With 73 per cent banking penetration and 100 per cent telecom penetration, the GCC is one of the most developed banking and telecom markets globally. There are 52 ATMs and 10 branches for every 100,000 individuals. Total outflow of remittances from the GCC was $107 billion in 2015. With the implementation of WPS, migrant workers, who more often than not depend on cash disbursement of salary, have moved to a banking ecosystem.

Higher penetration of banking customers means banks will also address varied market segments, which many marketers call mass market; I would rather call it emerging class. Banks have traditionally been dealing with high value, low volume transaction velocity, but changing dynamics in the economy and regulations require them to be equipped with a low value and higher volume customer base. To support the emerging business model, it is imperative to build operating efficiencies through digitisation and straight through processing.

Meanwhile, banking is no longer a business of stock - deposits and withdrawals. It has transformed into a business of stock and flow, i.e. from only deposits to withdrawal and payments. Payments and banking is being integrated into the daily life of the consumer. It is hence essential that the platform is adaptable to the ecosystem and architecture for seamless integration across not only multiple channels but also payments and transaction ecosystems.

Customers choose how they interact with their respective banks. Some may never enter a branch or hold a savings account with you. Banks have to respond to this by moving from being a transactional-centric organisation to a more customer-centric one. Digital delivery is the centrepiece of product and service offerings, which are tailored to the customer's preferences. With higher ATM and mobile penetration, GCC countries are poised for higher adoption and implementation of digital banking.

It is important to understand what digital banking is. The definition of digital banking often eludes many of those both inside and outside the banking industry. Some see it simply as mobile or online banking, some see it as automation of processes, and others perceive it as electronic fulfilment of services.

What is digital banking?
In a strictly technological sense, digital banking has existed since the 1950s, a time when the first mainframe computers were used to process banking transactions. However, the meaning of 'digital' in today's context has become far too broad and nuanced. Digital banking today is driven by a number of new technological and consumer trends that have combined to create a unique set of circumstances, rapidly reshaping the banking world including: mobility, automation, connectivity, big data, cloud computing and artificial intelligence. Digital banking is about making traditional banking processes seamless and smooth using technology, delivering a consistent brand message to customers across all channels and automating services as much as possible.

For banks in the GCC, digital banking is essential for capturing and servicing new customer segments: These can be broadly classified as digitally challenged, digitally adaptable and digitally native (generation Y).

Digitally adaptable (or digitally middle) are established consumers having small, but significant sums in investable assets. Digital native (or Generation Y) are young professionals and students aged 18 to 32. They live digitally-focused lives and form the basis of the future of digital banking. Gen Y is projected to represent 40 per cent of all financial transactions in the next few years.

With intense competition among banks within the GCC, digital banking will enhance customer life time value through better customer insights, leading to enhanced life time value and retention. Digital banking provides data techniques that open a number of avenues and tools banks can use to gain better insights on their consumers and prospects. Using pattern analysis or market basket analysis, sophisticated algorithms are applied at the right time, through the right channel to predict a customer's next best offer.

Self-service channels
Banks can leverage penetration of digital devices and the Internet to establish virtual point of presence. With the advent of IoT and the development of devices, the focus has shifted towards self-service channel. Self service centres, using devices such as cash recyclers, kiosk, mini ATMs and cash deposit machines, video kiosk for specialised advice, will gain prominence. These 'lite' branches, which are highly automated with small staff and sales focused, will gain prominence. The digital channels are far more cost-efficient than brick-and-mortar stores and other conventional structures. Further automation harnesses digital resources to re-engineer operations and customer experience.

Regulations and the government are equal stakeholders in promotion and adoption of digital banking. Recently, the UAE Banks Federation announced a memorandum of understanding signed by 16 UAE equity partner banks in the entity which will own and operate the m-Wallet platform. It is part of the financial strategy of the UAE government's Smart Government initiative. Initiatives such as this will enhance the way towards a cashless economy.

Banks have now realised that digitisation is leading to a convergent customer experience across many industries (retail, travel, entertainment, etc.). It is essential to be a part of the ecosystem in order to grow as well as retain market share. It is imperative that banks not only react, but also proactively design and implement their strategy in digital banking.

The writer is a director at Cedar Management Consulting. Views expressed are his own and do not reflect the newspaper's policy.

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