Have you realised what banking is now?

HI-TRAC:
The author's shorthand for happiness index, infrastructure, talent, regulations, access and capital. The six pillars that make UAE a great place for a startup. This week, the focus is on access to other markets from the UAE.
According to the world bank's financial inclusion data/global findex report, the total percentage of the UAE population with a formal savings account is 32 per cent. This is despite the relatively high reported banking penetration rate. Central Bank of the UAE statistics indicate that as of March 2017, the total deposits from resident individuals in the UAE were Dh404,785 million. The industry, which is comprised of 49 bank head offices and 919 branches, is currently competing for share within relatively small slice of the population pie. In a developed nation like the UAE there is still a strong opportunity to increase the scope and reach of the retail banking and financial sector as well as increase the total deposit base. This will only be to the advantage of the nation. Looking around the Middle East region, the global findex report paints an even more challenging picture. Totally 14 per cent of the population in the ME has a bank account with only four per cent having a formal savings account.
Accessibility to Bank branches outside the urban and semi-urban areas, the focus on higher income customers plus the remittance behaviour of the large "low-income" worker base are factors that contribute to lower savings penetration rates.
At the same time, the UAE boasts one of the best mobile data networks and highest smartphone penetration rates in the world. Newzoo's April 2017 global mobile market report indicates a penetration rate of 80.6 per cent of the population or 7,573,000 users.
Ian Dillon, a Cambridge and Exeter-educated former banker, recognised an opportunity for a Fintech startup in these conditions during visits to the UAE. He discussed this with Katherine Budd, another alumnus of Exeter who was familiar with the nation. Dillon had joined HSBC in their two-year executive management programme, and was an investment banker in the four years following. Budd's work was in the retail banking analytics domain in the market.
Both had seen the impact that millennial banking models were having on the established banks in the UK. Monzo, Atom and Starling in the UK are focussed on taking banking off High Street and on to the mobile phones of their customers. The banking industry is playing a hard catch-up game in order to match the convenience and flexibility of purpose-built, app-based, digitised, personal banks.
Now Money was conceptualised towards the end of 2014 and was bootstrapped by these two intrepid entrepreneurs. It is a digital-only banking application with remittances as its primary use case at launch. What they have with them is the strength of their conviction. They believe that the banks operating in the UAE are pursuing a rather narrow but wealthy segment of around two million customers. They also felt that the exchange houses were finding it difficult to get out of their established brick-and-mortar business.
The timing was also right. Smartphone penetration is becoming pervasive for good reason. A blue-collar migrant worker has more need for a smartphone than a typical office-goer; it is his or her one way of staying in contact with family back home. The cost of smartphones in key origin markets such as the sub-continent has plunged to sub $100 levels and sometimes to as low as $10. The grey market in re-furbished phones has also become vibrant and well-serviced.
The key business rationale for starting up Now Money was simplicity itself. That's how great business models are created. In general, the revenue pool in the remittances business is high for a number of factors. By decreasing the top-line cost to the customer and simultaneously reducing or eliminating the unnecessary costs from large physical branch networks, legacy technology and related factors, healthy margins can still be maintained, creating a win-win. Add to that the ability to create value via relationship-building with the end-customer. Although this vast pool of customers had been hitherto been left relatively unpenetrated by banks this, segment would be considered to be middle-class or even affluent in many other parts of the world.
The Central Bank of the UAE has recently published a framework for payment service providers. This is a logical outcome based on the success of mobile money globally, the impact of the FCA regulations in the UK, the PSD2 mechanism in Europe, MAS Singapore's forward thinking as well as the strong pro-digital banking regulations in the Indian sub-continent. Easing the Know-Your-Customer and customer-onboarding process by taking advantage of the biometric markers as well as enhanced ID processes will be provide another fillip to digital banking initiatives.
In a much shorter time than expected, expect to see digital banks like Now Money making banking pervasive and friendly for all segments of society in the UAE. Wishing Dillon, Budd and the team at Now Money the very best in taking their project to the next level.
The writer is a director at Bridge DFS (www.bridgeto.us). He's a digital banking and digital financial services evangelist, practitioner, advisor and consultant. Views expressed are his own and do not reflect the newspaper's policy. He can be reached at ves@vyashara.com.