will adopt a hybrid model. Some countries have data residency laws with very specific requirements in terms of what the cloud means, but essentially it will happen. By harnessing the power of cloud computing, we should be able to move a product from ideation to deployment in weeks. The second aspect is obviously deployment in branches overseas, the multicurrency part of the cloud, being able to package services and deploy them in multiple countries. From that perspective, we see it as an opportunity.

Al Mehri: It’s happening, it’s coming, and we should look at it as an opportunity. In Kuwait, the central bank issued requirements to approve cloud services so there is acceptance from the regulator. The main concern remains the security and safety of data. It’s changing the way we’re doing business, but we should accept that and be ready for it.

Mahmood: Security is obviously a priority for any bank, but there is a cost aspect associated with following all the trends and security protocols. Big cloud players now have a significant infrastructure—we obviously need to make sure it matches the bank’s standards—but the investment they put in removes a burden and gives us peace of mind that all the security updates are being taken care of. From a cost perspective, it gives us an opportunity to free up some of our capex to invest in more innovation.

Al Mehri: I agree, for the public cloud providers like Amazon and others. We had a discussion with the regulator; the concern there was not security, it was more regulatory in a way, for example, the applicability of the Patriot Act. Unfortunately, those public cloud providers could not guarantee that they will not share data because of the applicability of the Patriot Act in the US. It’s not security in terms of the technology; it’s more regulatory.

Lethbridge: One of the other phenomenons in the MENA region and globally is the uptake of cyber-fraud and digital fraud. As clients have migrated online, so have fraudsters. I think there is a need for not only cybersecurity but also extremely good digital fraud controls. Yes, it’s expensive, but it’s also fundamental to how we financial institutions work. In most situations, it’s about identity theft. So that means working very closely for clients to protect themselves and to protect the data they are distributing. This is a data revolution, so that opens the landscape in which we’re competing. It creates opportunities for us. It creates new competitors, for instance, the Big Tech players, but it also creates new threats like digital fraudsters.

GF: Is the MENA banking sector opening to nonbank actors? What are the effects, fears and solutions for banks?

Al Mehri: In most GCC countries and in the MENA region, regulators have created regulatory sandboxes to support innovation. Some of the countries around us are now fintech hubs. It’s there, it’s happening, and we should always look at how we can benefit from those innovations. At Boubyan, we see potential partnerships and we established a department focused on that. Here in Kuwait, we need approval from the central bank to work with a fintech. There is an acceptance from the central bank—although sometimes they are cautious because at the end of the day, the regulator wants customer protection and data protection, which is also what we want as banks. The one concern is that once you have those controls on the fintech, it might lose that agility and the ability to innovate quickly.

Mahmood: For us, from a transaction banking perspective, fintech is an opportunity to expand our footprint, expand volume and reach more clients. But I think the key element here is that we need to play to our strength with fintechs so there will be a win-win-win situation in the sense that for the clients, they get the service at the right speed and at the right time; for the fintech, they get market access; and the bank can provide the underpinning infrastructure, meaning account services, liquidity and balance sheets, but also the banks’ ability to shoulder the compliance burden.

Lethbridge: In my view, fintechs—particularly as they exist in the local environment—are entirely to be welcomed. With digital transformation, we have escalating expectations from clients around the level of personalization we’re able to offer, the breadth of services available and the speed to market by which those offerings can be produced. Fintechs are an important partner in enabling all of those.

Al Mehri: I’d like to add, though, that when fintechs operate cross-border, they might be a risk to the financial stability of a country. Let’s take crypto assets. Even though it might not be allowed in a country—Kuwait, let’s say—it’s a cross-border investment that individuals can do immediately. That impacts the financial ability of the customer, and therefore the financial stability of the whole system. What I mean is that there is a level of threat and risk associated with fintechs when they are cross-border and totally out of regulation. This is one dark side of fintech that we need to look at. These cross-border operations, I think, cannot be controlled at the state level and need collaboration at international level. It’s not about banning certain facilities or services, but about aligning with international partners to define common objectives.

GF: What are the qualities you look for in a fintech?

Mahmood: The first thing I would look for is a fintech with good adoption rates. The key element, for me, is as a consensus in the industry that the value proposition is worth paying for and therefore attracts a certain amount of consensus from the clients themselves. The second criterion is that we need to have a very robust service model. The third element is the commercial part, so we would want a stable fintech with a long-term commitment to a road map. Obviously, you have many other criteria from a technical perspective, but these are the three ingredients we look for. For speed-to-market reasons, we would rather add a fintech to our platform than build it from scratch.

Al Mehri: The main qualities we look for are the ability to integrate with our bank and the added value it can provide to our customers. And, of course, the trustworthiness of the fintech and the vision they have; we need to be aligned with that vision. 

Lethbridge: We usually partner with fintechs more in the retail banking space than in the institutional or wholesale banking space, and there are a couple of reasons for that. One is that we’re only ever looking for distinctive propositions where the capability has already clearly been developed and demonstrated by the fintech. As we work with our institutional and wholesale banking clients, we’re typically designing very bespoke solutions on a one-off basis. It’s a different game than in the retail banking space, where we’re still looking for something very distinctive. But that distinction may exist from outside the financial services sector.

GF: Does digital banking help tap new markets abroad?

Al Mehri: We just launched our first Islamic digital bank, NOMO, from the UK through our subsidiary, the Bank of London and Middle East. The idea was to be present in the UK market, but the target remains our GCC customer. We are looking to serve residents of the GCC and maybe the MENA region who want to open an account in the UK. In that sense, digital banking helped us to expand operations internationally.

Lethbridge: I think it’s intrinsically about extending the reach and providing services for existing clients rather than extending geographic reach. So, for instance, Commercial Bank of Qatar has a subsidiary in Turkey, and we provide real-time cross-border solutions to help our clients with their Turkey banking needs. 

Mahmood: I think with a digital arm it becomes easier to deploy services and products to our clients regionally. There are some examples where banks really replicate themselves cross-border, like Revolute in Europe. There is no reason our digital bank, Mashreq Neo, shouldn’t be successful if it launches outside the UAE.

Al Mehri: To open in different in countries you still need a license, and it’s not that easy. There are limitations and challenges from a regulatory perspective and from a cultural perspective. If a digital bank decided to come to this market and get a license and establish a presence in the region, I think it could complement the existing banks by serving the underbanked, maybe. But the well-established customers are loyal to their banks beyond the transactional banking activities.

GF: What does the digital bank of the future look like?

Lethbridge: I think if any bank in the future is not digital, then it’s going to really struggle to exist. It means we need to be excellent at providing brilliant services that reflect niche expectations from our clients as their lives become more and more digital. Also, we need to be extremely good at acquiring data as we are providing those services—not only acquire it, but be able to manage it, handle it, package it and drive insights and value for our clients from that data. Third, we need to be very good at partnering in ecosystems beyond the expectations of a normal bank. I think there won’t be a distinction between the digital bank and a nondigital bank. It’ll be a question about who’s able to provide great financial services integrated seamlessly into clients’ lives.

Al Mehri: Traditional banks must digitize all the services. I think it’s a must and if you don’t follow that, you’re lagging, and you’ll be out of competition in no time. A purely digital bank? I can’t say I know the future of that, but it’s happening. Did those banks prove to be profitable? I don’t know. As for fintechs, they will always complement and compete for certain services, but not as a bank. 

Mahmood: I would say it’s going to be a tech first, bank second. The bank of the future should be embedded in the ecosystem. I think the bank will go outside its borders to provide services inside the walls of where the business being conducted. We really need to think robustly as a bank, but also operate as a tech company.

Leonie Lethbridge joined Commercial Bank of Qatar in July 2017. She brings deep transformation capability to her position and has oversight of Commercial Bank’s innovation entity, CB Innovation Services. Lethbridge’s leadership experience also extends to board roles, including directorships at both Alternatif Bank and Alternatif Lease Company in Turkey. Prior to that, she was CEO of ANZ Royal Bank, the leading international bank in Cambodia. Lethbridge was previously a management consultant, advising clients in the financial services, manufacturing and telecommunication sectors.

Abdullah Al-Mehri joined Boubyan Bank in January 2019 with over 20 years of experience in the banking sector. Prior to Boubyan, he was the head of the Off-Site Supervision Department at the Central Bank of Kuwait. He worked earlier in corporate banking as executive manager at First Bank of Abu Dhabi in Kuwait and senior manager at National Bank of Kuwait.

Wisam Mahmood is an experienced banker, fintech leader and business and product strategist with a progressive international career spanning over 25 years. Prior to joining Mashreq, he worked as a consultant/adviser on several engagements such as digital banking, product positioning and implementation, structuring product management, product delivery as well as agile work structure. Wisam also had various roles at Finastra, Lloyds Banking Group, Thomson Reuters, Front Capital Systems and FNX Limited.