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While fintech and digital innovation of financial services in the Middle East have been undergoing a profound transformation, the region is yet to see emergence of pure-play digital companies that could make significant impact on financial services, a senior official at PwC Middle East told Zawya.
“Generally speaking, today the world’s fastest-growing financial services organisations are all pure-play digital firms, whether it’s Apple's wallet, Alipay or Mpesa, which have been quite impactful on a consumer’s behaviour, online or offline.
“However, in the Middle East financial services sector, we are yet to see these digital organisations emerge on a bigger scale and make a significant impact in financial services,” Mehryar Ghazali, Financial Services Leader, PwC Middle East, said.
He said there are a few big players in the payment space, but they are still at a very early stage of testing their products, before they go into offering the whole suite of payment services to consumers.
“So far, it is still the large incumbent banks, in particular, who are mostly reaping the rewards of digitisation in the region because they were capable of taking lead on the digitisation initiatives, thus changing their customer interface experiences significantly,” he said.
Corporate banking needs to catch up
Ghazali said Middle East region has been going through significant transformation, especially after the pandemic which drove digital transformation of the region’s financial services to an astonishingly new level.
An interesting trend is that in product innovation for banks in the region, the focus has been on the retail side of their business, such as what day-to-day consumer products and experience they can improve.
However, corporate banking, which also requires transformation on the digital front, has been lagging behind, but it is beginning to catch up.
He said that banks in the region are better equipped and more agile than their global counterparts, thanks to the huge legacy that some of the large global banks are carrying, and therefore it’s not easy for them to move out from the boundaries of that legacy and adopt a new technology or new ways of doing business swiftly.
On the other hand, he said, the longest serving organisations based in the region owe their origins to not more than 40 to 45 years back.
“Their legacy is not that big, compared with their global peers. Therefore, the agility with which some of the top players in the region can change and adopt new ways of working and technology is much faster,” he maintained.
Emerging niche areas
There are certain niche or specialised areas where digital firms in the region can take advantage of or can build their competency in financial services, Ghazali noted.
“For instance, if there is a global player wanting to experiment with a mobile pay product, or a new technology such as smart glasses, the Middle East is the perfect market to do testing of a new digital product as digital adoption in this market is very high,” he said.
“Automation in the payments vertical continues to be a huge investment area for banks,” he added.
The one area that is likely to continue to be a growth constraint for financial services in the region is the regulatory structure around cloud services.
Current regulations require cloud services providers to be based in the country where it plans to offer its services. Besides, data residency has to be based in the country too.
“However, I believe authorities in the region are aware of this issue and are moving ahead on this front. Once this constraint on cloud services is resolved, I think it has the potential to tremendously expand the scope of financial services in the region,” he said.
(Writing by Sunil S; editing by Seban Scaria)
