Digitizing banking in the UAE

In the UAE and across the countries of the Gulf Cooperation Council (GCC), state institutions have been among the key enablers and – to some extent – drivers of automation and digitization of payments.

In the UAE, there are a number of ongoing initiatives supporting businesses’ digitization, with digital signature (UAE Pass) or KYC blockchain platform on the way. One of the most significant developments last year was the decision of the Central Bank of the UAE to introduce Immediate Payment Instruction, or IPI, which enables customers to make an immediate payment or transfer to another bank account in the UAE at any time. Similar initiatives are under way in other GCC countries.

While IPI was initially available only for individual account-to-account payments, it is gaining traction very quickly. At Abu Dhabi Commercial Bank (ADCB), we are working on a number of projects to offer immediate payment initiation straight from a customer’s mobile app. This will have a significant impact on the payment market, but other banks have been slow to recognize the potential of immediate payments.

The very high level of smartphone usage in the UAE makes it easy to move away from traditional payment methods. The market is also very heavily influenced by Chinese fintechs and this influence is growing all the time.

We have been increasing our digital capabilities and utilizing our geographical location, which enables us to compare and choose the best solutions from US, European and Asian fintechs.

Concerning digitization at ADCB, we are growing our application programming interfaces (API) proposition, working with corporate and government institutions and regulators on ecosystem-oriented projects for selected industries.

The fintech partnership and collaboration in the payment market in the UAE is therefore a combination of service providers from Asia (India and increasingly China) and those developed in the US and Europe. As a bank, we are benefiting from the competition between these vendors.

Another interesting aspect of the UAE market is that cheque (still a very popular payment method) automation is well established. The central bank introduced the Image Cheque Clearing System in 2008. As a result, over 40% of ADCB institutional customers process their cheques electronically via ADCB ProCash e-channel, directly from their offices.

A number of new projects are aimed at the fast-growing SME market in the UAE, providing an alternative to using cash or cheque ¬– this will be particularly useful given the generally low level of trust between businesses resulting in the high volume of cheque use in the UAE. As a result, direct debit usage remains low and is not gaining traction at comparable levels to Europe, although we as banks are working hard to promote its use.

The UAE is a hub for regional treasury centres and the outsourcing of specific corporate activities owing to our geographical location midway between Asia and Africa. In terms of liquidity management, one of the unique aspects of this market is that overnight deposits are not popular, so excess funds are usually being placed in term deposit accounts where minimum tenor is usually seven days.

Companies at the moment tend to be cash-rich so interest optimization structures are of great relevance. Physical cash pooling is limited because of the shortage of negative balances, although there are some notional pooling structures and cross-border pooling offered by the major international and domestic banks.

As well as optimizing their cash balances, customers also look at us to help them comply with their reporting requirements. We have a number of customized reporting solutions that connect our middleware directly to our customers’ enterprise resource planning systems, which means that as well as accessing payments, direct debit instruction or cheque information/image we offer various types of reports back to the customer.

These solutions are primarily used by larger corporates, with the majority of SME customers using the MT940 messaging format for end-of-day bank statement reporting and reconciliation.

Taken together, these elements paint a picture of end-to-end digitization – from the way individuals interact with their money to the way we and other banks can get a clearer sense of what is going on at great scale. As technology progresses, these capabilities are only going to get faster and more powerful. It is a tremendously exciting time to be a transaction banker.