The GCC+ region has many banks serving a relatively small population. While we have seen some traditional brick-and-mortar institutions shutter and merge, a growing number of challenger banks are also attempting to capture the same market. And while the region remains underbanked, there is no shortage of banking providers. In addition to the challenger banks, the traditional players that remain also continue to embrace digitalisation, launching their own digital-first platforms. Examples include Mashreq NEO, Emirates NBD (Liv), and FAB, which also has a stake in WIO Bank.
One thing unites these players, and it is not their business model or even their product offering. On the contrary, the industry has never been as fragmented. Yet all involved recognise the need to build increasingly digitalised businesses. At first, this was motivated by cost-efficiency and was a “nice to have”. These days, it has morphed into something you can’t ignore, and businesses must embrace a digital-first approach or risk extinction.
The problem is that traditional and even new institutions often lack the necessary IT or operational capabilities to provide all the services and channels that clients demand today. It is very challenging for institutions to keep up with trends, especially given how rapidly they change. It would be difficult to score a goal if the goalposts keep moving. Even harder if you constantly need to swap out the striker and the entire team playing behind him. This is what institutions experience when they attempt to catch up with trends, all while building and operating everything in-house.
This problem is particularly challenging in wealth management for the mass-affluent segment. This segment demands access to global financial markets across various asset classes. From an investment perspective, this makes perfect sense. After all, like our founder and CEO often says, “diversification is the only free lunch in the world.” But for the provider to meet this demand, the costs can be crippling for a business. To make matters infinitely more trying, providers not only need to offer access but also must be able to create bespoke portfolios that match the clients’ objectives, goals, risk appetite, and preferences.
Now, the above requires a huge amount of infrastructure, tech and expertise. Instead of training a whole new squad from scratch, it often makes far more sense to buy a few key players from the open market and adapt your existing squad around them. In the world of football, Al-Nassr has achieved great success with its plug-and-play approach featuring Ronaldo. In the banking world, this translates to outsourcing.
So, what’s being outsourced? The menu is ever-expanding. Currently, outsourcing of execution and asset servicing, as well as infrastructure and IT operations, is a common practice.
I came to the Middle East in 2008 because the demand for outsourced solutions has been prevalent ever since. Back in 2015, I was having a conversation with a regional bank executive and was surprised to find they were still running their entire wealth platform in-house. Fast forward to today, it’s a complete shift in mindset—from control to collaboration. Almost 20 years later, it appears that only more institutions are embracing the outsource playbook.
After nearly three decades in the industry, I am convinced that the world today has evolved too dramatically for banks to still believe they need to build proprietary systems and infrastructure. Instead, we are in a place now where banks will manage the client relationship, prioritise ensuring the suitability of products and services for the client, and oversee compliance with regulations through one consolidated platform or Super App. Meanwhile, the actual products, services and all downstream processes and infrastructure needed would be outsourced.
What was initially viewed as a means of reducing operational costs has now become a strategic lever for institutions. It allows them to accelerate time-to-market for new products, gain reliable access to global markets and multi-asset capabilities, and scale efficiently without the need for heavy upfront investments.
In my view, the main challenge for large banks will be the speed at which they can adapt and implement change–in this aspect, the FinTechs have an edge. Meanwhile, the challenge for these same FinTechs would be that they do not have the scale and client base that these banks have built over decades. The winning formula will be institutions that are agile enough to keep up with the demand for innovation, whilst also having the scale to deliver them competitively to the market.
Admittedly, achieving the winning formula is a tall task. But while this challenge has presented itself to financial institutions from Sydney to New York, peers in the GCC have a unique advantage. The ecosystem in the region is highly accommodating of firms introducing new and unique products and services. Governments in the region are also supporting the development of businesses with subsidies and incentives, as well as the formation of sandboxes, accelerators, and the implementation of business-friendly regulations.
