Banking in the Middle East is undergoing a digital transformation. Today, businesses are increasingly expecting faster, more streamlined and efficient solutions. And banks are evolving rapidly to support their clients’ growing needs – fine-tuning existing technologies, as well as exploring how to leverage new, innovative developments.

The use of digital solutions has been reinforced by the Covid-19 pandemic. With the unprecedented global disruption prompting the “work from home” environment, paper-based processes have become impractical, if not impossible.

This “new normal” has had the positive effect of further accelerating digitalization and pushing its importance to the fore. In a recent PwC survey , half of the Middle East’s CFOs indicated that they plan to accelerate automation and new ways of working.

As the importance of progressing to digital capabilities becomes a shared goal, the industry is set to inevitably meet obstacles along the way. The banking sector is challenged by the ever-increasing need to deliver optimized speed, transparency and efficiency; the difficulty in prioritizing where to invest; keeping up with the launch and development of new technologies; and being constantly alert to potential new partnerships in a fast-paced world.

So, what are some of the key emerging technologies that can deliver an enhanced client experience, and how can banks overcome challenges to reap the benefits of the digital age?

Pace of change

Today’s fast-paced digital business world has created a need for fast and efficient domestic and cross-border payments. Banks in the Middle East face the challenge of enhancing legacy systems to achieve faster, more streamlined processes. This has led banks to invest in initiatives like real-time payments and SWIFT gpi.

The Central Bank of Bahrain has made considerable progress to date, with a national electronic payments system now in place interconnecting domestic retail banks and their customers. The value of this system was highlighted during the pandemic, with real-time payments surging. In fact, volumes grew more than in any other country in the past year, increasing by 657 percent. Saudi Arabia has also planned to implement a real-time payments system that will be run by Saudi Payments, a subsidiary of the Saudi Arabian Monetary Authority.

Elsewhere, the UAE brought in an interim real-time payments solution in 2019 called Immediate Payment Instruction (IPI).

The need for efficiency, cost-effectiveness and transparency in international payments is also crucial, particularly as businesses in the Middle East are increasingly operating cross-border.

SWIFT gpi is making massive strides in addressing the inefficiencies and lack of transparency that previously impeded cross-border payments. And, because the initiative leverages SWIFT’s existing global infrastructure, it can be implemented by financial institutions (FIs) without a significant overhaul of existing bank systems. Uptake continues to gain momentum across the Middle East, with banks in countries including the UAE, Lebanon, Egypt, Qatar, Turkey and Saudi Arabia participating in the initiative.

Innovative digital solutions

As well as enhancing legacy processes, the finance industry in the Middle East needs be alert to new technologies that will support their clients’ needs. As digital solutions emerge, banks need to re-evaluate their platforms and identify opportunities in order to maintain a competitive edge.

To do this, banks in the Middle East are, for example, increasingly using blockchain, optical character recognition (OCR) and artificial intelligence (AI) to improve their client offerings.

OCR allows images of typed or handwritten text to be converted into machine-encoded text, with content auto-populated into the required fields. With the Middle East having one of the world’s highest smartphone penetrations at 97 percent, a number of banks are investing in OCR technology as the ability to instantly scan and digitalize information with a mobile device becomes more and more attractive.

Meanwhile, AI adoption is particularly strong in the Middle East because of the benefits it can bring in areas such as operational efficiency, customer service, logistics and fraud prevention. AI applications can be taught to detect patterns and trends, gather insights and subsequently recommend required actions. With high engagement and solid returns on investments in the Middle East, AI adoption is only projected to grow.

A challenge in implementing AI, however, is that the data must be precise and structured for the technology to perform effectively and provide accurate, usable outputs. In some instances, in fact, the considerable task of reengineering processes may be needed for the full benefits of AI to be realized. Ultimately, such an investment could result in a significantly improved, more efficient system, however.

Blockchain is also continuing to be explored in the Middle East. Dubai Economy and Emirates NBD introduced the UAE KYC blockchain platform which facilitates secure digital customer onboarding, instant bank account functionality and the sharing of verified KYC data. The Central Bank of Bahrain has also invested in blockchain, partnering with Fasset, to test its blockchain-based sustainable infrastructure asset exchange solution .

The potential to apply blockchain to enhance payments and trade is undeniable. Yet, unlike SWIFT gpi for example, where the foundations for the solution are already well established, blockchain is a brand new solution requiring considerable investment.

Furthermore, challenges and uncertainties remain, such as establishing full regulatory support and harmonized standards, timescales for achieving a network effect, the effort required to integrate the technology with other financial systems, and the potential for cost savings.

Strategic partnerships

With new capabilities providing opportunities to enhance the client experience, how can banks leverage the evolving landscape?

Ten years ago, experts suspected that the rise of fintechs was going to make it extremely challenging for banks to compete with their agile product development cycles. However, many banks have found a way to take advantage of the new disruptive technologies for themselves – through strategic partnerships.

Bank-fintech partnerships can be particularly valuable – especially with specialized companies that have expertise in a niche area. This can offer a bank the opportunity to accelerate its learning curve as well as saving time and resources in bringing products to market. With a growing millennial population, the Middle East region is expecting the fintech sector to grow and result in all-round improvements to the financial sector.

Correspondent banking is also a key way of supporting local banks’ digitization strategies and enabling innovative capabilities to be delivered to clients without significant investment. Non-compete correspondent banking alliances can play a mutually beneficial role in the Middle East, where local banks can benefit from the technological capabilities and extended reach of global specialists, while global banks gain access to the inimitable country-specific insights of local banks.

Looking ahead

Digitization is critical to the future of finance and treasury in the Middle East. As the industry continues to develop, banks will inevitably meet challenges along the way. Banks need to overcome these obstacles and keep up with the pace of change as the advantages for clients – such as increases in speed, efficiency, transparency and convenience– are many.

In addition to providing the technology tools, banks also have an important role to play in educating clients, whose own processes are built around legacy systems, and providing guidance to ease individual clients’ transformation from paper to electronic solutions.

While there is no single approach for banks, overcoming the challenges of the digital age is essential. Banks must prioritize the enhancement of legacy systems, invest in innovative technologies that improve their client offerings and define a strategic roadmap for a long-term competitive position. The future lies in creating a competitive edge and embracing the digital age.

Bana Akkad Azhari is the head of relationship management MEA and CIS at BNY Mellon Treasury Services

About Bana Akkad Azhari

Bana Akkad Azhari is the head of relationship management MEA and CIS at BNY Mellon Treasury Services

As BNY Mellon treasury services’ head of relationship management for the Middle East and North Africa region, as well as a member of the treasury services’ EMEA management team, Bana Akkad Azhari is instrumental to the group's business development and growth ambitions in the MENA emerging markets. She is also regional executive for the Levant and North Africa, with overall responsibility for business in Lebanon, Jordan, Libya, Egypt, Algeria, Morocco, Tunisia and Iraq.

She manages the overall coverage and delivery of BNY Mellon’s products and services to existing and potential clients as well as market development and strategic growth opportunities. Bana has also led the effort to establish a chapter in the Middle East and Africa region for the company-wide Women Initiative Network. Prior to joining BNY Mellon in 2006, Bana worked for over nine years with Citigroup in Beirut where she held the position of resident vice president and was a member of the credit committee.

National Bank of Abu Dhabi. Image: Shutterstock