E-banking: get your money anytime, anywhere

By 2004, customers using Internet banking services in the Middle East will rise to 15.3%. By 2006, that user base will rise to 35.5%. But are banks in the region ready? Windows Middle East profiles a cross section of banks in the region that have deployed serious e-finance services and the challenges they face.

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By  Vijaya George Published  February 25, 2002

I|~||~||~|The Middle East bank customer is in the midst of a significant transition. Now, we go to the bank or the ATM to conduct our business transactions and it has not been easy for us. But it won’t be long before banks decide to come to us. We will be able to bank anytime, anywhere. The era of Internet banking has arrived.

E-banking only holds value when a customer can conduct “serious” e-finance, i.e. financial transactions such as fund transfers to accounts worldwide, payment of utility bills, and mortgages and loans from the convenience of your home. Such services have become the norm worldwide. And although, the Middle East region has been slow on the uptake, some banks have moved forward aggressively to deploy such services.

A survey conducted in June 2001 by technology consultants Accenture shows that of the 85 banks interviewed in the GCC countries, 27% had already introduced serious e-finance services; 12% of the respondents had no plans to introduce such services; 2% were unspecified and the rest planned to deploy the same within a maximum time limit of 24 months. Three countries in the region that have exceeded the US ratio of 17% e-Banking registrants to Internet users is Bahrain (17%), UAE (21%) and Kuwait (29%). Banks in these countries also offer some of the most sophisticated e-banking services currently available in the region.

One bank that has thought ahead of other regional banks is Emirates Bank Group (www.emiratesbank.com). Through a brick-and-click concept called meBANK, it has extended e-banking services to people who do not have computers or Internet connectivity in their homes. This is important to the region because Internet penetration is as low as 12% in some of the Middle East’s most advanced countries.

meBANK is an online channel developed by EBG to allow meBANK customers to conduct financial transactions online from anywhere at anytime. The only difference, however, from other Internet banking services is that if you don’t have access to the Internet, you can go to one of its nine branches in Dubai where several computers are installed, log on to www.emiratesbank.com/mebank and carry out your transactions. Additionally, ATMs are also installed at most of these locations to facilitate cash deposit and withdrawal.

||**||II|~||~||~|To open an account at meBANK, you have to apply online. When your application is submitted, you will automatically be pre-approved for a credit card and a loan based on your salary status. Your presence is required physically only once—to sign the application form. “It is like another fully operational bank but it is actually just another channel we have opened,” says Naushad Kermalli, group systems manager, EBG. As a special incentive, those who register with MeBANK do not need to maintain a minimum balance. Through this channel, Emirates Bank hopes to rope in young customers, for whom online banking will be the norm, and people who do not have the relevant infrastructure.

But meBANK is not to be confused with Internet banking services offered by Emirates Bank to its own clientele. Although the services and channels are similar, EBG has kept them separate to address the needs of different customers. People who have an account with Emirates Bank would have to go to www.emiratesbank.com to avail of its Internet banking services.

Customers using EBG’s Internet banking facilities “can do everything online that they can do at our branch except deposit and withdraw cash physically,” says Kermalli. As the first bank in the region to have offered dialup banking in the region in 1996 and again, the first, to open Internet services in 1997, the bank has had the time to pay more attention to improving its backend services to ensure better integration.

Mohammed A. Al-Jallaf, senior manager, e-banking services, EBG, who has been with the bank since 1995, and is responsible for the development and deployment of its Internet services, explains the challenge that the bank undertook. “We endeavoured on a mission through advanced technologies to have all customer-facing areas of the bank (i.e. the branch network, the Internet and the call centre) integrated, so that we can better understand and serve customers, depending on their needs and the channel through which they would like to do their banking.” As a UAE-based bank, EBG has a personal stake in the region and has more reason to develop better infrastructure and services for the region’s customers than foreign banks.

The same applies to the National Bank of Dubai (www.nbd.co.ae). NBD has also provided customer interactive terminals (CIT) at its automated branches and in branch lobbies for customers who do not have a PC with an Internet connection. But it is not a separate service like meBANK. The services are for NBD’s corporate and retail customers. Its Internet banking services include balance enquiries and statement history for personal accounts and credit cards, transaction extract in excel, quicken & money format, inter-account transfers, utility bill payments, outward remittances, standing instructions, cheque book requests, applications for L/C and guarantees and salary payment. “Currently, only 10% of our customers use this service. But that is expected to rise within the next six months,” says Abdul Sharaf, divisional head of Cards Business, NBD. Meanwhile, the bank is working on enabling inter-currency transfer.

||**||III|~||~||~|Another bank in the region that has offered online financial services as far back as 1997 is the National Bank of Kuwait (www.nbk.com). This has given it ample time to fine tune normal financial transactions and introduce new services as well. In the year 1999, it launched the first Visa Internet-only credit card in the region to promote e-commerce. In 2000, it launched an online brokerage service that enabled its customers to trade stocks on the US stock exchanges. “Customers could see where the market was moving and could transfer funds accordingly to their trading accounts within minutes,” says Golnar Mahmoudi, head of e-business, NBK, who adds that the service currently has over 3000 “heavy traders.”

Early last year, NBK enabled customers to tap into a service called Watani Online through WAP-enabled phones. “Our WAP banking service has attracted customers who have never accessed Watani Online on a PC but are doing so on their mobile phones. To date, we have a total of 2000 registered WAP users and we plan on positioning mobile banking as a premium service over time,” explains Mahmoudi. She also adds that the bank is considering new services such as margin trading, streamers and after hours trading for online brokerage customers. NBK is currently the only bank in Kuwait offering a payment gateway for e-commerce since 2000.

A bank that offers similar sophisticated services is Habib Bank AG Zurich (www.habibbank.com). By its own admission, it operates on a more conservative level but has also reaped huge profits. Habib Bank AG Zurich has a story to tell. Its IT operations worldwide are handled by a small IT team of 15 from its Dubai branch. Seven years ago, this team developed the bank’s IT system from scratch on a java platform. A year ago, the bank shifted to Linux because the operating system was stable and java-friendly. That decision kept their costs down because they did not need to enter into licensing issues with software vendors. Moreover, building everything from scratch may have been a lot of hard work initially but it has ensured that all departments of the bank are seamlessly integrated. This helped when the bank decided to offer its services online.

“For us, the Web was just another channel. We did not incur any integration costs like most other banks. The only thing that we were concerned about and cost us money was security,” says Reza Habib, joint president, Habib Bank AG Zurich.

||**||IV|~||~||~|Integration also helped Habib bank give its customers what Habib calls “ownership of data.” According to him, a bank’s biggest challenge is to get in real-time a snapshot view of a client’s transactions. “This is important when we are processing requests for loans. And we have been able to get that snapshot view only because all our departments are integrated. Now, we have extended that to our customers so that they can see online every leaf level of the transactions they have conducted over the last seven years,” says Habib proudly. In most other banks, only one year’s bank statements are stored and less is available to the customer for online viewing. Another place where Habib bank has scored a first is in giving customers the facility to connect to its e-banking services through GPRS (General Packet Radio Service).

More common services extended by the bank to its corporate and retail clients include fund transfers, cheque book requests, bill payments, money transfer from accounts to credit cards, shipping and delivery payments and credit card payments. As a result, 41% of Habib Bank’s credit portfolio customers use its Internet banking facilities. Usage by retail clientele is, currently, only 10%.

A more recent arrival on the Internet banking scene is Mashreq Bank, which launched its online banking applications in May, 2001. But having come recently hasn’t stopped Mashreq Bank (www.mashreqbank.com) from offering its “customers access to their full relationship with the bank,” according to Nada Khater, vice president, marketing services and e-business, Mashreq Bank. She believes that each bank in the region today is aiming to provide more distinguishing financial services, which she terms “killer applications”. And the faster such services are available on the Web to customers, the better.

For now, however, MashreqOnline’s customers can inquire about their account balances and loans, review up-to-date credit card information, pay their utility bills online, transfer money between their accounts or worldwide, and open new accounts and subscribe to new services. More unique services are coming, she promises.

All the banks above are either regional ventures or their IT infrastructure is being handled from within the region. Judging by the sophisticated services they have up on offer for their customers, it does seem that they are holding their own against foreign banks such as Citibank.

||**||V|~||~||~|Citibank in the Middle East region (www.citibank.com) has had it a little easy. Its regional Internet banking service was launched in November 2000. “Since we are a global bank, we already had an implementation strategy in place. We manage the content of the Web site, fine tune its look and feel to cater to the local market; but for the backbone, we rely on our global infrastructure and tools,” says ES Venkat, vice president, regional product manager, Citibank Middle East and Pakistan.

Like all other banks, Citibank has special sections to service its retail and corporate customers. Customers of Citibank can pay their utility bills online, trade in mutual funds, redeem credit card points online, transfer money across 50 different currencies and avail of other financial services that are common to most other banks. “In fact, every quarter we announce a new service or upgrade an existing service based on what the business demands,” says Venkat.
On an average, 12 to 14% of Citibank’s financial transactions are conducted online. “But our goal is to take it to 25% by the end of the year,” says Venkat. To do this and migrate customers from expensive traditional delivery channels like ATMs and branch counters to the Internet, Citibank is offering customers who use their e-banking services special concessional rates.

Security has been a key concern for each of these banks as they deployed Internet banking services. Apart from having 128-bit encryption, which is the highest security standard commercially available, each of these banks also have other personalised measures in place to guarantee their customers more security. Citibank, for instance, has PIN (Personal Identification numbers) and Automated time out. Others like Habib Bank allow their corporate customers to have customised security checks in place for each person in the company who logs in. The type and amount of data that can be viewed by each person in a company who logs into the system is determined by the administrator.

||**||VI|~||~||~|Another key challenge that banks have faced in the region is integrating the systems in their different departments. Venkat of Citibank explains that each bank has its legacy systems. For instance, credit cards are based on a different platform, normal accounts on another. “There is a felt need to coordinate all these systems because the customer may have a credit card and an account with the same bank. Internally, both these are two different processes. But he must be viewed as one customer and the systems must be able to talk to each other,” he says.

Each bank claims to have achieved this integration to various degrees. But Habib explains why 100% integration may not have been possible in most banks. “The fundamental problem with banks is that every department feels that it needs the best-of-breed technology for each of its departments. And while each of these systems may be good individually, each operates on different philosophies. So, the IT department spends a good amount of its time integrating this defragmented system and there is a limit to which they will meet. This raises the cost a great deal,” he says.

Indeed, the capital invested in offering Internet banking services has been very high. Just the hardware and software based on an ASP model is likely to cost a bank between US$ three and four million and annual maintenance should take, at least, $ one million, according to Venkat, who admits it is a conservative estimate. But the money now invested by these banks is well spent. Although, the number of consumers using Internet banking is currently very low, it is projected to accelerate by the next quarter. And the Accenture E-fnance report supports that view: “By the end of year 2001, only 3.6% of customers are expected to transact online, rising to 15.3% by 2004. By 2006, 35.5% of banking clientele will have switched to online services.”

The report is a clear indication that the Middle East market will be ready for e-banking services in the next couple of years. By then, regulatory banks will also be under pressure to buck up and amend the law to allow for new concepts such as digital signature. Governments will have to take steps like Dubai recently did and pass e-commerce facilitation laws to govern commercial activity on the Internet.

Banks that fail to offer Internet banking services will be at a disadvantage over those who do. Perhaps Jawad Abbassi, president of the Jordan-based market research agency Arab Advisors Group explains its best. “In the ATM era, banks that offered ATM services had a competitive advantage over the rest. But the ATM function moved rapidly from being a competitive function to being a mass user service by definition. That is what is going to happen with Internet banking. Today, only some banks have it and it gives them an edge over the rest. But tomorrow, it will become a prerequisite and those who don’t have it will lose their customers.” In the long run, Internet banking will be a win-win situation for the bank and the customer. Banks would have come to the customer with their services and it would cost them less to do so.||**||

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