Digital banking in the Gulf

Digital banking in the Gulf

By Kishan Shirish, Sheinal Jayantilal, and George Haimari

Financial services providers must provide engaging digital experiences to better serve customer needs.

As consumers in the Gulf go digital, they are creating opportunities for innovative financial services providers to disrupt the market. New McKinsey research on urban consumers in UAE and KSA1 shows that at least 80 percent of these consumers now prefer to do a portion of their banking on computers, smartphones, and tablets. They visit branches and call customer support service hotlines only to meet specific and more complex needs.

Despite some structural obstacles, the shift is likely to intensify, and incumbents and entrants alike should prepare for the new normal. Incumbents who can keep pace with consumers’ changing preferences—and the new entrants poised to serve those customers in new ways and at a lower cost—are likely to gain lasting competitive advantages. Laggards who fail to deliver engaging digital experiences, will lose market share and become irrelevant within 3 to 5 years.

Three powerful trends are underscoring banks’ urgent need to embrace digital:

  1. Strong customer adoption
  2. Increasing multichannel consumer decision journeys
  3. Customers’ openness to purely digital propositions

On the first trend consumers in the UAE and KSA are already heavy users of digital banking channels: 80 to 90 percent of respondents said they use digital banking channels, in line with benchmarks in developed Asia.

On the second trend, consumers are increasingly using multiple channels to research banking options. Consumers often investigate products and offers online, even though they continue to complete the transactions in branches. About 45 percent of our respondents said they researched banking products and services online before making final purchase decisions (and 30 to 35 percent of those that did the research changed their minds about their purchases).

The final trend underlying the growth potential of digital banking in UAE and KSA is the increasing number of consumers that are open to considering compelling digital-only offers for financial products and services. In both countries we surveyed, about 50 percent of respondents said they would open an account with a purely digital bank—an additional 30 to 50 percent said they might consider it.

UAE and KSA banking consumers now rely less on physical branches for routine transactions such as transfers and balance inquiries. As they continue to discover the convenience of self-service and digital channels, they will visit branches less frequently. That said, branches will continue to play an important role, for more complex transactions such as loan and credit card applications. This means that customers are increasingly multichannel, rather than turning solely to digital or branch services. Banks will need to repurpose their branches for higher-value advisory services.

While banks typically focus on digitizing high-cost processes such as loans, our research shows that customers tend to value everyday use features, such as loyalty programs and discounts through mobile. In part, this may be due to the lack of seamless, easy-to-use, end-to-end loan-related solutions. In order to encourage customers to increase their use of digital channels, banks should make seamless, easy-to-use, end-to-end digital solutions available. This experience should be supported by assistance and an enhanced customer perception of security. In all cases, delivering customer expectations in day-to-day transactions implies that banks have to focus more on building an ecosystem of banking, fintech, and non-banking partnerships.

The strong uptake of digital banking in the Middle East presents significant threats and opportunities for the entire financial services industry. Attacker banks are likely to develop more focused digital experiences with much lower-cost service models. Fintechs will offer innovative, app-based services, as they are not held back by legacy IT costs and constraints. Incumbents will need to harness new technology to improve the customer experience and streamline processes while leveraging data and advanced analytics to drive revenues.

To capture the digital opportunity, they must elevate digital to the C-level; acquire and nurture digital talent through an organization tuned in to creativity, flexibility, and speed; and build digital marketing capabilities equal to that of e-commerce players. In tandem, they should focus on creating a strong ecosystem of partnerships.

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