Today's Edition
HOSSAM ABDEL NABI (ABU DHABI)
The Central Bank of the United Arab Emirates (CBUAE) actively encourages banks to enhance their digital transformation efforts, making the UAE a hub for digital banking services, according to a report by S&P Global Ratings.
The report, titled “The Future of Banking”, stated that virtual banks will offer additional value to customers alongside what traditional banks in the UAE provide, and will not replace traditional banks. The current services of virtual banks are limited to retail banking and focus mainly on increasing deposits and issuing credit cards, the report noted.
The report also confirmed that the adoption of virtual banks and digital services for traditional banks in the UAE is increasing and is expected to continue, given the clear preference of the population for digital transformation and the strength of the digital infrastructure.
The report added that in recent years, there has been the emergence of virtual banks and an increase in the digital services offered by traditional banks in the UAE. Virtual banks try to attract customers of traditional banks by offering products and services at lower fees. It emphasised that the regulatory environment for financial technology in the UAE somewhat supports the emergence of virtual banks, explaining that virtual banks are still in the early stages of their development in the local market of the UAE.
Their current products and services, which are mainly focused on increasing deposits and issuing credit cards, are limited. Therefore, most customers in the UAE prefer traditional banks, which have succeeded in digital transformation. Their digital products and services outperform those offered by banks in many other emerging markets, ruling out a significant migration from traditional banks to virtual banks in the foreseeable future.
The report confirmed that the regulatory authority in the UAE has contributed to the launch of several virtual banks over the past few years, noting that the Central Bank supports virtual banks by providing the necessary licenses and approvals, while ensuring they meet the required regulatory standards. This has relatively facilitated the entry and innovation of virtual banks in the UAE market, compared to other economies in the Middle East.
Money Transfers
The S&P Global Credit Ratings report also highlighted that the large number of expatriates in the UAE, especially low-income workers who send money to their home countries, significantly contributes to the demand for low-cost and high-speed money transfer companies. It noted that virtual banks could attract part of the money transfers in UAE banks and exchange offices by reducing transfer fees, providing better exchange rates, and reducing the time required for the transfer. However, it pointed out that exchange offices still dominate money transfers, processing more than three-quarters of international money transfers in the UAE, amounting to Dh145.7 billion in 2022.
Technological Convergence
According to the “Future of Banking” report, the technological convergence among the population in the UAE supports the increase in demand for virtual banks, which has led to the emergence of an attractive system for banks and financial technology companies. These companies offer the latest services that attract millennials and technology enthusiasts.
The report states that the past few years have seen the emergence of independent virtual banks in the UAE, such as Zand and Al Maryah Community Bank.
Traditional banks have also launched their digital services, for example, Liv and E20 affiliated with Emirates NBD, and Mashreq Neo affiliated with Mashreq Bank. It also referred to estimates from the Finder website, which indicate that the number of adults with accounts in virtual banks in the UAE rose to 19% in 2022, compared to 17% in 2021. It is expected that the adoption of banks offering digital-only services will rise to about 35%-40% by 2027, in line with the global average. The Central Bank maintains stability of traditional system and encourages efforts for digital transformation Virtual banks offer additional value to customers and will not replace traditional banks The Central Bank supports virtual banks by providing necessary licences and approvals
