How ready are MEA banks to rethink business model amid digital currency disruption?

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Interviewed By Foo Boon Ping

Heads of retail finance and financial technology discussed how payment is being commoditised and destroyed by fintechs.

At The Asian Banker Middle East and Africa Regional virtual dialogue 2021, retail banking heads and senior practitioners, including Adewale Salami, First Bank of Nigeria Limited; Boma Raballa, CRDB Bank; Constantinos Constantinides, QIB Group; Hussein Al-Abdulla, Commercial Bank; Korede Demola-Adeniyi, EcobankNigeria; Marie Christine Liu, head of retail banking, Absa Bank Mauritius; Marwan Hadi, head of retail banking, Emirates NBD; Reena Mohan, Abu Dhabi Commercial Bank; Sanjay Khanna, RAKBANK; Yemisi Edun, First City Monument Bank, and others, discussed how banks have to rethink business models to face potential disruptions from digital currencies. They also debated the impact of technology on the cost to serve that democratises wealth management for retail investors, as well as responses to the second year of the pandemic.

The following key points were discussed:

Below is the edited transcript of the dialogue:

Foo Boon Ping (FBP):  Both Mathew and I are very happy to be co-hosting this programme that also incorporates the annual heads of retail finance dialogue and award ceremony 2021. Good afternoon.

We're more than a year since the pandemic started and created unprecedented global mayhem. We hope we are continuing to keep safe through these extraordinary times despite the disruption. The retail financial services industries in the Middle East and Africa (MEA) have proven to be extremely resilient. This is a strong testament of the measures taken by governments, businesses and people across the region to keep safe, as well as the relief given to the economy, especially to small and medium-sized enterprises (SMEs) that have been hit hard.

Mathew Welch (MW): This year, we received over 490 submissions from more than 280 banks and non-bank retail financial service players across 24 markets in Asia, Middle East and Africa, vying for 61 awards in five categories. Today, we will be recognising the achievements of institutions in MEA. Since last year, we've invested in our digital consumer feedback channel BankQuality.com to survey customers on their engagement, experience and satisfaction with their main retail banks and how you have helped your customers during the pandemic. We incorporated these customer-derived BankQuality Net Promoter ratings into the winner evaluation and selection. Therefore, award winners can be assured that this year's results and rankings are a true reflection of the voice of the customers. We collect substantial benchmarking data on the operations and performance of the industry in the course of the programme. Our senior research manager for the Middle East Namir Kaissi will be sharing key findings and learnings in the awards briefing a little bit later.

FBP: Each year, it is harder to pick the winners as the competition heats up and you have all been very aggressively pursuing your digital reinvention agenda and initiatives. In the aftermath of the pandemic there has been a rethink of the pace and effect of digitalisation and of that impact on consumers businesses and supply chains. Despite not being able to cover as we are also used to doing, we have seen global e-commerce take off in a big way. The digital economy has truly arrived. The financial system has accelerated its digital transformation, and the adoption of online and remote transactions. As part of the annual heads of retail and tech dialogue, we'll discuss the challenges that leaders face in achieving sustainable growth post-pandemic and how to compete in the current wave of uncertainties, how your institutions are redefining leadership in the digital world and navigating ways to build strategies to deliver stronger and more resilient operations.

MW: This year, marks the 20th anniversary of the Excellence Programme. For the last two decades The Asian Banker has been the industry-defining body in recognising every year, the players that demonstrate exceptional excellence in retail financial services in  Asia Pacific, and MEA. It's arguably the most rigorous, prestigious and transparent rewards programme for consumer financial services in the world. We continue to make every effort to ensure that the Excellence Programme remains. In the process, we've captured very significant shifts in consumers’ adoption of digital and contactless transactions, as well as e-commerce and e-payments. We can attest to the resilience and the agility of the industry to respond to this change in behaviour and in the operating environment. Many of you had to expedite your original digital transformation roadmap as a result, and you've been rewarded with record number of customers who've opened online accounts and transacted with you digitally.

FBP: You play a critical role in helping your respective government's effort to bring financial assistance and relief to individuals and small and medium businesses, thereby preserving lives and livelihoods. In the midst of historically low interest rates and margins, you've pivoted to increasing your fee earning capability to offset the drop in income, especially in wealth management, no doubt buoyed by some fairly exuberant, capital market actions in tech and new growth stocks. You've also average open application programming interface (API) banking technology and industry partnerships to build ecosystem platforms that connect businesses with consumers, thereby broadening your reach by embedding finance into this e-commerce supply and value chains. You are more than ever collaborating rather than blindly competing with each other. At the same time, you face the new demands of consumers and governments who want you to operate on a more sustainable basis to take into consideration for just the way you do business, but with whom you do business.

MW: Amid the evolving landscape, we'll continue to track, evaluate and calibrate your journey to transform yourselves into more competitive and sustainable digital players. We will now start the heads of retail finance and financial technology dialogue. We are excited to have heads of retail finance and tech from across the region to discuss the future of the industry as this new dawn breaks in retail finance how to win in this transformed landscape. How are you making the transition to a new hyper digitalised, post COVID-19 era? We will debate the best strategy to lead and win in a digital-first world. We want to explore how you're making the change to be fully functioning digital players and to equip yourself with the right strategies and capabilities to win. The retail financial services landscape is very different from what it was even just a couple of years ago, pre-COVID factors such as economic uncertainty, development of new regulations, technological disruption, and the ultimate race to meet customer expectations are pushing you to rethink, re-imagine and redefine your business model and priorities and creating new ecosystem platforms.

FBP: Retail financial institutions continue to define your market position and franchise strength through the cultivation of e-platforms as digital strategy is reoriented from simple customer onboarding to one of engagement making all the more critical in these uncertain times. With the disruption from fintech players and platform providers, we will wait across the industry as new ecosystems are formed and distinct competitive advantage is realised through the application of emerging technologies.

MW: These are the key areas that we'd like to discuss with you. One, payments transformation. Payments has been commoditised and destroyed. The payments business has been destroyed. How are you rethinking the business? Two, wealth management. With the rise of asset prices and the emergence of new asset classes such as crypto and digital assets, how are you democratising yet for retail investors? Three, we want to discuss COVID year two. This is the second year of the pandemic. How is it different from the first year? What kind of impact is it having so far  and how are you responding to it?

FBP:  We want to invite Emmanuel Daniel to share with us your thoughts on some topics that we'll be discussing today. 

Emmanuel Daniel (ED): Hello, everybody. I’m very pleased to see so many of you live on this meeting. Greetings to you from Beijing, China, I have been living here since October last year. China has become the largest market for carbon tokens as they get their own energy corporations to trade, the carbon reliefs. One of the main reasons for being here in China is to take a global view of many of the transformational issues that are shaping the future. Some of it is geopolitical. From China, I'm able to see a number of things. The first thing is the geopolitical, challenges that we find, without being dogmatic about, anyone’s view and it's very important for us to always have an open mind. 

US is totally capable of responding to the challenges that it faces. We should not underestimate the US. But even from China, I can see the views coming out of Africa, in terms of the confidence and the ability of emerging markets to build your own future. For good or bad, there are a number of things that we can learn about economic development and managing transitions from a control economy to an open economy. There  are a number of things that we can learn from how China evolved over time, and they paid a huge price to get to where they are. 

I have a number of African friends here in Beijing. There is a lot of confidence in emerging markets to build your own future. In the last one year, in the area of payments, the big transition that I've been trying to wrap in my mind is the transition to platforms to cashless, and China is way ahead of the game. I do not carry a wallet when I go out, and do my daily work. Everything is on the phone. 

From that vantage point, I am speaking to new payment players. A very good friend of mine Jocelyn Chow from Lebanon, her son Mark started something called Sarwa payments in Dubai. I've spoken to players in Kenya, Ghana and Nigeria who are fintech or financial technology companies pioneering new payment initiatives. The simple thing about everything you need to understand about payments. 

Payment business model will be disrupted in the next five years by central bank digital currencies

The central banks today complicate the issue in terms of trying to introduce central bank digital currencies (CBDCs). Another initiative that China seems to have taken a lead. The first premise about payments that we need to understand which the fintech players, the financial technology companies are telling us is that the whole cost proposition or the cost structure of payments has collapsed. The whole revenue proposition for card payments has collapsed. The only way that old time payment players such as Visa and MasterCard are able to even generate revenue is some other products such as credit, marketing, loyalties and loyalty points, and the value-added aspect of payments, but the basic payments transmission structure has totally collapsed. 

In various African countries, now I'm speaking to new players who are trying to recreate the revenue proposition around payments - traditional banks are faced with this as a competition. When you look at some of them, it may seem like they are not making money, but they are still discovering where the new revenue proposition will be. Some players who succeed in this, you'd find them in Southeast Asia. You have companies like Grab which started as a ride-hailing company, just like Uber is, except that Grab is represented across 14 countries, 140 million customers in ride-hailing. Right there, you have a cross-border payments platform ready to be implemented except that 14 regulators will not let them do that and then the regulators come around and say, “Oh, we should create interconnectivity between our different regulatory regimes”.  

Then, you find very complex, blockchain-based CBDC initiatives being pioneered by regulators. Just when you think that these are just the two phases of payments, there is another aspect of payments being driven which is the transformation that's coming to us from cryptocurrencies. Now, the good news about cryptocurrencies is not that bitcoin is going back to 50,000 or maybe 100,000. That's not where the news is. The news is that because of Ethereum, Tezos, Polkadot and Solana, there's great interoperability being generated around cryptocurrencies from the blockchain community around the world. In your respective countries, you will find small communities of blockchain enthusiasts working on interoperability at a fraction of the cost at which the central banks are working at. These are some of the challenges, the transformational topics that are shaping the future of the industry. 

I am personally not involved in the award process. The award programmes that we run are predicated on our standard methodology which has a scorecard displayed on our website. We have junior researchers who interview you and take stock of the transformations that you are going through. That is the run of the mill, run of the cost type of interviews. What I spend my time on is looking at transformational technologies and issues that are shaping the world. In fact, I'll be speaking to a payments player in Germany who is going to pioneer or he's just one of several players, perhaps pioneering the use of QR code to make or take Germany from cash to digital payments, as much as you can. 

Germany is starting on a journey that started in China in 2010. Now when you look at these players, don't underestimate them because they are a value proposition. I hate the word proposition. But what I'm seeing is that the value that they create, may well not be in the revenue generator for payments or the capturing of the deposit base but on something totally different. In that same way, by just talking about payments alone, I've covered several different angles - wealth management. We have a new programme called Wealth and Society which is very strongly predicated around a lot of impact investment and even climate change agendas that are shaping the whole world, not just finance. Finance is now building its own roadmap in identifying how it is going to be part of the process of moving away from capitalism to something that is sustainable. There are lots of good projects in Africa that eventually should be showcased and we want to showcase them. 

Two more points. One is, my book is coming out soon in November, it's called The Winning Bank. Some of the thoughts that I've just described to you, I'll be covering in that book. The final thought that I want to leave you with, is that, which is in the book, that financial inclusion is a lie. Remember, I said that first. Financial inclusion is a lie. The reason is, with all the technology that is being thrown at finance today, there is no way in the world finance is going to get cheaper. The whole idea of financial inclusion is a phrase that is borrowed from the platform industry. The idea is to onboard as many people as possible in the same way that Facebook and LinkedIn and Google try to onboard billions of people on two platforms, and then to charge them money to stash them subscriptions to charge them fees. 

There is no example of cheap credit for the poor, anywhere in the world. In fact, as soon as they are onboarded the venture capitalists make sure that the kind of rates that we charge the poor is still usury. Now, I'm throwing this idea into this ring in order to challenge you all to think broader, bigger, more transformational. The answers for building the best financial institution, the future, may well not be in what you're doing right now. It may be outside that. These are my thoughts for you from Beijing, China. It's very interesting to get a view of what everybody is doing from here. 

FBP: Thank you, Emmanuel. Very interesting point there on financial inclusion. Payments service is bad. It's one of the very fundamental services that is needed by the underbanked and ourselves the ability to receive and to make payments. 

MW: The next question we have is on wealth map. With the rise of asset prices and the emergence of new asset classes, for example, crypto and digital assets. What are we doing to democratise this? How are we able to bring benefits to retail investors? We can start with Marwan Hadi.

Areas of opportunity for banks to develop ESG and sustainable investment products

Marwan Hadi (MH): On wealth management and the rise of capital markets and emergence of new asset, we continue to expand on our wealth management platform. Last year, we launched our signature fund which is the tactical asset allocation. Crypotocurrency is new for banks and currently, we are not advising on it, but it's something we have on our radar and looking forward to. Another area of opportunity is around the ESG environment and how we can work towards making more sustainable investments for our customers. Something we're working on and developing and it's emerging and we've got to make sure that the customer journey is as seamless and as easy as possible to make sure you are able to deliver the best customer experience. Make sure from a suitability perspective, customers get what they receive from their risk appetite perspective, that risk rating perspective. It's been a very good journey for us and we're looking at more and more development in the space’s area for further opportunity and growth. 

MW: Excellent. Thank you very much. Hadi, from Emirates NBD. The second question on wealth management, are you able to offer that to your clients in Mauritius?

Marie-Christine Liu (ML): Series starting, but it is highly regulated here. We have new guidelines. We have just come from the central bank. We are currently trying to do the assessment with respect to what we are offering and asked to offer. This is a space we want to play. We're seeing high net worth individuals choosing to come to our country to live and settle here. Therefore, we have to have a solid proposition for our customers. We want to make wealth management products, democratise it and can be made available to a wider audience, and go digital.

MW: Excellent. Thank you. A couple of interesting points you made there, Marie-Christine, the one is that everything we try and do in banking, we always have to manage through the regulator and that's a key point. The other thing is in the context of Mauritius, but it's generally true. As we see the margins collapse in traditional products such as payments, it's all the more important that we move into the newer products like wealth management to find other wallet, profit pools, so to speak. Thank you very much. What are we trying to do in wealth management?

Deploying technologies such as artificial intelligence and robo-advisors for better customer experience

Sanjay Khanna (SK): On the wealth management side, the main thing that the banks need to look at it is, there is a segment of customers who do not have the wherewithal. They have the investment money but they don't have the ability to afford expensive wealth management relationship managers. This is a focus area that banks need to concentrate on them because these are the guys who will in the future move up the ladder and become more profitable to us. Over how you address this using technology - once you start looking at what banks around the world have started looking at,  they're deploying technology such as the AI-driven bots. All those things give some advice to these customers. Yes, that is definitely helpful. This will bring in initially the customers to your bank. As you progress, how you make the customer stick around you is what needs to be thought by the banks very clearly. How do you offer services to the customer and make sure that they can stick around and have a longer relationship with you and turn into profitable customers for you. That's how you should be devising a strategy on wealth management.

MW: It's using technology to lower the cost of service, isn't it? Especially into those different segments. 

FBP: If we can get Boma Raballa, director of retail banking at CRDB Bank. What are your thoughts on providing wealth management services to a more mass market segment? How do you democratise wealth management for the retail customers using technology as well as new assets that have become available?

Expanding wealth management products and keeping crypto and digital assets on the radar

Boma Raballa (BR): From our thinking in Tanzania, trading on alternative asset classes is currently unregulated. A few months ago, our president has challenged our central bank to see how best they can fast-track an initiative and put the necessary regulations to support these digital in the cryptocurrencies within Tanzania. On retail banking site, we have done a number of digital payment platforms which have been deployed. This does not only include the bank side but online platform offered by the stock exchange to accommodate retail investors. It was able to protect the domestic security market, which is largely dominated by stocks and bonds, that is treasury and corporate bonds. I'm sure in the next few months, we'll have the right regulation that will allow us to participate more on the management especially on the crypto, on the digital asset. Thank you. 

MW: Thank you very much indeed. Do we have Al-Abdulla of Commercial Bank? Would you like to give us your comments on what's going on with respect to how banks are changing their approach to wealth management? How digitisation is helping? On the earlier question of what we do in payments. 

Hussein Al-Abdulla (HA):  One of the upsides of COVID is that it has allowed us to accelerate on digitalising almost all aspects of our banking system.  What Commercial Bank has done in the last few years is that it has anticipated kind of the jump that's going to happen from traditional branching to digital system and mobile apps. As we go on, we're targeting the millennium. COVID was one aspect that accelerated the process. Although the plan was there, we managed to accommodate and cope with the situation that happened in Qatar. Similar in some parts of the world, they are part of regulators where they tend to have their issues with moving so fast. However, our central bank has been very open to suggestion and ideas. Hence, we managed to come up with a lot of services that is kind of unique, not only in Qatar, but in general in the region. For instance, we have created this cross-border remittance where you can transfer to many countries in literally less than 60 seconds. You will get your credit SMS before you get your debit SMS or notification that shows you how things have improved and accelerated since then.  

As far as wealth management, this is a tricky one because again, there's a lot of regulation across it. However, there has been a lot of investment. Qatar, being one of the wealthy countries in the region, there are big opportunities to capitalise and emerge from it. However, a couple of colleagues have mentioned this, there are expenses involved, and how to digitalise it comes with a lot of I would say sacrifice because you’ll need to have your regulator on your side, approving things like no more wet signature ease and visitation or face to face in the branches. Whether that's going to be acceptable, that's one of the things that tend to be challenging across this region and in particular in investment. We have invested in technology to ensure that we are equipped of what's coming in the future, and we're ready for it. Our system supports it. We're seeing that this is moving very fast. As I said, it’s just a matter of time. Our population is young and the next generation will not accept anything  less than having all of his or her business or features in the palm of their hand, and a mobile. This is what's going to happen, whether we like it or not, we are moving accordingly. We're anticipating what's going on, and so are the rest of the banks here in Qatar. 

MW: Thank you very much indeed, Al-Abdulla from Commercial Bank Qatar. Last year, we all said COVID has been a fantastic accelerant. I mean, it's a terrible thing, but the good side of it is, it's been an accelerant to digitisation. How is this second year different from year one? What kind of impact is it having so far? How are you responding to it?  For that question, we should probably ask Dennis Ezaga of FCMB. This is the second year of COVID. How are things changing in the second year of COVID? Are you reacting differently? Or is it more of the same? Are we getting more accustomed? 

Dennis Ezaga (DE): The changes that COVID brought is that we see a bit of an uptick in the use of digital channels for making transactions in a region from payment landing, committed engagement, and all of these now begins to grow at a faster rate than they were pre-COVID times. What we are saying is some form of isolation, pushing products across diverse channels. If you looked at the growth, we are seeing around our payment channels, it’s good and at a much faster rate. About 30% of our staff  work from home. There have been a lot of adjustments that COVID has brought and that's going to be around for a while.  

In Nigeria, the restrictions were pretty much bare minimum, and the business is almost going back to the pre-COVID level. The new traditions that came with COVID  seemed like things are built on a longer time and we are taking advantage of that to support our customers. For example, we have a business zone, which is an online community, a marketplace. We provide training opportunity on a monthly basis. Close to 3,000 SMEs were on those platforms. We have around 1,000 different courses, and they have access to various software statistics. They can showcase their products on our digital platform. COVID has accelerated the expansion of our digital footprint. The things that we had planned to do in five years, we’d find a way to do that within two years. Other disruptions have provided new opportunities.  

MW: Okay, thank you very much and it’s good to hear that digitisation is working well in Nigeria.

FBP: Thank you. Maybe we’ll get one final response to that.

MW: Maybe we can ask Manish Garg from ADCB. 

Enhancing frictionless peer-to-peer and real-time transactions

Manish Garg: (MG): The banks started investing heavily since 2018, and the focus was into digitalisation. We have touched every area of the bank where we wanted to provide the best or the most superior service to our customers. By digitalising, most of the processes where the customers would like to visit the bank. We as a team in the bank started running multiple journeys, trying to make them as frictionless as seamless as straight-through processing (STP) as possible. There were many initiatives, for example, all the product offerings, right from the account opening journeys to the credit card journeys to the loan journeys. There was a big focus, there were squads, which was set up and we can now say that in most of the places, we are 100% STP. Then we tackle the self-service, the customer maintenance journeys, where the customers would have to call the bank or call the contact centre for putting up the service requests, and then wait for a couple of days before they can be actioned. There were some of the service requests in regards to where customers would request some letters or No Objection Certificates (NOCs) which were kind of very painful. We have come up with some digital innovations. The customers are happy. We see that progress has been made. We are taking further steps to fully digitalise the bank adopting new technologies, the cloud in a big way. There are plans and you will see a lot of new products and services that would be coming out from a TCP stack very, very soon. Hopefully, there will be big announcements at the end of this year where we have new products in line, which will be announced in the market.

MW:  Excellent. Thank you very much Garg from ADCB. 


Keywords: Digital, Payments, Retail Banking, SME, ESG, Cashless Society, Frictionless, Wealth Management Products, Crypto, Technologies, Artificial Intelligence, Robo-advisors, Payment Business, Central Bank Digital Currencies

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