Soft money: will cash transactions soon be a thing of the past?

The rapid digitisation of banking in the UAE is enabling robots and smartphones to replace bank tellers and cash transactions. But there is a limit to the transformation, experts say


The UAE has one of the youngest populations in the world, with an estimated 2.4 million, or one in four, millennials, according to Emirates NBD.

The UAE has one of the youngest populations in the world, with an estimated 2.4 million, or one in four, millennials, according to Emirates NBD.

Ismail, a 20-year-old Emirati, has rarely ever stepped into a bank branch.

“You won’t believe I haven’t visited my branch for over a year. All my transactions are done online,” he says, as he clicks an app on his phone to make a payment.

“I just paid my bill and that’s how it works for me. All the services are at my fingertips and I save immense time.”

His university colleague Shweta echoes the same view. “The world for me is online. I am doing my graduation here in Dubai. Every time I need money my father simply makes the transfer online to my local bank account,” the Indian student says.

“I haven’t seen the need to go to a bank branch. We all know about cyber threats, but that doesn’t stop us using online banking. I think it’s not just cool but a necessity.”

The Dubai-based students are the face of a mass digital transformation of the way money is moved. Banks in the UAE are quickly catching up to the change by unleashing digital banking applications.

This month, Emirates NBD launched Liv., which the lender says is the country’s first digital banking platform targeted at millennials. The mobile app allows customers to open a Liv. account from their smartphones by scanning their Emirates ID card. They can then deposit funds into the account using any bank debit card they already hold.

The UAE’s largest bank by deposits, Emirates NBD also is using ‘Pepper’, a humanoid robot to hand out queuing tokens to customers at its “Branch of the Future” at Emirates Towers, Dubai. Customers may also soon be able to talk to a virtual assistant called Eva using artificial intelligence (AI).

Emirates NBD’s Future Lab is part of the lender’s investment in digital banking initiatives.

The bank also has established the Emirates NBD Future Lab, a think tank staffed by both business and technology experts who will test innovative ideas, products and services for the bank’s retail and wholesale banking customers. The lab will focus on digital services, self-service and process innovation.

Meanwhile, Abu Dhabi Islamic Bank (ADIB) has launched a Snapchat channel to connect with its customers and share updates on the social media app. It has previously teamed up with US tech giant IBM to build a studio that will work on digital innovation projects across the bank, including mobile banking iOS apps built on IBM’s Bluemix cloud platform and IBM Mobilefirst.

An increasing number of UAE banks are also updating debit and credit cards to include payWave technology that allow for contactless payments. National Bank of Abu Dhabi (NBAD) recently introduced real time, cross-border payments using blockchain, while Emirates NBD said it was evaluating the option for global remittances and trade finance.

The UAE has one of the youngest populations in the world, with an estimated 2.4 million, or one in four, millennials, according to Emirates NBD. The number is expected to reach 3 million by 2020. Around 86 percent of UAE millennials have smartphones, according to research by Visa, and they spend an average of three hours per day on social media platforms.

“They are the fastest growing demographic in the world. Born and growing up during the digital revolution, millennials are true digital natives,” Suvo Sarkar, senior executive vice president and group head of retail, banking and wealth management at Emirates NBD tells Arabian Business.

The youthful population of the UAE also has one of the highest disposable incomes in the world, with a keen interest in lifestyle, wellness and smart living, and prioritises experiences over material objects, he adds.

A recent report by Hootsuite and We Are Social reveals that of the 246 million people living in the Middle East, 60 percent use the internet, up 15 percent from a year ago, while 34 percent are active on social media, representing a 47 percent year-on-year rise.

Globally, the amount of web traffic on mobile devices has increased to 50.3 percent in 2016, a significant rise from 2013 (35 percent) and from the first figure recorded in 2009 of 0.7 percent, according to the research.

The new direction shows the regional banking sector is on the cusp of a mass digital transformation, as banks strive to reduce operating costs and compete more fiercely for customer deposits in the new economic norm.

“The impact of digital transformation on financial institutions has a great potential to be positive if a top-down, concerted approach is embraced,” says Charles Habak, Principal, Financial Services, Booz Allen Hamilton.

“Banks that employ digital strategies and new business models with stand-out value propositions including competitive pricing, have the potential to transform their positioning vis-à-vis customers and their peer banks. In the years to come, this will uniquely position them to gain market share and drive their brand into the digital era.”

Emirates NBD Group COO Abdulla Qassem (second from right) says Liv. matches with the UAE’s plan to set up a smart economy driven by innovation.

Following decades of digital disruption in industries such as music, media, travel and retail, the digital revolution is finally turning financial services on its head. Sarkar says the push is accelerated by three key factors: the adoption of smartphones, the growth of the millennial customer segment and the emergence of AI and robotics.

“What fintechs and the digital revolution have done is [they have] accelerated the speed with which banks innovate and bring new products to market. Today, banks are in the process of transforming themselves from seeing digital as a project, to digital as a core value of their businesses. These are helping to transform user experiences while also helping to optimise cost to serve.”

Speaking at the World Government Summit in Dubai in February, the executive chairman of global IT firm Cisco Systems, John Chambers, predicted that 40 percent of companies worldwide would not exist in ten years’ time, imploring the need for companies to reinvent themselves. Banks are no exception.

However, Sarkar says most of the disruption is in consumer banking, as well as the payments and lending space, limiting the impact to a fraction of the overall finance system.

“Anchor products such as deposits, mortgages or investments have been slower to be impacted, in view of factors such as trust and complexity, and this has meant overall revenues from financial disruption are only about 1 percent of total global banking revenues, expected to rise to not more than 15-20 percent in the coming five years,” he says.

Digitisation is not a smooth nor easy process. Habak says banks’ senior management’s understanding of the proposition and the impact of digital banking still remains blurred in the GCC, with many mistakenly equating digital banking to a mobile banking app.

“Digital banking denotes an entirely new business model — it is not just about a mobile app; it entails a newly defined business model that is powered through the digital space,” Habak says.

“Digital banking in itself is a broad term that can encompass a great deal of offerings, so effectively identifying the right offerings and prioritising them is essential to extracting value from investments in digital banking.

“Adapting a bank’s organisation and governance around digital banking proves difficult in practice, as traditional mindsets, skillsets and infrastructure come to clash with disruptive and sometime far-reaching digital banking business models. Finally, another challenge that is accentuated in digital banking is the increasing cyberattacks and breaches in international and regional financial institutions.”

The GCC population is technology savvy and is increasingly turning to a digital experience for convenience.

As the digital banking industry evolves, Sarkar says focus is shifting from competition to more collaboration between banks and fintechs, complementing traditional strengths of big banks with the agility of the start-ups.

Habak, however, adds that success in digital banking starts with alignment of the overall strategic direction and objectives of the digital bank, and its board and management team’s appetite for transformation and innovation.

“Banks that leverage technologies underpinned by sound business cases and clear customer scenarios are also best positioned to avoid broad universal offerings that only moderately meet customer needs. Customised, practical digital models that allow for scaling up in the region are key. Stressing harnessing big data and data analytics can be crucial to optimising customer acquisition and service.”

Simultaneously, CEOs and boards of directors at financial institutions must acknowledge the importance of cybersecurity and how it can impact their agenda, Habak says.

“Investment in risk frameworks and building the right capabilities and governance structures should thus emerge as priorities. This will equip banks to pre-emptively address incidents that could potentially damage their operations as well as reputation,” he says.

In a study released last year, Boston Consulting Group said banks that lag behind in digitising their products and services are likely to see profits fall 15-30 percent below fast-moving competitors by 2021.

Conversely, Habak says successful banks will utilise new digital business models that will reduce operational costs and offer stand-out value propositions and competitive pricing.

“This will eventually also help banks gain market share and steer their respective brands into the digital era. Digital banking helps to better optimise how budgets are spent, and ensure costs are spent in areas that can add value to their customers.”

But as digitisation gains pace, will it lead to the closure of traditional branches?

Noor Bank CEO Hussain Al Qemzi believes so. He tells Arabian Business the notion of customers going to a bank branch for traditional services is becoming “extinct”.

“Traditional branches will evolve into multiple forms ranging from specialised customer service centres to unmanned virtual kiosks where banks can ‘speak and engage with customers’,” he says.

Habak says while branch traffic is slowing, few have closed.

“Branch closures have been limited,” he says. “An important trend that is expected to result from digital banking is the repurposing of branches, shifting their focus away from mundane operational activities and towards richer client interactions, such as product sales and advisory, and greater segment depth and focus.

“Digital branches are also increasingly on the rise, allowing banks to showcase the best of their people and technology, enhancing the customer journey and accentuating their brand as a result.”

Ironically, the banks that do close their branches will be those that fail to embrace the new digital revolution, making their existence obsolete in the very near future.

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