Interest in digital banking offers major opportunities for Gulf banks

24 May 2017 5 min. read

The market penetration of the internet in the United Arab Emirates and Kingdom of Saudi Arabia has opened up digital banking channels, the utilisation of which have increased significantly in recent years. Users continue to leverage digital channels for mainly simple transactions, although they increasingly show an appetite for a number of more complex online transactions capabilities.

In recent years the online banking industry has seen considerable expansion across the globe. The Gulf region is no stranger to developments in digital banking penetration, with a McKinsey & Company report finding that use stands at 80% among internet users, while estimating 92% across the United Arab Emirates (UAE) and 65% across theKingdom of Saudi Arabia (KSA).

Based on 1750 urban consumers in the UAE and KSA regions, the report, titled Digital banking in the Gulf: Keeping pace with consumers in a fast-moving marketplace, explores current trends within the wider digital banking phenomenon in the Gulf region.

Significant penetration of digital channels in the UAE and KSA

Digital channels Gulf

According to the study the penetration of digital channels in the UAE and KSA is relatively high compared to markets in Asia. ATM and Branch/Call-centre use were high across the markets surveyed. Online banking however, was shown to vary considerably across borders – in the UAE for instance, 92% of those with internet connections use the service, while within in the KSA usage stands at 85%. Developed Asia and emerging Asia, meanwhile, experienced huge disparity, recording channel penetration rates of 92% and 28% respectively. Mobile banking, too, is found to have considerably higher penetration in the Gulf than in Asia, sitting 79% and 81% for the UAE and KSA respectively, while developed and emerging Asian nations languished at 61% and 26% respectively.

Three out of four GCC consumers use digital channels

In terms of channel use, respondents in the region have a relatively broad set of behaviours around the usage of channels. Multichannel use was the highest in the KSA region, at 46%, followed by 34% of UAE respondents and 31% of users in developed Asia. Utilisation of in-branch browsing meanwhile was far most common in Saudi Arabia, with the KSA region reporting 11% of total users engaged in this way, while in the UAE and developed Asia, branch-lovers stood at 6% each.

McKinsey’s white paper also advised that banks need to take care not to purely cultivate multichannel users in particular, as they tend to be the users with the highest funds and education levels. Neglected potential of customers with low engagement online banking engagement were noted at 20% in the UAE, 15% in the KSA and 18% in developed Asia.

Simple transactions have migrated to digital channels

Researchers also discovered that digital channel users tend to mainly use the channel for simple transactions, with balance enquiries and money transfers the top contenders at more than 70% of respondents in both the UAE and KSA.

More complex transactions, such as account opening, loan applications, credit card applications and product advice meanwhile, tend to be performed mainly at branches in both the UAE and KSA – with between around 30% and 40% leveraging a digital channel for the type of transaction.

Consumers prefer digital features that they use frequently

Additional features

The 22-page analysis also explored the additional features banks may be able to leverage to attract or illicit customer interest. Respondents were asked what ‘advanced’ digital features they would be interested in seeing offered by their bank. In the UAE ‘attractive’ loyalty programmes, discount coupons via mobile phones, consolidated summaries of personal finances and mobile payments at shops or taxis featured at 65%, 57%, 49% and 48% of respondents respectively, while the same categories featured for KSA respondents at 53%, 51%, 40% and 41% respectively.

Respondents in the Kingdom of Saudi Arabia were found to be considerably more in favour of using digital channels to perform financial product purchases, with 48% saying they would like to apply for credit cards fully online or via mobile, and 45% saying that they would like to apply for personal loans fully online or via mobile.

In terms of meeting customers’ expectations in the various categories on whether someone would open an account with the offering bank, 48% of UAE and 57% of KSA respondents said that they would open a bank account at a bank that offered the services in which they are interested, while 47% and 36% for the UAE and KSA respectively say that they would maybe do so.

UAE and KSA have high e-commerce penetration

Financial e-commerce

While digital banking channels are relatively well utilised by internet users in the Gulf, a different story emerges in terms of financial services related e-commerce transactions.

While e-commerce is well used by respondents in the Gulf region, 96% of UAE and 82% of KSA respondents have purchased an item online, the categories in which item purchases occur vary considerably.

Train / air tickets, electronics, and hotel bookings are the most oft performed digital e-commerce transactions through e-commerce market places. 67% of UAE respondents, for instance, had bought a train/air ticket online, while 52% and 48% of UAE and KSA respondents respectively stated they previously bought electronics through e-commerce.

Financial products, meanwhile were found to be much less likely to be bought online in the Gulf – at 23% in the UAE and 25% in the KSA. Meanwhile, 66% of developed Asian consumers report the purchase of financial products online.