The financial technology (fintech) industry is growing fast, driven by a powerful blend of start-ups and major technology firms. Banks are aware they need to react to the emergence of new market players, and vigorously engage with them.

The pace of fintech innovation in the GCC has been rapid over the past few years, but more work is required to revolutionise the banking industry. The variety of ways in which fintech developments are being adopted by the banking sector is increasing and we may even see banks collaborating to build shared-cost fintech solutions in the future.

For this to happen, GCC banks and fintech firms need to become better at working together. Banks must determine how best to engage with fintech firms, given the contrasting sizes and cultures of their respective organisations. Fintechs, meanwhile, need to know how to approach and navigate their way through banks.

The most successful banks will be those that improve agility and reduce costs by working with a range of different partners to build the strongest ecosystem. Banks cannot do it alone; the culture must be one of collaboration.

Consumer experience

The majority of participants (70 per cent) in a survey conducted by UK consultancy EY in 2016-17 felt that the GCC banking sector is open to integrating fintech innovations that would enhance consumer experience and streamline their operations. More than 60 per cent of respondents said fintech innovations would help them improve consumer-centricity and reduce cost.

Two-thirds of those who took the survey suggested that the GCC banking sector is highly likely to collaborate with or invest in fintech companies in order to meet consumers’ needs. In addition, more than half of the survey participants indicated that the leadership teams in the region’s banks support digital transformation.

However, the implementation of new technologies to diversify offerings has not moved as quickly; 79 per cent of the survey participants doubted whether fintech players would cause noticeable disruption in the GCC banking sector in the next one to two years.

While the drive towards incorporating fintech into everyday banking is promising, there is still work to be done in generating more awareness of new developments. The survey showed that two-thirds of the banks that responded had either not had any substantive discussions within the organisation, or had only just started preparing an actionable work plan to address the challenges and opportunities posed by digital transformation.

This is despite the fact mobile penetration has risen sharply in the region and there is a preference among the growing, young population for conducting their financial services on an end-to-end digital platform. More than two-thirds of the survey participants felt that the banking sector might need to evolve towards a digital ecosystem to remain at the forefront in a rapidly changing business environment because of fintech innovations.

Digital generation

Bankers are noticing that a new generation of customers with an increased trust in online platforms are keen for real-time, off-site solutions. Between 60-75 per cent of the survey participants believed fintech innovations offer a better value proposition, in terms of ease of use, cost, speed of service and integration with social media. This shifts the concept of fintech from a possible option for financial institutions to a necessity if they want to continue gaining market share.

The biggest near-term threat to most banks comes not from fintechs but from traditional competitors better leveraging those fintechs.

Regulators see the benefits of – and expect banks to use – regulatory technology to improve processes. Meanwhile, an array of technological innovations, from robotics to artificial intelligence and machine learning, offer banks new ways to transform their businesses without replacing core banking systems.

So why are levels of collaboration low? For fintechs, it can be a struggle to negotiate the long procurement cycles of big banks. For banks, it is a challenge to successfully implement cutting-edge technology in large organisations based on legacy systems. In our experience of working with banks and fintechs, these are commonly cited barriers to unleashing the potential of fintech.

Engaging with fintechs as part of a broader banking ecosystem will help banks drive down costs, innovate and enhance customer service. As banks look to rebuild sustainable return on equity, they must build better ecosystems, founded on collaboration with fintech firms, industry utilities and an array of other service providers.

Whether banks can learn to act like fintechs and master the many different manifestations of customer experience will have a major role in deciding how the next era of consumer banking in the GCC plays out.

Rana Sanyoura Awji, EY

Rana Sanyoura Awji, EY