The new Hi Tech Emirates NBD Emirates Towers Branch
File photo: The new Hi Tech Emirates NBD Emirates Towers Branch, at the Emirates Towers, Dubai. Image Credit: Antonin Kelian Kallouche/Gulf News archives

Dubai: Middle Eastern banks need to emulate digital giants and adopt full-scale digital transformation to outpace traditional rivals and ward off disruption, according to a recent study by Boston Consulting Group (BCG).

Banks in the Middle East are expected to face unprecedented challenges as digital giants begin to turn their attention to the banking sector. The report, titled Banks Brace for a New Wave of Digital Disruption, urges banks to reassess their digital capabilities and competitive agendas as shifts in market share and the rise of digital giants threatens the conventional workings of the sector over the next decade.

Patchwork approach

The report highlights that banks are at the risk of being disintermediated by tech giants in key areas of their business, and this is a prevalent concern in the Middle East today. In the short to medium term, banks in the region are likely to be impacted by innovative tech drive financial solutions such as Alipay or usage of WhatsApp messaging in the financial sector, which will in turn threaten the core revenue streams of banks.

“Many banks in the Middle East today tend to approach digital transformation with what can best be described as a patchwork, incrementalist approach,” said Godfrey Sullivan, Managing Director & Partner at BCG Middle East. “The increasingly digitalised landscape of the banking sector and looming threat of the digital giants entering the sector calls for banks in the region to adopt a much more comprehensive digital transformation agenda,” said Sullivan.

Mandatory steps

Successfully achieving holistic digital transformation will require coordinated efforts across multiple interlinked elements of the bank as well as mandatory action steps. These imperatives are: drive to scale; digitise end-to-end customer journeys; leverage big data, analytics, and AI; pursue partnerships to increase capabilities and scale; adopt new ways of working; attract and retain digital talent; simplify technology and data infrastructure; and enhance cybersecurity resilience.

“Complacency of bank leaders to embrace end-to-end digitisation in the short-to-medium term could be detrimental to long-term success. Scale will be a particularly important component of success in the region. The winners will be those players who both willing and able to make the investments needed to succeed in much more holistic digital transformation efforts,” said Sullivan.

What banks need to do

BCG says that banks need to start acting like digital giants before digital giants act like banks.

1. Drive to scale. Today, scale is more important than ever before: it gives banks a much greater ability to invest in marketing and technology. Perhaps most critically, scale today means larger customer bases and more data. These are huge sources of advantage.

2. Digitise end-to-end customer journeys. Banking products and services are notoriously friction filled and tedious, entangling customers in the machinery of the banks’ legal and risk policies, P & L structures, and legacy IT systems.

3. Leverage big data, analytics, and artificial intelligence (AI). The use of data and analytics to make banking easier and more personalised for customers, as well as more profitable for banks.

4. Pursue partnerships to increase capabilities and scale. For the things they cannot do well on their own, banks must develop a partnership strategy.

5. Adopt new ways of working. Most banks haven’t fundamentally changed the way they approach their work in decades. Banks need to rethink this aspect of their work. In particular, they would do well to move to agile approaches.

6. Attract and retain digital talent. Even the largest banks, those with the most ample resources, have struggled to recruit and retain the talent they need to compete in a digital age.

7. Simplify technology and data infrastructure. Having the right technology and data infrastructure is a prerequisite to digital transformation. To provide the digital experience that customers expect, banks will need to aggressively adopt the technology paradigms of digitally native companies.

8. Ensure cybersecurity resilience. This is a condition not only for succeeding in a digital age, but also for surviving it. All of the good things that banks are trying to do with the help of digital technology — create step changes in convenience, turn their customers into advocates, and operate more efficiently — can be undone by security breaches.