Recent analysis conducted by Bloomberg Intelligence states that large UAE banks are building digital functionality to compete in a maturing market with rapidly evolving customer needs.
The analysis states that innovation is key to gaining market share and building flexible, cost-effective activities, creating fintech-growth catalysts. High IT spending may spur a consolidation of smaller banks as larger peers revamp legacy systems, merge and emerge stronger.
The analysis also states that Emirates NBD (ENBD) is ahead of its Gulf peers in terms of digital transformation. It was the first to move its core banking operations to an application program interface (API) based infrastructure, underpinned by a AED 1 billion ($272.3 million) investment budget.
ENBD's API Sandbox, launched in November 2018, provides a controlled environment where fintech companies can test solutions that can potentially be integrated into the bank's core functions. Peers are likely to follow suit, or would be subject to policy action similar to Europe's Payment Services Directive, which mandates open-banking access to third-party businesses, including fintech companies.
"This could pressure lenders to modernise legacy systems to keep up with ENBD. An example of ENBD's agility is the launch of E20, a digital bank for SMEs. Digitizing the back office and enabling API infrastructure enables a response to emerging needs via innovative offerings. Smaller banks are likely to struggle to compete with larger peers investing heavily, which should be a driver of consolidation," said Bloomberg Intelligence.
In post-merger times, the analysis states that digital catch-up is key. Al Hilal Bank's integration with ADCB gives it a full digital Islamic banking offering. With the addition of UNB ahead of schedule, ADCB is likely to focus on innovation and further efficiencies to be competitive and catch up with peers, following the completion of its last phase of integration in 2Q.