Digital transactions, fintech, to grow in coming years

Innovative financial technologies are disrupting the fiscal landscape worldwide. In Kuwait, customers are increasingly demanding online transactions that are more convenient, faster and secure, while also calling for streamlined processes that offer the flexibility of customization and personalization.

Financial technology (fintech) startups have latched on to this rising customer demand by offering swift and secure access to financial services at lower costs and with more efficiency than that provided by traditional banks and other financial institution.

A survey in 2016 by multinational professional services firm Ernst and Young, found that 89 percent of banking customers in Kuwait would be prepared to switch banks to benefit from a better digital experience, while 90 percent of banking clients reported they would open an account with a digital-first bank with easy electronic payment methods and limited physical branches.

Faced with this growing challenge to their outmoded dominance, banks have begun to embrace and adopt technological advances to retain customers and drive opportunities, as well as to improve their efficiencies, manage risks and ensure sustainable success. As the strongest non-oil economic component, banks and financial services are critical to Kuwait’s economy, its plans for diversification, and to the vision of New Kuwait that aims to transform Kuwait into a commercial, cultural and financial hub in the region by the year 2035.

By implementing cutting-edge technologies in artificial intelligence, cloud computing, augmented reality and virtual reality, and introducing latest e-payment models banks can hope to maintain their resilience and relevance in the years to come. In recent years, banks in Kuwait have been offering a host of cost-effective, secure and convenient financial services by leveraging technology not only to acquire, engage and retain customers, but also to attain sustainable business efficiencies.

In May of 2017, the country’s largest private lender, the National Bank of Kuwait announced that it was launching a digital care center as part of its strategy to move towards virtual branches and the delivery of services only online. A year earlier, Gulf Bank which claims to be a pioneer in digital innovation, became the first in the Gulf region to introduce a platform using biometrics for digital banking security.

It is laudable that banks have begun to realize that e-banking and other digital innovations could be the critical driver of growth in the future, boosting their profitability and allowing them to capture a larger market share. Latest data from the World Bank reveals that the banking infrastructure in Kuwait is quite stable and that 79.8 percent of the population above the age of 15 years in Kuwait has an account with a formal financial institution and that transactions through electronic banking (e-banking) have been steadily rising.

To keep pace with the growth in e-banking, the online payment infrastructure in the country has also been expanding. According to figures from the Central Bank of Kuwait (CBK), in 2017, the number of Automated Teller Machines (ATM) used by banks grew by 5.6 percent to reach 2,103 machines, while the Point-Of-Sale (POS) machines used by retailers grew by 9.8 percent to 51,072. In addition, the issuance of new plastic cards (debit and credit cards) posted 4.2 percent growth in 2017 with total plastic cards reaching 4.7 million, around 82.5 percent of which were debit cards. More recently, banks have been introducing contact-less cards and mobile-wallets to make online payments even more convenient.

The volume of transactions through ATMs witnessed a growth of 6.5 percent in 2017 to reach 94.6 million transactions, while the growth in number of transactions through POS of 16.9 percent saw total POS transactions touch 203.6 million. Meanwhile, the value of ATM based transactions registered a growth of 4.2 percent to touch KD12.2 billion, while the value of POS based dealings grew by 10.1 percent to reach KD9.98 billion. Consequently, in terms of volume, POS terminals accounted for 68 percent of the total 298.2 million transactions, while in terms of value, ATM related transactions dominated by accounting for 55 percent of the KD22.18 billion in transactions during the year.

According to the latest report from CBK, e-banking registered a year-on-year growth of 13.4 percent in 2017, accounting for 298 million (98.3%) of the total 303.2 million transactions during the year. Though paper-based (cheques) transactions comprised only 1.7 percent, or around 5.2 million, of the total transactions, when viewed in terms of value, paper-based transaction still dominated over e-banking.

During 2017, in terms of value, paper-based transactions stood at 54.3 percent, while e-banking accounted for 45.7 percent.  These figures suggest that while e-banking is gathering pace in terms of both volume and value, customers still prefer to use traditional paper-based transactions when it comes to high value deals, using the e-banking platform only for smaller value transactions. Moreover, the majority of business-related transactions are still conducted through paper-based deals.

Meanwhile, a new report by the international online payment gateway, Payfort, revealed that the total value of online shopping in Kuwait grew by 36 percent, from 1.09 billion in 2014 to a little over 1.48 billion in 2016. The largest chunk of online payments in Kuwait was in e-commerce transactions, which accounted for $837 million, followed by airline ticket purchases ($464m), travel ($177m) and entertainment ($2.9m). Based on growth trends, the report predicted that total online payments in Kuwait could more than double to $2.8 billion by 2020.

Despite the upbeat figures there is significant room for e-commerce growth Kuwait, as this sector is still overwhelmingly dominated by online banking and financial services. Domestic retailers appear reluctant to fully embrace online stores and e-commerce citing local culture and lack of customer interest. However, given the growing shift in the cultural mindset of customers, the country’s high rate of internet penetration — estimated at over 87 percent — and the fact that more than half the 4.6 million population are active online, with over two-third in the 25- to 35-age group, the future potential for e-commerce and digital transactions looks bright.

– Staff Report