Internet platforms like Facebook, Google and Amazon are developing banking products that will probably become future foreign competition for the UAE banking sector, the 250 delegates to the 2nd Middle East Banking Forum, entitled ‘Banking Innovation in a Digital World’ heard today.
These unwelcome new players may arrive just as the local banks are enjoying the loss of foreign competitors such as Barclays retail operation, Lloyds Bank and RBS whose UAE operations fell victim to retrenchment in the wake of the global financial crisis. Indeed, these are very good times for the UAE banking sector where bonuses will be the highest in the world this year.
UAE mini-boom
Assistant Governor of the UAE Central Bank for Banking Supervision, Saeed Abdullah Al Hamiz told delegates that total bank lending was up eight per cent in the first nine months of the year making the banking sector the largest in the region. Islamic banks held assets totalling $110 billion or 19 per cent of the whole banking sector, growing 10 per cent year-on-year. Banks hold an average of 16 per cent Tier 1 capital, well above global norms.
However, lending to Small and Medium Entreprises only represents three to five per cent of lending compared with an average of 18 per cent in emerging markets. SMEs and Islamic banking represented major growth opportunities, argued Mr. Al Hamiz.
Other presentations and panelists concentrated their attention on the digital future for the local banks. Current technology allows for the computer power of a mouse’s brain to be bought for $1,000 but by 2020 that capacity will expand to the size of a human brain for the same amount.
Mobile phones are the future for banking platforms but then most of them can already operate Internet banking platforms anyway so there is nothing revolutionary about that. Many clients do not visit bank branches more than once a year now, let alone in the future. A poll of the bankers at the conference showed 83 per cent thought branches would be less important in future.
New non-bank competitors
On the other hand, the idea of competition from non-banks like Facebook, Amazon and Google – assuming regulatory hurdles can be overcome – is revolutionary. It will be very convenient for Facebook members, for example, to use the same platform for their banking. ICICI Bank already has a banking tie-up with Facebook. Some UAE banks may do the same.
There are also other more conventional foreign Internet banking platforms looking to muscle in on the UAE market such as the very successful Swiss online banking platform Swissquote.com.
This is a reminder to the UAE banks that in the world of technology nothing stands still for very long and a new competitor could emerge from cyberspace very quickly. Technology adoption is getting faster and faster.
One presentation pointed out how it took a couple of decades for the telephone to be adopted for banking but only five for Internet banking and three for the mobile solutions. How long will it take for aggressive and rich competitors like the top Internet companies to move into this space?
