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January 17, 2018,   4:01 PM

Banks Are Taking Note As Fintech Spikes Customers' Interest

Mary Sophia


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Ghassan Jumblat is only too aware of why it is critical for banks to transform digitally. “Technology is very important in banking,” emphasizes the IT head at Al Mawarid Bank. But more importantly, Jumblat believes something more important is afoot. “I believe the banking industry is going through a phase of disruption just like how the hotel industry went through with Airbnb and how transport system had to deal with Uber. I think banks now, in general, are seen as slow and they go into too much detail, with lengthy contracts and small prints but with today’s technology it can really shake the industry.

“Banks need to change the model and go more into digitalization where they automate all processes.”

Jumblat’s observation will resonate well among professionals within the banking and finance sector who have been calling for the conventional lenders to be more receptive to customer demands- most of which are increasingly wanting a more simple and digital platform. A report by consultancy EY showed that while the traditional banks still are the choice for most consumers, their relevance have begun to decline due to “eroding trust levels, evolving customer expectations and the emergence of credible alternatives.” The report finds that about 6% of global customers have moved on to use services of companies offering more simple technologies. Four out of 10 customers express decreased dependence on traditional banks and excitement for what new companies can provide.

“All the disruption within the banking sector has really put the core business models of financial services at risk,” says Rasheed Al-Omari, Principal Business Solutions Strategist—South Europe, Middle East, and Africa, VMware. “If you compare the experience and the level of engagement you get from a fintech (company) to a bank, many customers feel left behind because the service has not been delivered in the right context.”

The customer dissatisfaction could prove deadly to many banks if they are not agile enough. A report by the U.S. bank Citi predicted that if the fintech startups grew at this rate, 30% of bank staff risked losing their jobs over the next 10 years. Roughly translated, the U.S. and European banks might have to shed nearly 1.7 million jobs by 2025. Al Omari explains about a presentation he saw where for every service a mainstream bank offered there was a smaller firm offering the same at a more agile and cost-effective way. “These start-ups are very agile tech companies, and they are very disruptive by nature while their cost model is completely different. If I’m in the banking industry and in charge of the business, I will need to think it twice, thrice, and maybe have only half time to sleep.”

With the need for such a transformation, it comes as no surprise that the banking industry is increasing the investments in IT. Research firm IDC predicts that the financial services sector and the manufacturing sector would together generate around 30% of all IT revenues in 2017. It further forecasts that banking would be the fastest spending category on IT solutions.

For VMware, a surge in demand for IT solutions within the banking and finance has understandably translated into an attractive business ground. “We are enabling the digital transformation and the cloud and the mobility,” says Al Omari. “We are lucky to be in a position where for most of these transformation, the market needs us to enable them. So, we are the platform that hosts all of these applications, enable them to be faster and to deliver on the right time and with the right speed and right quality as well without compromising on the security aspects of the services.”

VMware’s second quarter revenues rose by 12.2% to reach $1.90 billion, thanks to a strong product portfolio, the company said in an earnings statement. A breakdown on specific regions was not available but Al Omari says that the ongoing developments in the Middle East have helped the company grow. “If you take the U.A.E. as an example, we have the vision, we have the dictate of HH Sheikh Mohammad bin Rashid Al Maktoum as well as others, for making Dubai the happiest city, and to make it a smart city. To be able to deliver this you need to have exceptional customer experience in financial services and that’s a key pillar in delivering the whole ecosystem.”

On to the Cloud

One of the IT areas that have seen the biggest growth within the financial services sector is cloud services. According to research firm Gartner, the public cloud service market in Middle Esat and North Africa region is projected to grow 22.2% in 2017 to reach a total of $1.2 billion, up from $956 million last year. The highest growth for the cloud services market in MENA comes from platform as a service (PaaS) at 28.8% growth and software as a service (SaaS) at 28.5% growth.

Despite such a meteoric growth in adoption rate, cloud services in the region are also held back by certain regulations that prohibit organizations from storing information outside their country limits. “I think it is a problem; we have to wait until regulation makes things easier,” admits Jumblat. “But we are preparing our self and once the decision is made at the country level it is only a matter of days to turn it into public cloud, once the regulation accepts it.” Al Omari acknowledges that regulations do hinder widespread adoption of public cloud but notes that companies are continuing with the private cloud. But with more clarity on regulations, it could help more. “I think there is willingness, and we need to make sure, its compliant, it’s easy and that’s why you need the multi-cloud strategy,” he adds.

He also says that the safety concerns that are often resonating with the use of cloud would be addressed with new regulations.

“In Europe there is GDPR (General Data Protection Regulation). For example, if you are in Germany and you want to put data in France, you are already protected by European Union laws, and that is the standard everybody is adhering to, and again you need to build not on the exceptions, but on the mainstream. Now, in our region, you would be surprised, I’m not saying they are not in the compliance mode but they are using that service. If you think about all the transactions, all of them are regulated. If you do transactions on your credit card, all the information shared in and out, it’s not anonymous, its secured, encrypted, so many things go around, but they figure a way how to make it happen. The same needs to go for other services. We need to start talking specifics. That’s my message. Don’t be over-estimating or under-estimating, I think regulators will definitely need to work it out with the country’s security, and that shouldn’t be an issue. And this (storing information outside a country) is a rule, if you cannot do it, we have to respect and abide by it.

“In the GCC, we already have that kind of cross-agreements to enable smooth trade and business. There is more to come but that would need to be more specific.”

Upgrading IT investments are more of a necessity for Middle East’s financial services as a large influx of data floods the market even as the region readies for a digital disruption.

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