Gulf banks need to adapt to digital transformation reality

22/05/2016 07:00 AST

The GCC’s banking sector has taken a dramatic turn over the past years thanks to the region’s exponential economic development and young, technology savvy population demanding the best digital banking experience. Such a transformation is only expected as modern-day GCC customers are now more informed and better connected with increased expectations from their banks as their financial partners. To remain relevant under the current set-up, digital banking is the only way to go.

The digital age’s transformative effects to the regional banking industry can be likened to photography or book selling in the past. Like these two, banks will have to change sooner or later pushed by the demand of customers who are totally ready to go digital.

“Depending on the country, banks are still protected by certain regulations and the relative ‘stickiness’ of customers. But this will not hold forever as regulators, or central banks, need to adapt to population needs. You have to keep in mind that the winning banks are the ones that will anticipate and move faster than the competition,” said Dirk Vater, Partner, Bain & Company, Frankfurt office.

Vater noted that digital banking, first and foremost, is a change-management issue. Changing the mindset of bank employees is the most important step toward a successful digital transformation. Banks need to spend the time and effort mobilizing their employees in order to transform customer behaviors. The best way to do that is to work closely with customers —design the new bank with them — and make sure that bank employees are part of the transformation from the start.

The situation in the region and even more in the Kingdom of Saudi Arabia is highly paradoxical. The region’s population is one of the most digital savvy across the globe, with the GCC ranking alongside nations with the highest penetration rate of mobile phones. Yet, banks are not providing the solutions customers want.

Vater added: “This situation cannot last forever. Banks that understand the need to go digital and act on it will be the winning banks. The next three to five years will be critical — and we can expect some real changes in the banking landscape.

Banks can get inspiration from all the new business models and services developed by financial technology companies. First, incumbents have to define what they want to become for each of their target client segments (the ‘point of arrival’). Second, they can identify the new business models they want to test. For example, they must determine if they want go into peer-to-peer lending, develop a mobile e-wallet, and so on. Lastly, they must decide if they want to create the new digital platforms on their own or partner with start-ups or financial technology companies or even buy some smaller actors better versed in new technology usage.

It is hard to predict what will and will not work in particular markets. Banks should therefore be brave enough to take risks and invest in the winning models. Trial and error is the name of the game in the digital world. This requires adopting an agile, or alternative and flexible, approach. Although banks are not used to that, there is no other alternative but to adapt to the new reality.

Saudi Gazette