Wissam Khoury, the Senior Vice President and General Manager for MEA and APAC, Finastra
The unprecedented shift in the way financial services worldwide collaborate, innovate and compete can propel waves of high productivity and exceptional customer experiences in the near future. Innovation in technology is changing the way modern banking software is developed and distributed.
The opportunity to utilise shared knowledge is exciting in the way it can transform Middle Eastern and African economies and help to bring millions of people into the financial system, which is the need of the hour.
The latest financial inclusion index from the World Bank stated that in the Arab world stretching from Muscat to Casablanca, only 8 per cent of adults are banked, while 23 per cent are underbanked. The financial inclusion opportunity in the Arab world is 92 per cent.
Open platforms are enabling the industry to truly expand on the rich data they hold to capitalise on its potential and witness first-hand how innovation can radically accelerate the adoption of financial tools and products. Open platforms have the power to drive the next era of growth and adoption by addressing common challenges faced by fintech and traditional banking players in the industry.
The transformative impact of technology in the finance sector can be best illustrated through a country’s digital payments ecosystem. Whilst a large chunk of the population in the region is unbanked, they all have the most powerful tool – a smartphone.
As per the McKinsey Middle East Digitalisation Index, Bahrain and the UAE are among the top countries in the world with 100 per cent smartphone penetration and it is estimated that there will be 160 million digital users by 2025.
The GCC block’s readiness to pave the way for emerging financial services is better demonstrated by its successful efforts to establish fintech incubation programmes such as Dubai International Financial Centre’s FinTech Hive and the Saudi Arabian Monetary Authority’s Fintech Saudi.
Mastercard’s recent study shows that the UAE and Saudi Arabia are steadily moving beyond cash, which is the result of the respective governments’ commitment towards promoting electronic payments to support their social and economic goals.
As an example, earlier this year the UAE government announced that residents who opt to pay for their vehicle and driving fines by visiting the Road and Transport Authority service centre instead of paying online will have to pay AED 100 more.
According to the recent report ‘Middle East and Africa Online Payment Methods 2019’, the foundation is laid for mobile growth in the region. The adoption rates for mobile payments are increasing in the region, compelled by MENA's mobile wallet usage and Sub-Saharan Africa's mobile money popularity.
In the UAE, more than two-thirds of shoppers who paid online at least once by a card or a digital wallet will consistently choose this method in the future. Recently, a number of mobile wallet solutions were deployed, including Google Pay in the UAE and Apple Pay in Saudi Arabia. Simultaneously, mobile money services such as M-Pesa are driving financial inclusion in African countries, where card and bank account penetration rates are significantly low.
Technology and Financial Inclusion
Whilst there has been a significant push for the advancement of financial inclusion in the region, significant challenges remain. A report published by Oliver Wyman in collaboration with Dubai International Financial Centre (DIFC) cites that almost half of the world’s 1.7 billion financially excluded and underserved adults are currently concentrated in the Middle East, Africa and South Asia (MEASA).
Across much of the region, microfinance lending officers physically visit home and businesses to assess the value of collaterals. Today, technology such as artificial intelligence is being used in some locations to improve data collection and streamline credit decisions.
However, the cost of acquiring technology is a major hurdle, coupled with having the skills and experience internally to run large scale projects and applications. The challenge is to bridge these gaps to create sophisticated solutions like core banking systems, e-wallets, treasury management and trade finance applications more accessible.
With this in mind, the heavily fragmented region calls for the establishment of a shared platform dedicated to the development and distribution of scalable digital financial solutions. This concept is built on leveraging investments in technology to groups of financial institutions in order to reduce adoption costs and centralise experience and expertise.
To this end, the rapid development of cloud infrastructure will also enable advanced applications to be hosted in-country and provided as a turn-key solution. The market can then shift their focus from delivery channels to digitising and automating other key business areas such as payments, treasury and capital markets, SME banking and trade finance. Technology has the potential to disrupt these commercial banking verticals in the same way that has led to the emergence of mobile wallets.
Collaborate to Innovate
To remain relevant and keep abreast with the continuously evolving fintech landscape, it is simply not enough to invest and host the technology. Capgemini & Efma reported that 91.3 per cent of banks expect to partner with fintechs in the future, which reaffirms our belief that the future of banking innovation is collaboration.
The app economy has revolutionised consumer industries, and we see the same happening in the banking and financial industry. Fast-evolving innovations such as banking microservices, AI technology and real-time capabilities are fueling open APIs that are cloud-delivered into the app economy. It’s driving innovation, co-creation and new business models – thus, transforming banking services.
If financial institutions across the region invest in technology that enables open collaboration, then this transition can be not only seamless but further accelerated as well. Mission-critical applications need to be developed around open APIs and micro-services to be easily consumed by fintechs and partner organisations.
Open collaboration plus a cloud-first deployment approach using shared platforms offers a formula for innovation and growth. While great progress has been made in this industry pertaining to investments in technology for inclusion and diversification, there is even greater excitement about what this innovative and vibrant continent can do next.