Majority of banks in EMEA fear losing market share if they are not digitised, report says

About 69 per cent of banks in Europe, the Middle East and Africa (EMEA) believe they will lose market share within two years unless they make significant progress in their digital transformation, according to a new report.

Nearly 75 per cent of the banks surveyed expect technology companies such as Google and Amazon to hold the largest market share in the banking industry in five years’ time, the report from cloud banking platform Mambu and The Financial Times Focus said.

The report polled more than 500 senior banking executives globally to gain insights into their perception of the banking industry now and in the future.

“The past 18 months have shown banks just how important it is for them to have a robust and agile digital banking offering,” Elliott Limb, chief customer officer at Mambu, said.

The rise of FinTech companies, an increasingly digital-savvy consumer base and a jump in digital services have forced banks globally to invest in digitisation. The Covid-19 pandemic has further hastened the move into digital services as consumers switched to cashless payments and online shopping.

Digital-only banks are not a new concept in the UAE. In the first half of 2017, Emirates NBD launched Liv.bank, which is aimed at millennials. Mashreq, Dubai’s oldest lender, also unveiled Mashreq Neo the same year.

Last month, Abu Dhabi Islamic Bank, the biggest Sharia-compliant lender in the emirate, launched a digital-only bank called Amwali to tap into the UAE’s growing segment of tech-savvy youths aged between eight and 18.

Independent digital banks are also entering the market, including Al Maryah Community Bank, which secured a licence from the Central Bank of the UAE in April this year.

This was followed by the launch of the UAE’s first independent digital bank, Zand, which caters to retail and corporate clients.

ADQ, the conglomerate that owns Abu Dhabi government stakes in a range of businesses, also revealed plans last year to set up a digital bank in the UAE using a legacy banking licence held by First Abu Dhabi Bank.

About 60 per cent of banks in EMEA region said they will cease to exist completely in the next five to 10 years unless they make significant changes to their business models, the Mambu report found.

“With 53 per cent of those surveyed admitting they’re at risk of missing digital transformation targets, it’s time the industry took note of the financial ‘evolvers’ that are leading the charge in this space,” Mr Limb said.

Financial evolvers include FinTechs, challenger banks and “forward-thinking traditional players that are prioritising purpose-driven services and great customer experience”, according to the report.

However, many banks remain too slow to move away from traditional and legacy banking services towards digital.

Only 25 per cent of EMEA-based banks expect to significantly increase spending on Big Data in the next three years compared with 40 per cent of banks in the Asia Pacific. Similarly, about 36 per cent of banks in EMEA will invest significantly in artificial intelligence compared with 50 per cent of their peers in Latin America. Meanwhile, 19 per cent of EMEA-based banks are focused on blockchain investment compared with 30 per cent of banks in North America, the report found.

Nearly a quarter of banking leaders polled described their company’s digital strategy as either “nascent” or “exploratory”. More than half said they are at risk of missing a significant number of their digital transformation targets and 32 per cent said they are unable to deploy new or updated products at speed, according to the report.

“Short-term profit motives, organisational rigidity and resistance to change from organisational leaders and staff are impeding transformation,” the report said.

All banks identified legacy IT, complex corporate structures, budget pressures and a lack of necessary workforce skills within their organisations as common challenges, as per report findings.

About 81 per cent of retail banking leaders strongly agree that replacing outdated mindsets with a progressive social purpose is vital to growth strategy, the report found.

“This evolution will see the gradual move away from product-led banking towards a model that is focused on customer experience,” the report said.

Nearly 60 per cent of EMEA-based banks said the pandemic has accelerated their move from brick-and-mortar branches to online services, according to Mambu.

Being profitable ranked lower in the priority list for banks, with “increased revenues” ranking as only the fifth-biggest benefit of moving to a customer-centric banking model, the report added.