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11 June 2019

SAP: Identifying the right tech strategy

Mohammed Al Khotani, Managing Director of SAP Saudi Arabia, sits down with Banker Middle East, and shares his views on developing trends across the industry and the key technologies shaping them.


What is your outlook on current market conditions and its implications for the banking sector?

The economic growth in the Middle East and particularly in Saudi Arabia (KSA) recovered in 2018 from a contraction in 2017, benefiting from the increase in average oil prices. Meanwhile, the pace of fiscal consolidation eased, and the nonoil economic activity picked up.

Private sector economic activity strengthened in Saudi Arabia, although the overall private credit growth remained subdued. Supported by increased oil revenues, most Middle East economies have seen some improvements in their fiscal and external balances.

The oil production rose after the Organisation of Petroleum Exporting Countries (OPEC) and its allies agreed to boost output in June 2018, but they may cut oil production in 2019 despite pressure from the United States to lower oil prices. Overall, the economy in Saudi Arabia is set to show stronger gross domestic product (GDP) growth in 2019.

The oil price is expected to remain firm, which will support stronger government spending. Non-oil sector will continue to grow, albeit at a slow pace. The implementation of government stimulus packages such as Saudi Arabia’s Saudi Vision 2030, will continue to spur the growth in the region.

The improvements in the macroeconomic conditions will help banking sector see better overall financial performance in 2019. The profitability pressure in regional banking system will be alleviated, largely driven by widening net interest margins and increasing lending activity, as well as their strong culture of cost management.

Banks have significant low-cost demand deposits on their balance sheets. We also anticipate the lending growth to increase slightly in the Kingdom in 2019 as compared to previous years. This will result in improvement in the profitability of the banks. In addition, banks in the region are making consistent efforts to manage operating costs effectively.

However, lending growth is projected to remain in the mid-single digits and profit growth is forecast to be modest. Most banks in the region are expected to be able to withstand sudden stress. Their loss absorption buffers have been stronger, partially due to the implementation of IFRS 9, which came into force on 1 January 2018.

The capital positions of banks will remain broadly adequate, as the lending growth will be modest, and the profitability will be stable. In addition, Saudi Arabia’s banking sector’s liquidity will remain at a healthy level in 2019, on the back of current oil prices and sovereign support. We are also witnessing big mergers in the region’s banking sector.

Talking about the mergers currently witnessed Saudi Arabia’s banking sector, what advice would you give these banks for their integration exercise?

Middle East banks are increasingly looking to gain scale and stay competitive through consolidation. Many banks in the region have been involved in takeover or merger talks, especially those in the UAE and Saudi Arabia.

These merged entities expect new opportunities in competing for privatisation and bank mergers are complex in the region, largely due to substantial government ownership of major banks.

Increasing regulatory demand, higher compliance costs, and rapid technological innovations are also key drivers of consolidation. Looking forward, the bank consolidation and merger trend is expected to continue in the region, which will help further consolidate the over-crowded banking systems and improve banks’ funding and profitability.

The main advantages of mergers are reduction in costs, overheads and competition. The merged entities should focus on economies of scale in driving efficiencies in purchasing, human resource management, cost for developing new products and rationalising business contracts, leading to lower overall risk for the combined entity.

 Paraphrasing Peter Drucker, “The purpose of business is to create a (more satisfied) customer”—the new entity needs to leverage its combined strengths to build a deeper relationship and  customer intimacy by offering more customer service offerings, better pricing, innovative products, and enhanced customer experience.

As a tech provider, how do you see the role of banks changing for their customers/clients?

Digital transformation will change the traditional definition of the banking industry. New ecosystems will emerge, and banks will need to adjust their business models.In the experience economy, banks need to become intelligent enterprises to respond to increased customer expectations, leverage data as the new currency, and evolve into technology companies as they are driven by the “platformification” of the industry.

The future will bring a more inclusive financial infrastructure, and banks will play an important role by providing digitally enabled and connected banking services to address financial inclusion. Their customers want the ease and simplicity of an experience that proactively provides advice and solutions based on real-time insights and life stage situations.

Digital transformation has enabled consumers who prefer a simpler way of banking to perform most tasks like opening an account, making a deposit, checking their balances, or making payments from the comfort of their home or on a mobile device.

It is imperative that the financial sector would need to rethink its priorities and pace of change by having a deeper understanding of customer journeys, using data and advanced customer intelligence, and a complete rethink of overall organisational structure that moves the focus from product to the customer.

By 2025, a significant portion of banking revenue will come from non-banking services. Banks will be a platform for digital services. These services will reflect a wide range of banking and related non-banking services to deliver an end-to-end service orchestrated by the bank.

Digitalised solutions will address the “customer of one” anytime, anywhere. These services will span from simple after-sales services to more-complex outcome-as-a-service models, resulting in the monetization of the data assets banks are able to generate based on the business they conduct.

How do you suggest banks adapt to the changing business model and what are the unique aspects of the Saudi Market that should be kept in mind?

With over 21 million Saudis and over 10 million expats, Saudi banks are looking at ways in which they can cater to this growing customer base.  Furthermore, the Kingdom has a vast majority of young and tech-savy population that is shifting behaviour in the market.

With over 88 per cent of the total population using the internet, it is no surprise that Saudi residents expect to make speedy transactions anywhere, anytime, on any device. Banks must keep up to meet the ever-evolving needs of their customers—by going digital.

The banking industry is being reshaped by four major trends:

  • Increased customer expectations: Bank customers want and expect more from their banks. Today banks are trying to understand how to offer customised offers, products, and services beyond banking transactions while delivering the best customer experience;  


  • Data as the new currency: Today, data analysis at banks is very fragmented and piecemeal, making a deep understanding of customer needs and wants very challenging. Banks are spending significant resources to reduce duplicate data and create a single view of each customer, from user history to user behaviour and intent;


  • “Platformification“of banking: A new type of plug-and-play business model is appearing at banks that allows multiple participants (producers and consumers) to connect to the bank, interact with each other, and create and exchange value. For instance, Barclaycard has inked a landmark agreement with SAP that will make its “virtual card” offering Precisionpay compatible with SAP Ariba—the world’s largest B2B marketplace for businesses; a major step forward for they payments offering;


  • Evolution of banks into technology companies: Banks are reviewing and changing their organisational structure, technologies, and cultures to run more like technology companies than banks. To compete with the established technology firms for talent, they also need to deliver the best employee experience.

As such, the Saudi Arabian Monetary Authority, SAMA, is undergoing institution wide transformation by implementing end to end SAP systems which span from ERP, HR, Procurement to its core mandate of Supervision. Other retail/ commercial banks like UAB are utilising SAP technologies for big data analytics along with streamlining Finance and HR systems.

Which technology trends do you see as a key enabler for the banks to drive digital transformation? Intelligent technologies promise to bring great benefits, such as productivity and efficiency gains, enabling innovative new business models and new revenue streams.

The following intelligent technologies are instrumental in helping banks respond to the quickly evolving global financial services marketplace:

  • Artificial intelligence and machine learning: Machine learning (ML) and artificial intelligence (AI) enable algorithms to ‘learn’ from existing data and achieve the best possible outcomes without being explicitly programmed. Once the algorithm is trained, it can then predict future outcomes based on new data. Businesses can leverage these capabilities to eliminate repetitive manual tasks, such as service ticket management, automatically determining classifications, routing, and responses. They can also be used to anticipate customer behaviour—such as account closures and credit card cancellations—with instant insights from transactional data and digital interaction points.


  • Advanced analytics: The integration of advanced analytics capabilities—including situational awareness—into applications enables business users to analyse data on the fly and drives better decision-making. Empowered users, benefiting from embedded analytics in business processes, can get realtime visibility into their changing environment, simulate the impact of business decisions, mitigate risk, and achieve better customer outcomes and experiences. Predictive analytics of structured and unstructured data provide 360-degree customer insight, enabling banks to anticipate the behaviour of its customers, respond to their needs, predict the next best step or product offer, and rapidly engage customers in real time.


  • Blockchain: A relatively recent breakthrough technology, blockchain is revolutionising the movement and storage of value by creating a chain of unaltered transactional data. The blockchain model of trust, through massively distributed digital consensus, could reshape supply chains and commerce across the entire digital economy, for example, digitalising the bill-of-lading document as part of the international ocean shipping process.


  • Conversational AI: Advances in machine learning are enabling algorithms to become highly accurate in naturallanguage understanding and in image and voice recognition, especially useful in after-service and call centre activities. Voice interfaces will be the go-to for the next generation of applications, allowing for greater simplicity, mobility, and efficiency while increasing worker productivity and reducing the need for training. Customer experience bots for services and commerce provide a humanised way for the customer to interact with their bank. This results in higher customer satisfaction and better customer experiences due to ease of consumption by using ML techniques for natural-language processing.


  • Robotic process automation: Robotic process automation streamlines repetitive, rule-based processes and tasks in an enterprise and reduces cost through the use of software robots by replicating specific tasks or keystrokes. Automation frees up employees for engaging in highervalue tasks, resulting in increased employee satisfaction.





CPI Financial was established in Dubai in 1999 to meet the needs of an ever-expanding financial community, offering a comprehensive portfolio of market-leading products and services tailor-made for the banking and financial services sectors.

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