With the acquisition of INNOFIS at the turn of the year, we are expanding into the Middle East as a market. INNOFIS’s customers include, for example, the NCB (National Commercial Bank), Saudi Arabia’s largest financial institution, and the Al Rajhi Banking Corporation bank, also based in Saudi Arabia. Both represent Islamic banking and are acting as trailblazers for digital banking in the region.
Chris Skinner, blogger, independent commentator and author of several specialist books on the financial market, calls digital banking in the Gulf region GulfTech and believes it has the potential to be the next big thing. As so many super-rich banking customers are congregating in the Middle East at the same time, he also talks of WealthTech. He describes the Islamic variety of digital banking as IslamTech. Overall the market there offers a whole range of entry points for types of independent banking.
Digital banking in the Middle East
The NCB provides a great example of how Arabian banks are already benefiting from fintech. In the past year, with total assets of 444 billion Saudi riyal (equivalent to 118.4 billion US dollars), the bank achieved a record net income of 9.8 billion Saudi riyal (2.61 billion US dollars). It looks after 5.4 million customers, maintains 400 branches in the kingdom and offers the full digital and mobile banking range under the slogan “one step instead of many”. Furthermore, the NCB has developed the Self Service Kiosk concept which, for example, enables customers to use their smartphones to extend their debit cards themselves at self service machines.
Banking, which may be physical, hybrid or digital, according to the customer’s taste, also includes Islamic banking products where the institution has prioritised Sharia compliance. With the first Islamic credit card and the first Islamic investment fund, NCB is paving the way in this area. It also benefits from having introduced insurance which adheres to Sharia law and is compliant with Islam (Takaful). Founded in 1957, Al Rajhi Bank is also among the major players in Islamic banking. It has total assets of 343 billion Saudi riyal (90 billion US dollars) and has 570 branches in Saudi Arabia, of which 150 are explicitly for women. The bank also enables a seamless customer experience through mobile banking and digital banking.
A lack of innovation risks revenues
EY’s World Islamic Banking Competitiveness Report 2016 estimates the market share of “participation banks” which are committed to following Islamic principles at over 60 percent in the Gulf states. Many of these, the authors state, are currently investing heavily in digitisation, as a passive approach in this area could cost them half of their revenue in the retail sector. The sector was experiencing serious problems, less due to the investments than the strategy behind them: the new decision-making strategies of tomorrow’s customers, prototyping of new technologies, time to market… There is still a whole series of unresolved questions.
One thing is clear, however: A predominantly young population is challenging the banks of the GCC countries. It is wealthy and technologically well-equipped, is aware of the international trends and is highly demanding. Nowadays, there is often a large gap between these customers’ expectations and what the bank is able to provide – in contrast with the NCB and the Al Rajhi Bank. EY concludes: “A digital first strategy must be the participation banks’ incentive to attract their next 100 million customers in the next ten years. This exciting journey has only just begun.”
It is no coincidence that the authors of the reports are thinking on a large scale. Demand for Islamic banking is by no means limited to the Gulf region. This is why, in 2006, the Al Rajhi Bank became the first overseas financial institution to be granted a full banking licence in Malaysia. The leading global centres for Islamic finance are Kuala Lumpur and – London. If one looks at the heavily populated Asian markets, one can see why Chris Skinner also talks about SouthTech in connection with the GCC states. He is referring to their unique position to connect countries and regions like China, India, Asia as a whole, Africa and South America with each other – and above all, their huge potential for mobile banking. For the whole financial sector, including fintechs, it is therefore worthwhile taking a close look at the Middle East.