Banks respond by investing in tech
Corporate finance unaffected
The growth of fintech in the Middle East is driving traditional banks to refocus on better serving their customers and invest in their own dedicated subsidiaries as the sector eats into their market share, industry experts say.
In the three months to March 31, fintech funding accounted for almost 60 percent of all venture capital raised in the Middle East and North Africa, building on a decade of growth.
“Fintechs made banks get up and take notice of the customer,” Suvo Sarkar, former group head of retail banking and wealth management at Emirates NBD and host of Money Majlis podcast, tells AGBI.
“Fintechs took a slice of the banking business – remittances, credit cards or deposits – and made that much simpler.”
An example is Wio, the digital bank launched in 2022 which is partly backed by ADQ, the emirate’s $200 billion sovereign wealth fund. Wio is attracting new customers and disrupting regional banking with its customer journey and “very cool” app, says Sarkar.
“Fintech related discussions are increasingly prominent at the board level as operational impacts become evident,” says Mustafa Domanic, a partner at management consultant Oliver Wyman.
Projections from Oliver Wyman indicate that fintechs could capture 10 percent of traditional banking revenue by 2030.
For some Middle Eastern banks, the answer has been to launch their own digital banking unit such as Gulf International Bank’s Meem, National Bank of Kuwait’s Weyay and Emirates NBD’s Liv Bank.
“Leading banks are using the rise of challengers as motivation to accelerate their own digital transformation,” says Amjad Ramahi, from the banking software provider Backbase.
Traditional banks and other financial institutions have advantages that fintechs do not, including “decades of trust, regulatory experience and the ability to scale securely”, says Ramahi.
They also have deeper pockets to keep the competitive edge.
“Many banks are positioning themselves as balance sheet providers to fintechs that own customer interfaces,” Domanic says.
Banks are also investing in or partnering with fintechs and developing their own in-house tech capabilities.
“Banks retain the capacity to acquire or build fintech competitors, ensuring they remain well equipped to compete as the ecosystem evolves,” Domanic says.
The rise of fintechs has not yet led to the demise of a single Middle East bank, according to Sarkar.
“The pie is large enough for the fintechs to attack and get some [share],” he says.
This resilience is aided by fintech’s focus on consumer banking, which accounts for roughly 50 percent of banking revenues. It is harder to unseat the banks in corporate finance because businesses want stability and global connectivity.
“That comes with big banks,” says Sarkar.
