How do you survive in an industry disrupted by technology that allows customers to bypass your traditional services? Cloud services and emerging technology such as artificial intelligence (AI) and robotic process automation have disrupted a number of different sectors, but have hit the banking industry especially hard.
For Kuwait Finance House (KFH), established in 1977 as the State of Kuwait’s first Islamic bank, the response is an ongoing process of digital transformation: selective adoption of emerging technology, constant effort to optimize business processes, continual measurement of digital maturity, and smart investments in startup technologies – before they can be snapped up by competitors.
New technologies and new competitors have increased customer expectations, making banks more vulnerable to disruption.
New business models disrupt banking
According to Accenture, new business models could impact up to 80 percent of existing banking revenue by 2020. In the last five years, client activity in banking apps has skyrocketed by 354 percent, and now apps are the most popular way for users to access bank accounts.
The Middle East is one of the world’s fastest-growing regions in the banking sector and has witnessed heavy investment by banks in digital solutions.
Islamic banking generally refers to bank systems that are compliant with Islamic religious law, Shari’a, and which typically profit through equity participation rather than charging interest. Consumer technology penetration in the Middle East, though, is similar to most developed countries. Customers continue to change their behavior and adopt different ways of interacting with service providers, finding new ways to use their devices and technologies — often not in the way traditional banks assumed they would.
“These new behaviours are impacting, and will continue to impact, our bank’s revenue streams,” says Srood Sherif, group chief information officer of KFH. “Customers are, for example, increasingly using non-KFH sites and apps, websites and apps not developed or owned by us to help them manage their personal finances or to perform simple banking activities such as paying bills and baby sitters and transferring funds.”
Embracing change as a path to the future
KFH appears to be using the challenge to spark its own efforts to stay abreast of developments in tech that can be applied to financial services .
“We are not only acknowledging the change in consumer expectations but also, we are considering this demand as the main driver to pursue our digital transformation initiatives and to seek out emerging digital technologies that both reduce costs and deliver needed innovation within tighter time-to-market constraints.”
In 2018, KFH began to roll out a wide range of innovative digital banking services, and upgraded its systems and infrastructure, Sherif says.
A key project involved engaging E&Y to implement an RPA system based on technology from Blue Prism, a U.K.-based firm that offers data entry and processing software that automates what it calls low-return, high-risk manual tasks.
RPA has reduced the retail credit application process at KFH from 50 minutes to around 25 minutes and cut the back office review process by 45 minutes – from one hour to 15 minutes, according to Sherif.
A key aspect of the bank’s pursuit of its “digital transformation journey,” Sherif says, is regular assessment of its digital maturity.
Measuring digital progress is a key strategy
“The level of digital readiness is assessed by analyzing three domains: people, process and technology and some business dimensions like customer engagement, innovation management and data analytics,” Sheiff says, adding that in terms of digital maturity, “the bank still is at the beginning of its digital journey, I may say we are at 2.0 out of 5.”
The bank has a track record, though, in keeping up with change in financial services, for example in 2010 launching KFH-GO, its first fully-automated 24/7 e-branch with a wide range of self-service instruments. In 2017, KFH implemented XTM services, which expand self-service banking by allowing customers to do things like open savings accounts in minutes, and provides video and audio options for communicating with bank officials.
Self-banking services now also include the ability to open a second account; set up a business or deposit; request a debit/credit card; update phone/mobile number; update data and cash withdrawal without a card (cardless withdrawal), or through a mobile number.
Meanwhile, even as technology is enabling a new framework for customer relations and efficiency previously unimaginable, new challenges include a changing regulatory landscape and competition from fintech and insurance startups as well as tech giants.
To maintain competitive offerings, the bank is continually making efforts to improve its existing mobile banking apps and delivery channels. Other initiatives include targeting the millennial demographic – young people responding to the bank’s marketing campaign are offered special services such as free bank transfers
Investments in emerging technology
A key strategy is to invest in promising technology, seeking deeper involvement with emerging technology such as blockchain through partnerships with fintech companies. In fact the bank has invested more than US$20 million in the U.S. fintech industry.
KFH has an investment subsidiary, KFH Capital, which looks after investment ventures with a focus on startups and fintech in financial services. One recent investment venture is in Skiplino, which has developed a cloud-based system for queue management of in-branch customers.
“Our philosophy is to consider fintech companies as both threats and opportunities. As a threat to our foundational services that we offer to our customers and to the revenue streams they represent, KFH started the journey for digital banking transformation and working on many streams,” says Sherif. “On the other hand, fintech offers many opportunities to identify emerging digital capabilities and technologies that customers want and acquire.”