There is a certain symbolism in the UAE Federal Government’s decision to announce a four-and-a-half-day working week and a Saturday-Sunday weekend just as 2021 drew to a close. Within the context of an economy returning to growth and a digital transformation that has revolutionized how organizations operate, there is a sense that our society has turned a corner.
A new chapter is unfolding in front of us; and the new Friday-Saturday weekend week represents more than an alignment with international practice. It reduces the working week to 4.5 days: a progressive move that recalibrates work-life balance, all made possible by the remote working model that the digital transformation has enabled.
This is just one of the many benefits of digital fintech and start-up ecosystems. Some of the notable examples in the UAE are the Fintech Hive in DIFC and the Abu Dhabi International Financial Centre’s (ADGM) Fintech platform. These hubs are driving enormous change.
Facilitating financing for businesses
In the traditional banking sector, this is all the more evident, with purely-digital business banking becoming an exciting area for innovation. Given the nature of the digital economy, it is business-critical for SMEs to get up and running with digital payment services immediately – not least because business success leads to job creation and economic growth.
Neo banks are thus leading the charge in this area, and the global neobank market is expected to accelerate at a compounded annual growth rate of around 46.5 per cent between 2019 and 2026, generating around $394.6 billion by 2026. Part of the story is that Neo-banks possess several advantages that enable them to service customers well. Due to their make-up, they are more flexible and innovative when creating solutions. They have much lower acquisition costs than a traditional high street bank. As we are seeing with our digital bank at Mashreq – NEOBiz - these propositions are quickly becoming essential for SMEs. By utilizing data from the outset – these platforms are able to continuously improve their services to adapt to the needs of their clients.
Personalisation in banking
This is why human interaction and personalization are so important – and where traditional banks now have an opportunity to leverage their operational scale and expertise. Humans still value face-to-face interactions for more complex requirements, but if banks wish to successfully shift to automation and scale their digital platforms, they must recognize this behavioral and emotional dynamic.
Rather than traditional banking products which are categorized into sectors and segments, the future of banking will need to provide customers with humanized services – and personalized value propositions that will help them grow in their daily lives or grow their businesses faster. In an age where customers have so much choice over the internet, banks that offer high value, understandable and enjoyable interactions will have a competitive advantage – particularly when making major life choices like buying a mortgage.
Innovating and deploying AI-based automated, human-customer interactions are part of that journey. To achieve this, traditional banks must embrace open banking, and as 2022 unfolds, we will see it emerge as a critical driver of digital innovation. While still in its infancy in the Middle East, traditional banks face new opportunities to leverage the benefits of open banking to recalibrate how they operate and serve their customers.
Capital market activity
The nature of those products is also changing, with retail and corporate customers caring more than ever before about the impact of environmentally and socially responsible companies. We also see growing demand in the investor community for ESG (environment, social and governance) portfolios. They are of growing importance in financing public sector projects like extensive infrastructure.
And in a regional economy that has returned to growth, we will see a sustained increase in financing and investment activities across the entire economy, providing banks with a return to credit growth as 2022 unfolds. The confidence is widespread - the credit outlook for the GCC is stable, according to Moody’s Investors Service.
This virtuous cycle also creates a favorable environment for more mergers and acquisitions in 2022 as companies look for opportunities to consolidate, achieve scale and combat inflationary factors that may continue to weigh down the global economy in 2022. Combined, these factors point towards a new era of digitally-powered innovation and growth that serves our region’s entrepreneurs, investors and retail customers in ways that have never been seen before.
The banking sector must step up to the challenges it faces – and do so with an eye to ESG principles. If they can adapt, they can advance the all-important goal of financial inclusion through the democratization of financial services. 2022 may be a year to remember – for all the right reasons.