E-banking on the rise in KSA

Customers are driving banks in Saudi Arabia to invest more in their online presence and increase the range of services offered on the internet

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By  Massoud Derhally Published  June 3, 2002

|~||~||~|With approximately 18 million Saudis and an additional 7 million expatriates, banks in Saudi Arabia are expanding the way business is done in the kingdom and investing more in alternative delivery channels. Many banks have adopted the internet in conjunction with an existing network of ATMs, and are developing WAP and mobile payment services. The attitude is that investing in and expanding services is a strategic imperative, and at the same time all of this fits in nicely with the government’s initiatives to promote e-commerce in the kingdom.

National Commercial Bank (NCB), Saudi Arabia’s largest bank with 266 branches, is looking at the internet channel as a customer retention tool and a medium to acquire additional clients. NCB has enhanced its electronic services through a customer-centric and multi-channel approach with more than half of the bank’s branches on digital circuits.

“Our vision is to be the premier consumer bank in Saudi Arabia and the preferred provider of financial services to corporate clients,” says Taha Al Kuwaiz, the support sector head of NCB. NCB, he adds, aims to be “an innovator in Islamic banking and the leading regional bank.”

Over the past two to three years, NCB has placed technology at the heart of its strategy. The bank has recognised the importance of streamlining procedures and incrementally making it easier for customers to bank. Essentially, the aim is to give customers, “whatever they want, whenever they want it,” says Al Kuwaiz.

While the bank currently has some 500,000 customers using its ATMs, it has succeeded in reducing traffic at its branches through several e-banking services. “60-70% of our transactions are through alternative channels and not through the branch at all,” says Al Kuwaiz. “The reliance on technology has become very important and we have been looking at consolidating a lot of these services [ATMs, internet banking and WAP banking],” adds Al Kuwaiz.

Part of NCB’s strategy also includes opening branches “where the customer can come in, log on and do their transactions in the branch,” says Zaher Hejazi, head of systems development at NCB. “If they don’t have the internet at their home, they can go to the branch and get access in the bank.” By doing so, NCB offers its customers transactions at a cheaper rate and creates for itself a way to overcome the low PC penetration rate of 3-5% in the kingdom.

But with more banks moving their services online, it is becoming more competitive everyday. Al Rajhi Bank Group, which went online officially in April 2002 but had been offering e-banking services for over a year, has 1.8 million customers and its e-banking strategy is, “to defend market share and acquire customers from those banks that are not offering a complete service yet,” says Paul Middleton, internet banking manager at Al Rajhi.

Like NCB, Al Rajhi is looking at internet services as part of an integrated strategy for the distribution of channels. Plus, there is also the potential to cut transaction costs and boost efficiency. While Middleton agrees that there is a cost cutting benefit, he points out that it will take time before it can be realised. “Although the unit cost of an e-banking transaction is a fraction of that for other channels, the overall distribution cost of the bank increases initially,” explains Middleton.
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This is because customers will only gradually begin to bank from their PC, rather than through a branch. “If we think back to the experience with ATMs in the West, they were installed in the 70s and 80s, but it was only in the 90s that traffic moved away from branches,” says Middleton.

Al Rajhi has already launched a WAP banking service in late 2001 and an online international brokerage service in April 2002. It is currently working to deliver Saudi shares brokerage in late 2002.
Rohit Luthra, group head at Saudi American Bank, says that more clients want to transact electronically. While Luthra agrees that customers in Saudi Arabia are now moving into electronic banking, he says the move is gradual. “A lot of customers still are very control oriented and that is because the people who authorise the transaction may have not necessarily made the transition [to e-commewrce,]” he says.

On the corporate side, SAMBA has tried to develop a feature-rich online banking offering and allow the same front end to be used for cash management and trade services. For cash management, this means making fund transfers and requesting draft issuances. For trade, it means being able to open letters of credit and request letters of guarantee. SAMBA has also tried to keep everything ‘straight through.’

“When transactions come in, the accounts are debited automatically and reformatted into whichever system it has to go to,” says Luthra. “The entire focus is on the turnaround time — how fast can you get a transaction into the bank and how soon can you turn it around.” So whilst e-banking might be ‘just another delivery channel’, in Saudi Arabia, as in other parts of the world, customer demand and competitive pressure are making it a key element of banks’ corporate strategies.||**||

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