Download - Banking in emerging markets - Ernst & Young · Banking in emerging markets GCC FinTech play 2017. 4 6 10 14 Foreword Executive summary The FinTech revolution The GCC banking sector’s

Banking in emerging marketsGCC FinTech play 2017

46

1014

Foreword

Executive summary

The FinTech revolution

The GCC banking sector’s views on FinTech

FinTech’s familiarity and its perceived impact

FinTech’s threats and opportunities

The GCC banking sector’s organizational readiness

Hurdles and limitations faced by the GCC banking sector

Compete or collaborate with FinTech players

Contents17

19

21

23

24

The case for collaboration among participation banks

Global FinTech and opportunities for participation banks

Participation banking sector overview

Country outlook

Bahrain

Saudi Arabia

Malaysia

UAE

Kuwait

Qatar

Turkey

Indonesia

Pakistan

2632

46

56

48

58

50

60

52

62

54

3844

Today more than two billion adults still do not have a bank account. There are also

the center of this disruption.

innovations.

Abdulaziz Al-Sowailim

Foreword

GCC FinTech play 20174

Ashar Nazim

brand.

GCC FinTech play 2017 5

Executive summary


GCC banks’ views on FinTech

The case for collaborationWe advocate collaboration between participation banks and

FinTech opportunities for participation banks



journey, lower cost of services, increased choice, consumer empowerment, faster transaction speed and a more inclusive

8 GCC FinTech play 2017

GCC bank’s views on FinTechThreats and opportunities:

offer end customers a noticeably better value proposition.

Organizational readiness: While there seems to be a

transformation, practical steps to convert this intent into measureable results do not seem to have been taken.

Hurdles and limitations:

in this area.

Compete or collaborate:

them as potential business partners to collaborate with, for the

The case for collaboration

international norms.

FinTech opportunities for participation banks


previous years.

provided in the report.

Muhammad Muzammil Kasbati



market entrants innovate products and services

services sector.

FinTech revolution

Insurance

Banking

Asset management

Wealth management

Improved consumer journey

Lower cost

Increased choice

Empowered customer

Faster transaction speed

FinTech enhances consumer value proposition


services in particular.

result in shorter transaction chain, reduced operational cost, enhanced resilience of operational processes,

to increase revenue and improved

bottom line.

the transaction cost, increase the choice, improve the transaction speed

to the customer.

swathe of less well-off individuals, who

the “physical” distribution structure and


The GCC banking sector’s views on FinTech

FinTech in the GCC banking sector


Low familiarity Some familiarity

Very familiar

E

Yes

FinTech familiarity and its perceived impact

Q:

Q:

Familiarity with FinTech innovations is modest in the GCC banking sector.

How would you rate your familiarity with


innovations as “low familiarity” or “some familiarity”

players could cause any noticeable disruption in the

propositions over those offered by the incumbent

Survey participants are in doubt if FinTech could disrupt the GCC banking sector in the short term.

Ease of use

Lower cost

Wider variety or features

Personalized service


Strengths of FinTech innovations are acknowledged by the GCC banking sector.

innovations offer end customers a noticeably better value proposition, in terms of ease of use, cost, speed

consumer journey.

Low

Q:

majority of the survey participants estimated that loss of the

by 2020.

very shortly develop a policy stance that actively

Up to 5% 10%–15%

43%

15%–20%

7%

5%–10%

36%

20% and above

7%

7%

FinTech threats and opportunities


Estimated loss of business to stand-alone FinTech

Q:

international counterparts, who believe that

disruption.

participants believe that funds transfer

sectors.

disruption” activity that closely follows

In a noticeably positive stance toward

seems to be bullish on the potential of opportunities it offers to incumbent players.

innovations could help them enhance consumer-centricity and reduce cost.

why the survey participants believe that their loss of business to stand-alone

modest compared with their international counterparts.

from FinTech innovations.


Funds transfer and brokerage are viewed to be most likely to be disrupted.

Deposits

Low

Low

Q:

Q:

GCC banking sector’s organizational readiness

Senior management support for digital transformation through FinTech innovations.

Somewhat

of the initiative, practical steps to convert the intent into results do not seem to have taken place in most of

A majority of the survey participants do not have a single person in charge of innovation.

Yes

In a majority of the survey participant banks, the

and accountability.

Q:


Q:

plan ready


In addition, two-third of the survey participant banks had either not had any substantive discussions within

stated that they had an actionable work plan in place to

Q:

one option:

•

•

•

•

•

Most GCC banks do not seem to have a credible work plan in place for digital transformation.

Hurdles and limitations faced by the GCC banking sector

Estimated loss of business to stand-alone FinTech

transformation.

Low

Low

Tech

nica

l abi

lity


a number of hurdles and limitations

transformation initiative.

and limitations was their bleak assessment of the technical ability

survey participants felt that their

position, in terms of technical

Q:

GCC banks’ perception of FinTech Likely strategies of the GCC banks

Build in-houseInvest

Partner

Irrelevant

Survey participants’ views on the banking sector’s evolution toward a digital ecosystem.

Compete or collaborate with FinTech players


The GCC banking sectors’ perception of FinTech and their likely strategies to compete with them

Q:

Q:

view?

The need to build “shared-cost FinTech solutions” in the GCC region.

Potential collaborative shared-cost FinTech solutions in the GCC region.

Q:

Q:


sector-level cost-effectiveness and reduce

that there is a need to set up shared-cost

When asked to prioritize a short list of potential

participants rated authentication and biometrics,

Behind this top priority list, the survey Smart surveillance systems

Low

Case for collaboration among participation banks

The case for collaboration among participation banks

Network effect

in order to broaden its adoption and use.in the United States has joined hands with a non-bank small business lender, which

Joint venture Peer-to-peer platform

6 Malaysian participation banks

IAP integrated (owner and operator of

IAP)


The case for collaboration in the GCC banking sector

with investment from retail and institutional investors via

Economies of scale

conventional banks.

economies of scale and broad market adoption is the mWallet

Exploring emerging FinTech innovations

Key objectives

•

•

•



“proof of concept,” and the development of common standards

investment banks as depicted below. Within one year from its the outset.

Avoid a two-tier participation banking sector

commercially viable manner may be out of reach for many small and medium-sized participation banks. This is either because of

Unless there is a proactive collaboration, there is a risk that we

innovations, whereas small and medium-sized participation banks may end up as second-tier players with a competitive

increased to more than institutions — September 2015



“Silicon Valley is coming. There are hundreds of start-ups with a lot of brains and money working on various alternatives to traditional banking.”

some of the most attractive and valuable

investments to date have been in the

Private investment in global FinTech companies (US$b)

Capital deployed in private FinTech companies by business area

Institutional tools

Insurance

Payments

2 2 2


FinTech overview and opportunities for participation banks

Potential opportunities for the participation banking sector

market share.

in most of the developed countries. Based on their familiarity

SME lending platform

company noted: “Working with a FinTech company called OnDeck, we will be piloting a new working capital product. The process will be entirely digital, with approval and funding generally received within one day vs. the current process that can take up to one month or more. The loans will be Chase branded, retained on our balance sheet, and subject to our pricing and risk parameters.”

To identify innovation characteristics and emerging areas of innovation, EY has developed the following framework:1

Source: UK FinTech — On the Cutting Edge, An Evaluation of the International FinTech Sector, EY, 2016

paymentsInsurance investments and

pensions

Investment

and capital markets

innovations

P2P payments

tools

Smart contractsBlockchain

Telematics

Social insurance

WearablesVisualization tools


Peer-to-peer lending platform

on the current PLS business model.

The participation bank conducts suitability evaluation of

and monitors their performance. However, the responsibility to channel funds to ventures of their choice is moved to the investors.

approach for their PLS account.

Digital wealth managementhave decided to provide a policy support to set up automated

participation banks to offer the PLS account holders yet another way to invest their funds in a Sharia-compliant manner.

Investors

• Individual, corporate and institutional investors

Ventures

• Similar to current

•

in innovative and new

viable projects

Islamic banks

Islamic bank, in line with

•

on ventures

• Suitability assessment on investors

Provide Channel funds to ventures of their choice


Banking and payments

P2P payments:

person payment solution to their clients.

multinational company stated that, “This new P2P solution will securely make real-time funds available through a single consumer-facing brand. Chase and the partner banks represent 60% of all US consumers with mobile banking applications. We intend to keep P2P free for consumers and the network consortium is open for all banks to join.”

the launch of a similar consortium-based P2P payments

Digital-only bank for the millennials:

services to meet the differentiated needs of this customer

German online bank.

for participation banks in the due course. There is a case for participation banks to evaluate collaborative ventures with

countries.

Multifactor digital authentication:

driven authentication protocol for their clients.

the three factors in client authentication. The other two factors




40 International participation banking assets40 Regional market contributions41 Participation industry footprint42 Participation banking country contributions42 Leading 20 participation banks by capitalization

International participation banking assets*

US$

b

13%

572

930

2011 2012 2013 2014 2015

GCC ASEAN Turkey and ROW South Asia

385 455 515 606 663

117 143

153 159 142

53 69

84 89 91

17 20

24 28 33

Share of participation banking assets* International participation banking assets* (US$b)

Regional market contributions

2011 2012 2013 2014 2015

-15%

-10%

-5%

0%

5%

10%

15%

20%

25%

30%

35%

GCC ASEAN Turkey and ROW

South Asia

Par

tici

pati

on b

anki

ng m

arke

t sh

are

Banking penetrationSize of circle = Participation banking assets

KSA

UAE

Kuwait

Qatar

Turkey

Bahrain

Indonesia

Bangladesh

EgyptPakistan

Jordan

0%

10%

20%

30%

40%

50%

60%

70%

0% 50% 100% 150% 200%

Malaysia


Islamic

Regional contribution to growth in 2015

Growth rate by region Banking penetration and participation asset market share

Participation industry footprint Share of markets

domestic industry.

Global

34%

17%

9%

2%

2%

54%

24%

27%

3%

11%

13%

9%

5%

2%

22%

43%

5%

29%

Pakistan

Saudi Arabia

UAE

Qatar

Indonesia

Malaysia

Kuwait

Turkey

Bahrain


Participation banking country contributions

Leading 20 participation banks by capitalization

Country contribution in 2015 (US$b)

Capitalization of top 20 banks

Year on year (YoY) growth rate of assets, 2015 (in local currency)

Malaysia

14%

KSA

Kuwait Qatar Turkey

Indonesia Bahrain Pakistan

37%

10% 10% 5%

2% 2% 2%

UAE

18%

Pakistan

Bahrain

Indonesia

Turkey

Qatar

Kuwait

UAE

Malaysia

Saudi Arabia

CAGR2011–15

Conventional Islamic

16%

13%

17%

7%

17%

21%

17%

4%

26%

–10% 0% 10% 20% 30%

2012 2013–15

CAR2015

CAR2014

Capital Adequacy Ratio (CAR)

US$b 1 2 3 4 5 6 7 8 9

10 11 12 13

21% 16% 23% 17% 14% 15% 19% 20% 47% 16% 17% 16% 16% 17% 16% 14% 14% 22% 16% 14%

20% 15% 26% 16% 15% 14% 18% 19% 44% 14% 17% 16% 17% 21% 17% 14% 13% 24% 16% 15%


Top 20 participation banks

assets

0% 4% 8% 12% 16% 20%

Average ROE 2011–15

– 20 40 60 80100

Total assets 2015US$b


Country outlook

Total banking assets Total financing assets Total investment accounts

37

15

0

10

20

30

50

40

2011 2012 2013 20152014

US$

b

27% 29%

21

13

0

10

20

30

50

40

2011 2012 2013 20152014

US$

b

32% 38%

23

13

0

10

20

30

50

40

2011 2012 2013 20152014

US$

b

30% 35%

4% 6%

–25%

–5%

–15%

5%

15%

2012 2013 20152014

Investment accounts YoY growth* Financing YoY growthAssets YoY growth 4% 1% 4% –3% 8% 1%

4% 5%

–25%

–5%

–15%

5%

15%

2012 2013 20152014

3%0%

–25%

–5%

–15%

5%

15%

2012 2013 20152014

Participation bankingConventional banking

Conventional banking CAGR 2011–15

Participation banking share

Participation banking CAGR 2011–15

%

Participation banking penetration in Bahrain Bahrain


Return on assets Return on equity Cost to income ratio

1.2%

1.1%

–1.0%

0.0%

2.0%

1.0%

2011 2012 2013 20152014

9%

9%

–5%

0%

15%

10%

5%

2011 2012 2013 20152014

56%

39%

0%

20%

100%

40%

60%

80%

2011 2012 2013 20152014

7.77.7

2011 2012 2013 20152014

6%

3%

0%

4%

2%

6%

8%

10%

0

4

2

6

8

10

2011 2012 2013 20152014

35%29%

0%

40%

20%

60%

80%

100%

2011 2012 2013 20152014


Share of global market* Share of participation banking growth in 2015



273316

0

100

200

300

500

400

2011 2012 2013 20152014

US$

b

43% 54%

179

269

0

100

200

300

500

400

2011 2012 2013 20152014

US$

b

50% 60%

428

0

100

200

300

500

400

2011 2012 2013 20152014

US$

b

10%

–2%–10%

10%

0%

20%

30%

2012 2013 20152014

Investment accounts YoY growth* Financing YoY growthAssets YoY growth

Total banking sector CAGR 2011–15

16% 4% 17% 5% 10%

8%

-2%–10%

10%

0%

20%

30%

2012 2013 20152014

2%

10%

10%

0%

20%

30%

2012 2013 20152014





Total banking sector

%

Participation banking penetration in Saudi ArabiaSaudi Arabia



2.0%

1.8%

0.0%

1.0%

4.0%

2.0%

3.0%

2011 2012 2013 20152014

13%

12%

0%

10%

40%

30%

20%

2011 2012 2013 20152014

48%

35%

0%

20%

100%

40%

60%

80%

2011 2012 2013 20152014

6.9

6.6

2011 2012 2013 20152014

4% 4%

0%

4%

2%

6%

8%

10%

2011 2012 2013 20152014

32%33%

0%

40%

20%

60%

80%

100%

2011 2012 2013 20152014


0

4

2

6

8

10




296

93

0

100

200

300

600

500

400

2011 2012 2013 20152014

US$

b

20% 24%

426

123

0

100

200

300

600

500

400

2011 2012 2013 20152014

US$

b

18% 22%

242

89

0

100

200

300

600

500

400

2011 2012 2013 20152014

US$

b

20% 27%

–5%–14%

–40%

0%

–20%

20%

40%

2012 2013 20152014

Investment accounts YoY growth* Financing YoY growthAssets YoY growth 5% –1% 10% 0% 3% –2%

–11%–16%

–40%

0%

–20%

20%

40%

2012 2013 20152014

–18%–17%

–40%

0%

–20%

20%

40%

2012 2013 20152014





%

Participation banking penetration in MalaysiaMalaysia




1.2%

0.9%

0.0%

1.0%

4.0%

2.0%

3.0%

2011 2012 2013 20152014

13%

11%

0%

10%

40%

30%

20%

2011 2012 2013 20152014

53%

41%

0%

20%

100%

40%

60%

80%

2011 2012 2013 20152014

12.3

10.9

2011 2012 2013 20152014

3%4%

0%

4%

2%

6%

8%

10%

2011 2012 2013 20152014

13%

34%

0%

40%

20%

60%

80%

100%

2011 2012 2013 20152014


0

8

4

12

16

20



270

131

0

100

200

300

600

500

400

2011 2012 2013 20152014

US$

b

24% 33%

516

159

0

100

200

300

600

500

400

2011 2012 2013 20152014

US$

b

18% 24%

243

134

0

100

200

300

600

500

400

2011 2012 2013 20152014

US$

b

30% 36%

15%5%

–40%

0%

–20%

20%

40%

2012 2013 20152014

Investment accounts YoY growth* Financing YoY growthAssets YoY growth 17% 9% 14% 6% 17% 5%

5%

–40%

0%

–20%

20%

40%

2012 2013 20152014

15%

–1%

–40%

0%

–20%

20%

40%

2012 2013 20152014





17%

%

Participation banking penetration in the UAEUAE




1.7%1.7%

0.0%

1.0%

4.0%

2.0%

3.0%

2011 2012 2013 20152014

13%

12%

0%

10%

40%

30%

20%

2011 2012 2013 20152014

39%

31%

0%

20%

100%

40%

60%

80%

2011 2012 2013 20152014

8.0

7.1

2011 2012 2013 20152014

4%3%

0%

4%

2%

6%

8%

10%

2011 2012 2013 20152014

28%31%

0%

40%

20%

60%

80%

100%

2011 2012 2013 20152014


0

8

4

12

16

20



54

74

0

20

40

60

120

100

80

2011 2012 2013 20152014

US$

b

50% 58%110

84

0

20

40

60

120

100

80

2011 2012 2013 20152014

US$

b

43% 43%

5258

0

20

40

60

120

100

80

2011 2012 2013 20152014

US$

b

64% 53%

–18%

33%

–40%

0%

–20%

20%

40%

2012 2013 20152014

Investment accounts YoY growth* Financing YoY growthAssets YoY growth 5% 5% –1% 12% 8% 0%

1%

–40%

0%

–20%

20%

40%

2012 2013 20152014

–6% –2%

–40%

0%

–20%

20%

40%

2012 2013 20152014





–6%

%

Participation banking penetration in KuwaitKuwait




1.1%

1.1%

0.0%

1.0%

4.0%

2.0%

3.0%

2011 2012 2013 20152014

10%

8%

0%

10%

40%

30%

20%

2011 2012 2013 20152014

45%

34%

0%

20%

100%

40%

60%

80%

2011 2012 2013 20152014

8.6

7.5

2011 2012 2013 20152014

5%

3%

0%

4%

2%

6%

8%

10%

2011 2012 2013 20152014

24%29%

0%

40%

20%

60%

80%

100%

2011 2012 2013 20152014


0

8

4

12

16

20



125

54

0

50

100

150

300

250

200

2011 2012 2013 20152014

US$

b

24% 30%

222

84

0

50

100

150

300

250

200

2011 2012 2013 20152014

US$

b

23% 27%

147

59

0

50

100

150

300

250

200

2011 2012 2013 20152014

US$

b

22% 29%

24%

11%

–40%

0%

–20%

20%

40%

2012 2013 20152014


8%

–40%

0%

–20%

20%

40%

2012 2013 20152014

13%6%

–40%

0%

–20%

20%

40%

2012 2013 20152014





17%

%

Participation banking penetration in QatarQatar




1.9%

1.6%

0.0%

1.0%

4.0%

2.0%

3.0%

2011 2012 2013 20152014

14%

13%

0%

10%

40%

30%

20%

2011 2012 2013 20152014

29%

27%

0%

20%

100%

40%

60%

80%

2011 2012 2013 20152014

8.1

7.1

2011 2012 2013 20152014

3%3%

0%

4%

2%

6%

8%

10%

2011 2012 2013 20152014

18%24%

0%

40%

20%

60%

80%

100%

2011 2012 2013 20152014


0

8

4

12

16

20



402

250

300

600

1,500

1,200

900

2011 2012 2013 20152014

US$

b

6% 6%

737

420

300

600

1,500

1,200

900

2011 2012 2013 20152014

US$

b

5% 5%

1,219

380

300

600

1,500

1,200

900

2011 2012 2013 20152014

US$

b

6% 3%

15%

123%

0%

80%

40%

120%

160%

2012 2013 20152014


–5%

–40%

0%

–20%

20%

40%

2012 2013 20152014

–11%–6%

–40%

0%

–20%

20%

40%

2012 2013 20152014





–8%

%

Participation banking penetration in TurkeyTurkey




1.1%

0.3%

0.0%

1.0%

4.0%

2.0%

3.0%

2011 2012 2013 20152014

11%

3%

0%

10%

40%

30%

20%

2011 2012 2013 20152014

54%

49%

0%

20%

100%

40%

60%

80%

2011 2012 2013 20152014

11.6

9.3

2011 2012 2013 20152014

5%5%

0%

4%

2%

6%

8%

10%

2011 2012 2013 20152014

29%28%

0%

40%

20%

60%

80%

100%

2011 2012 2013 20152014


0

8

4

12

16

20



421

160

100

200

300

600

500

400

2011 2012 2013 20152014

US$

b

565

200

100

200

300

600

500

400

2011 2012 2013 20152014

US$

b 373

150

100

200

300

600

500

400

2011 2012 2013 20152014

US$

b

3% 4%3% 3% 3% 4%

–7% –4%

–40%

0%

–20%

20%

40%

2012 2013 20152014


–3%

–40%

0%

–20%

20%

40%

2012 2013 20152014

–11%–5%

–40%

0%

–20%

20%

40%

2012 2013 20152014





–9%

%

Participation banking penetration in IndonesiaIndonesia




3.4%

1.3%

0.0%

1.0%

4.0%

2.0%

3.0%

2011 2012 2013 20152014

25%

16%

0%

10%

40%

30%

20%

2011 2012 2013 20152014

72%

45%

0%

20%

100%

40%

60%

80%

2011 2012 2013 20152014

12.1

7.2

2011 2012 2013 20152014

8%

10%

0%

4%

2%

6%

8%

10%

2011 2012 2013 20152014

18%24%

0%

40%

20%

60%

80%

100%

2011 2012 2013 20152014


0

8

4

12

16

20



92

80

30

60

90

150

120

2011 2012 2013 20152014

US$

b

121

16

0

30

60

90

150

120

2011 2012 2013 20152014

US$

b

40

60

30

60

90

150

120

2011 2012 2013 20152014

US$

b

8% 8%8% 11% 6% 13%

–40%

0%

–20%

20%

40%

80%

60%

80%

60%

2012 2013 20152014

Investment accounts YoY growth* Financing YoY growthAssets YoY growth 29% 3% 9% 10%

12%

–40%

0%

–20%

20%

80%

60%

40%

2012 2013 20152014–22%

13%

–40%

0%

–20%

20%

40%

2012 2013 20152014





24%

%

53%

Participation banking penetration in PakistanPakistan




1.7%

0.5%

0.0%

1.0%

4.0%

2.0%

3.0%

2011 2012 2013 20152014

16%

10%

0%

10%

40%

30%

20%

2011 2012 2013 20152014

76%

43%

0%

20%

100%

40%

60%

80%

2011 2012 2013 20152014

17.5

9.1

2011 2012 2013 20152014

4%

6%

0%

4%

2%

6%

8%

10%

2011 2012 2013 20152014

18%30%

0%

40%

20%

60%

80%

100%

2011 2012 2013 20152014


0

8

4

12

16

20


EY leadership team

Our industry awards

Best Islamic Advisory

Firm, 2014

Euromoney Islamic


Firm, 2013, 2011, 2010,

2009

London

WIBC Leading Islamic

Financial Services

Provider, 2008

World Islamic

Bahrain

Best Islamic Finance

Advisory Firm, 2009, 2008,

2007

World Islamic

Bahrain

Best Takaful Advisory

Firm, 2011, 2009

3rd International Takaful Summit,

London


Firm, 2014

8th International Takaful Summit

ADIB — Appreciation Award, 2013

Islamic Economy Summit, Dubai

Thought Leadership

Award, 2013

Ashar Nazim

Gordon Bennie


proprietary, based on sample and is not meant to be fully

markets.

and industry observers, to identify key trends, risks and priorities.

factor.

• and Turkey

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

•

• input on the report.


Fawad Laique (Bahrain/KSA)

Ashar Nazim [email protected] twitter.com/@asharnazim

Muhammad Muzammil Kasbati [email protected]

Nader Rahimi(Bahrain)

Imitiaz Ibrahim(Qatar)

Muhammad Syarizal(Malaysia)

Wajih Ahmed(Bahrain)

Jahanzaib Mukhtiar (Bahrain)

Ken Eglinton (UK)

Khurram Siddiqui (UAE)

Merisha Kassie (South Africa)

Syed Hassan Sagheer (UAE)

Yasir Yasir (Indonesia)

Shoaib A Qureshi (Saudi Arabia)

Anthony O’Sullivan (UAE)

Selim Elhadef (Turkey)

Muzammil Kasbati (Bahrain)

Rashid Al Rashoud (KSA)


EY

About EY

confidence in the capital markets and in economies the world over. We

clients and who contribute to our communities. We are proud of our

specific advice.

ey.com/mena

The views set out in this publication are

Download - Banking in emerging markets - Ernst & Young · Banking in emerging markets GCC FinTech play 2017. 4 6 10 14 Foreword Executive summary The FinTech revolution The GCC banking sector’s

Top Related