We are living in an increasingly digital and automated world, characterised by rapid technological advancements that have come to be collectively understood as the fourth industrial revolution.
As the Covid-19 pandemic has swept the globe, traditional working and business practices have been upended, with remote working, virtual communications and digital payments becoming the default. In this way, the outbreak has served as a catalyst for the uptake of technologies that are now being used around the world for day-to-day activities to an extent previously not thought possible.
At the same time, the outbreak has shone a harsh light on those industries and sectors that may be lagging others when it comes to digitalisation.
This can be seen in the global banking industry, which has been slower to evolve than most, so entrenched and established are its business practices. However, in the face of changing consumer needs and the growing influence of challenger fintechs, the sector is having to adapt fast in order to stay relevant.
Bahrain serves as an interesting case study. In a region of countries racing to diversify their economies, the kingdom was the first to begin diversification efforts. Home to the oldest and most established financial centre in the Gulf region, Bahrain has capitalised on its banking expertise to grow a fintech ecosystem.
Crucially, this collaborative ecosystem has allowed for close co-operation between traditional banking institutions and innovative challenger fintechs. This has redefined the potentially hostile relationship between the two as new streams of business have evolved, generating new opportunities for co-operation instead of pure competition. Fintechs will naturally perform better when they are supported by a financial institution that shares the same values and goals.
In Bahrain we are seeing new fintechs working closely with traditional banks to roll out open banking services, launch biometric ATM networks and more. Moreover, the traditional banks have been able to learn from these new challenges and are increasingly rolling out their own mobile and digital banking services.
At Al Salam Bank, for example, we have focused on building a new cloud-enabled platform that will help us deliver our digital ambitions. We continue to challenge our existing services and operational procedures on a daily basis to ensure our customers receive bespoke and truly digital financial products that add value even as their needs change and evolve.
In today’s increasingly digital world, if banks are to stay relevant, they must place technology at the core of their strategies and place data ownership back in the hands of consumers. Digital innovation must be the new modus operandi; financial empowerment must be the new byword.
And in the face of one of the most significant public health emergencies of the last 100 years, these kinds of digital services matter. Minimising contact with other people and paper cash has been critical to containing the spread of infection, as have online banking services which mitigate the need to break quarantine and self-isolation.
Fortunately, Bahrain’s banking industry has proven its willingness to innovate. This in large part thanks to its pioneering regulator, the Central Bank of Bahrain (CBB) which in tandem with the kingdom’s investment promotion agency – the Bahrain EDB – has worked hard to foster an ecosystem where technological, financial and digital innovation can flourish. It established the region’s first fintech regulatory sandbox for fintechs to test their products and roll out their solutions. Thirty-two new applicants are currently testing their ideas in the sandbox while two have already successfully graduated and rolling out their services across the kingdom. Through strong collaboration between all stakeholders, Bahrain has also introduced new bankruptcy, data privacy and competition laws, alongside comprehensive regulations for open banking, cryptocurrency and cloud services. During the crisis, the CBB has also shored up the capital adequacy of the sector, availing zero per cent six-month repos to banks amongst other initiatives.
But perhaps most important of all is the CBB’s and the Bahrain EDB’s collaborative approach to foreign innovation. This has allowed Al Salam Bank to partner with Chinese VC firm MSA Capital to launch a first-of-its-kind fund established to unify Chinese and Middle Eastern capital and technology markets. The fund, MEC Ventures, is in the midst of closing a number of transactions following its investment in Eureka, an Indonesian AI startup that can track and organise vast quantities of mobile telecom data.
For decades, Bahrain has been acknowledged as the Gulf’s financial capital. But, in an era of rapid digitalisation, the sector must continue to innovate in order to remain a regional leader. And this need for innovation in the sector is not limited to the Middle East.
The pandemic has underscored in the clearest terms the benefits of digitalisation, and also the risks of failing to do so. Perhaps one silver lining to this global tragedy is that it will serve as a catalyst for much-needed digital transformation where it is still lacking. For even without a global crisis, this is no longer an option for the sector. It is essential for its continuing relevance, and for its survival.
Mr Murad is deputy chief executive of Al Salam Bank-Bahrain
&uuid=(email))