With one of the highest smartphone penetration rates in the world, the UAE market presents an opportunity for many sectors and banks are no exception. An increasing number are now offering digital savings accounts in an effort to increase deposits and attract new customers.
Banks must raise money to lend to customers, and the need is now even greater given the lower oil price, which has led to a fall in government deposits. Digital accounts are particularly attractive to banks because they help reduce costs. As a result, many banks are eager to enter the space.
“It is very competitive. Almost all banks have entered the space now and offer a variety of digital savings solutions,” says Tooran Asif, Regional Head of Personal Banking at Mashreq.
The bank has reduced costs per transaction for transfers by almost 80 per cent by moving transactions from branches to online and mobile banking.
However, banks face a significant hurdle here when it comes to savings; it can be difficult to persuade customers to do it.
“All our customer surveys and market research indicate that a majority of UAE residents do not save enough, with nearly 30 per cent of them not saving a single dirham [according to a Compareit4me.com survey in January 2016],” says Suvo Sarkar, Senior Executive Vice-President and Group Head for Retail Banking and Wealth Management at Emirates NBD. “The UAE has become synonymous with mega malls and shopping festivals, which drive impulse spends but not savings.”
Ready to save
The good news is many do want to start, according to a National Bonds survey last month, which revealed that 50 per cent of UAE nationals and 65 per cent of Asian expatriates intend to start putting money aside. And there is certainly no shortage of options in the market.
Emirates NBD’s Smart S@ver account, which was among the first digital savings accounts in the UAE, is now the largest online savings product in the market, according to the bank. It allows customers to open an online saver account instantly in major currencies and earn interest rates of up to 1.5 per cent. It is one of the six digital savings products now offered by the bank.
“Emirates NBD recommends that customers pay themselves first before allocating their salaries and income towards spending, and with this in mind, provides a number of opportunities to encourage customers to save easily, as often as possible and any time,” says Sarkar.
Emirates NBD’s digital savings products include Shake ’n’ Save, which allows customers to save anywhere between Dh1 and Dh2,000 by shaking their smartphone, at interest rates of up to 2 per cent. It also offers a Fitness Account, which gives savers the chance to earn a higher rate of interest based on the number of steps they take, up to a maximum of 2 per cent.
Mashreq has also launched multiple digital savings products including the Easy Saver account, which pays a tiered interest rate, offering customers the opportunity to earn a higher rate with greater savings. Its new savings app, Snapp, which allows customers to monitor all their accounts and investments on one screen, includes features such as mobile-to-mobile transfer and cardless cash withdrawal. The bank also offers a DreamSaver option, which helps people reach pre-defined savings goals via an online progress bar. “One can see their dream come closer to fruition with a visual progress bar that helps you keep track,” says Asif.
Some accounts in the market are so digital they do not even come with an ATM card or cheque book, such as HSBC’s eSaver account. “However, we do provide users the flexibility to make withdrawals once a month without it impacting the interest they earn on their savings, since we recognise that there are often extenuating circumstances that require people to access these accounts,” says Kunal Malani, Regional Head of Customer Value Management, HSBC Bank Middle East.
Rates too low?
One thing all digital savings accounts here have in common is an interest rate of up to 2 per cent, which is not that high, particularly compared to other emerging economies.
However, UAE banks point out that customers in those countries run the risk of currency devaluation — the Indian rupee has dropped 34 per cent against dollar in the past five years while Brazilian real has dropped 56 per cent over the same period, says Sarkar.
Savers in the UAE do not run that risk. “Customers saving in the UAE in the local currency benefit from a unique advantage since dirham is pegged to the dollar, thus insulating them from the volatility of a local currency,” says Asif. “While interest rates are low in the UAE, it is in line with the inflation rate. Additionally, the decision to save should be guided more by planning of financial goals, rather than on the basis of interest rates alone.”
Given the fact expats earn higher tax-free salaries than they would receive in their home countries, financial planners say residents should have money left over to put away each month.
“Central to benefiting from these conditions is the need to build a robust financial plan with regular saving habits at its core,” says Malani.