As digitisation of the banking sector gathers momentum across the globe, many technological buzzwords like ICO, blockchain, cryptocurrency, machine learning, artificial intelligence, etc., have become popular in the Middle East as well, with UAE banks taking the lead in adopting and implementing world-class digital solutions. The UAE is ranked amongst the top countries in terms of mobile penetration and easy access to internet, which further enhances the country’s potential for embracing digital banking services.
However, whenever we hear about digital banks or challenger banks, it is typically synonymous with retail or personal banking offerings — be it the capability to on-board the customers digitally or offering customised services in areas like wealth management, personal loans, cards, etc.
Investments in technology seem to have been focused mostly on the retail banking front, while on the other hand, wholesale banking has seen less investments in technology, leading to a continued reliance on manual processes and paper-based transactions. It is quite surprising that such a large banking segment has still not been able to come to terms with the value that digital transformation could offer commercial customers, in addition to corporate bankers who end up spending over 50 per cent of their time on non-core, repetitive and administrative activities, the majority of which could be replaced with digitisation.
A recent study by Boston Consulting Group (BCG), also predicts a paradigm shift in digital disruption, with new competition from digitally nimble fintechs offering stand-alone commercial solutions such as low-cost cross border wire transfers or supply chain financing solutions. This is expected to fuel an accelerated wave of digital innovation in the remittance space, blockchain and trade finance transactions, as products and services get enhanced in response to commercial customers’ changing expectations.
The financial stakes are high for commercial banks. In the medium term, namely, in the next five years, these new digital platforms and channels are expected to attract 30 per cent of traditional corporate banking revenue. Commercial banks must undertake comprehensive end-to-end digital transformations to keep pace with customer requirements or run the risk of becoming extinct. Banks may still exist in the future, but high margins and fees will not. Markets are dynamic and so are customer’s expectations, and hence there is no place for slow or lazy banks. The technology is available like never before and to the advantage of commercial banks, which can help them jump start their digital transformation journey.
The BCG recommends a road map for digitisation built around four pillars: reinventing the customer journey, discovering the power of data, redefining the operating model and building a digitally driven organisation.
Here are my recommendations on the top four areas where commercial banks must invest to remain in the race:
1. CRM and Mobility
A robust CRM platform supported with bespoke analytic tools is essential for RMs to make informed decisions while managing customer portfolios as the CRM system gets accessed by different stakeholders within the bank, including Treasury, Trade Finance and Cash Management. Through the CRM platform, customer information can be fed on a real-time basis, presenting enriched information on the customer such as current share of wallet, benchmarking with competition, credit approvals, latest call reports, pitch books, pipeline, mandates, product utilisation, exceptions, etc. All of this, on the go, on mobile.
2. Billing and Pricing
While new ideas such as mobility make the headlines, customer-centricity also covers the aspect on how customers are being charged and billed for services. Billing and pricing is an exceptionally critical customer touch point, and most of the commercial banks have not invested in this area using technology, thereby making this activity complex, rigid and prone to errors and thus, prone to revenue loss. It’s time that every bank looks to implement a tech-based billing and pricing engine, which can help position it for future growth and stability, with robust analytics to optimise every opportunity. The right investment can turn this system into a powerful tool to increase revenue and adequately control risk.
3. Credit and documentation
The entire credit process starting from sourcing information, underwriting, internal reviews, approval, documentation, disbursement, et al is still a paper-based and manual process. This can be digitised, by banks opening application programming interfaces (APIs) to its customers and counter parties to directly feed the information on their performance, documentation and requests, making the entire process streamlined and more efficient. As a start, banks could conduct a proof of concept for small and medium-sized business (SMEs) to pilot this idea.
4. Transaction banking
Undoubtedly, transaction banking is one of the areas where technology gets discussed more often than any other place in the bank. This is because of the agile nature of the business, the intense pace due to the rise of digital disruption, and of course, due to customer’s growing expectations. Continued investment is warranted, as commercial banks cannot survive on their old laurels. Research also suggests that banks have largely focused on catering to their existing customers, to protect the current share of wallet, without investing in innovation which would help them maintain the incumbent advantage or acquire new customers.
“It is inevitable that banks must increase their share of investments in the digital arena for wholesale banking, before they become marginalised or extinct.”
Amol Bahuguna is head of Payments & Cash Management at Commercial Bank of Dubai.