Study: Online Banking Poised To Blossom In The Gulf

By Chanel Smith EMEA Editor (@PYMNTS_EMEA)

Online banking is a prominent trend in many regions around the world, yet it is still comparatively untapped in Gulf Cooperation Council countries. 

In the last 10 years, online banking has been a burgeoning trend and has been growing by an average of 10 percent per year-over-year in developed areas. Despite the maturity of the banking channel, Arab countries in the GCC are not quite up to speed. According to an ATKearney study, only about 30 percent of GCC bank customers are registered to online banking programs, and only a little over half (18 percent) of said users admit they are avid online bankers. However, new trends are on the horizon, as the report analyzed GCC demographics, current trends and user profiles that indicate online banking may soon blossom in this region. 

GCC countries have an online banking penetration rate of less than 20 percent. For the purpose of comparison, developed countries around the world have an average of about 50 percent, and highly active countries such as Japan, Korea and Canada jump up to even higher rates of about 70 percent. The report shared that developing nations generally have a below 20 percent penetration rate. GCC bank consumers are in line with the average rates based on their economic status, however ATKearney indicated there is reason to believe online banking will become a huge trend in the future. 

Firstly, the adoption rate for Internet usage in the GCC is relatively high. The study reported that there is an 82 percent penetration rate in Qatar, 78 percent in the U.A.E., 62 percent in Oman, 55 percent in Bahrain, 41 percent in Saudi Arabia and 38 percent in Kuwait. The foundation to encourage online banking is well positioned in these countries since Internet use is already common amongst consumers.

The study highlighted that a changing consumer profile within the region as well. Customers who are 40 years and older reveal that they prefer face-to-face banking services. These consumers are dubbed the “digital deniers.” The digital deniers represent the majority of customers in the GCC, however the number of younger bank customers is quickly growing. These younger consumers are much more active with digital technology and the Internet, and will likely be more comfortable with online banking.

The report also explained that online behavior is on the cusp of change. Many customers still fear fraud attacks and cybercrime. Due to security issues, there is a lack of trust among consumers in the GCC. Yet, despite the history of online fear, the number of customers making online payments is increasing. The study reports that this trend suggests that there are changes in the consumer profile, and that more customers are interested in the eCommerce channel. Arab customers are becoming accustomed to online activity, which is integral for online banking adoption.   

Finally, the study highlighted the low quality of service in traditional banking channels, and reported a dwindling number of physical retail branches in various GCC countries. GCC banks do not focus as much on customer satisfaction in comparison to other regions. About 75 percent of U.S. banking customers say they are satisfied with their banks’ services, but in the U.A.E. only 50 percent of native customers and 10 percent of expat customers said they were happy with bank services. The study stated that the poor customer satisfaction is largely due the region’s lack of skilled staff working in banks, which is commonly caused by the country’s high turnover rate of front office personnel.

Moreover, the study reported that the number of retail branches per capita is very low in several countries, especially in Saudi Arabia. Countries that have a low percentage of branches will have greater opportunity to roll out successful online banking programs.

The U.S. and European market had a similar experience, where the abating number of branch locations was followed by the strong emergence of online banking. The study indicated that online banking will allow GCC customers to have more flexibility and control over their banking transactions, which is integral for meeting the changing consumer demands and improving the customer experience. 

To read the full report at ATKearney click here.

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