Miljan Stamenkovic, General Manager of the Middle East and North Africa region at Mambu, shares Mambu’s 2021 banking and finance predictions.
An increased investment in fintech
The United Arab Emirates is leading the way when it comes to utilizing fintechs to foster and develop smart cities. In fact, Clifford Chance named the UAE as the MENA’s leading financial technology market, predicting that it will increase to $2.5 billion by 2022.
The surge in fintech investments directly addresses the increasing demand for tech-enabled and consumer-centric banking. Therefore, the digital push that was imposed on businesses by COVID-19 indicates we can expect to see many digital banks continue to come to life as financial institutions make the transition from traditional to online.
Similarly, we also see that significant changes in consumer spending habits as a result of COVID19 are impacting demands for digital banking. According to the National Economic Register reported by Emirates news agency WAM, UAE ‘s e-commerce sector was issued the highest number of licenses – 196 – in May 2020, while the first five months of 2020 saw a 300% rise in consumer demand for e-commerce services. We expect that consumers will continue to prefer online shopping and that will continue to increase the demand for digital payments in 2021 and beyond.
A return to relationship banking
The move away from customer-centric banking was so gradual that we barely noticed it. There was a time when having a personal relationship with your local branch commonplace. Digital technology changed this, focusing on convenience, increasing competition and making the mobile customer experience the key differentiator. While these advancements have benefited customers in many ways, in some instances it has placed the emphasis away from the customer-centric model which once defined banking.
The emergence of COVID-19 made this increasingly apparent and highlighted that there is still a need for relationship banking, particularly for vulnerable and non-digital customers. The crisis impacted many people’s financial stability and gave rise to many questions on the support available to customers. Furthermore, customers availing from banking services during this time that typically required face-to-face interaction, such as mortgages, were now moving through this process digitally.
At the same time, we see many new entrants. Banks are now faced with having to adjust and ward off competition, while also maintaining the relationship with customers who favour traditional banks and processes, as well as those who prefer digital banking. In addition, today creating an excellent onboarding experience is absolutely essential. Customers should be walked through their banking journey every step of the way as this can be the defining factor for the ongoing relationship the client has with the financial institution.
Key services in the GCC market that still require relationship banking are wealth management, retail banking and trade finance mainly because they still require advisors, account managers etc.
COVID-19 has emphasized the different needs of customers depending on their situation and demonstrated the importance of focusing on bespoke and personalized services dependent upon customers’ individual needs and wants. We will see a return to relationship banking in 2021 as a priority, but now combined with the convenience and benefits offered by digital banking. It’s a delicate balance but employing the right technology will be critical for banks to deal with customers in the right way, according to their expectations.
A significant increase in cloud adoption in banking
While cloud banking has been on the precipice over recent years, the perceived technology risk has prevented this from being implemented in any significant way. However, now the business risk to not implement cloud technology has overtaken this technology risk. This is primarily as a result of two elements:
1. With competition reaching critical mass in the banking industry in recent years, agility is essential in being able to compete and drive new products quickly to market. A bank can no longer decide to forgo modernization and cloud adoption unless they are open to the risk of becoming overtaken and obsolete.
2. COVID-19 has plunged banks into an unknown future. Banks have had to adjust processes and policies overnight in response to changing regulation and customer requirements, which legacy, on-premise systems were not built for. As the crisis continues to evolve, banks are navigating blind on how to proceed. This has emphasized the need to have a system that allows banks to pivot quickly and smoothly.
Cloud technology is essential to banks competing and surviving in this new era. While this shift was always inevitable, developments in 2020 have made this a non-negotiable and as a result, we will see widespread adoption of cloud banking in 2021. According to IDC’s research, the GCC public cloud market, which includes IaaS, SaaS, and PaaS, is expected to grow from $956 million this year to $2.35 billion in 2024, at an annual growth rate of 25 per cent.
Tactical movement on embedded finance
While we won’t see big technology and non-banking players entering the banking industry in any significant way in 2021, we can expect these players to take careful, tactical movements toward establishing a notable, long-lasting presence.
Big technology and banks think differently and move at different paces, which presents challenges to both sides. Regulation is also a remaining issue for big technology companies. There are necessary steps to take in order to navigate these obstacles which non-banking players will continue to face through 2021.