Strong consumer appetite for digital banks in Saudi Arabia: Boston Consulting Group

Fifty-two percent of Saudis would be comfortable making the change, and 63 percent are actively looking for new lending offers, says US consulting firm Boston Consulting Group in its 2021 Consumer Sentiment Study in Banking report.

Customers say high street banks offer poor customer service, lower interest rates and limited products, the survey reported, which interviewed 2,000 people.

By contrast, consumers are impressed with the speed at which online accounts can be opened, their convenience and the range of loans and savings new banks offer over a smartphone.

BCG managing director Mustafa Bosca said: “With digital capabilities introducing consumers to new possibilities, the Saudi banking sector is witnessing more and more people proactively engage in multiple banking relationships.

“Demands and expectations are evolving, and we see that it is easier to switch banks with the simplicity of digital onboarding.”

Bosca added these trends “highlight the increasing level of competition across the national retail banking landscape, with many changing banks within the past year alone.”

In June, Saudi Arabia’s Cabinet approved licensing for two digital banks in the Kingdom, with total capital amounting to SR4 billion ($1.07 billion).

STC Pay will be converted into a local digital bank, STC bank, with a capital of SR2.5 billion ($667 million). Additionally, several companies and investors, led by Abdul Rahman bin Saad Al-Rashed and Sons Company, will establish a local digital bank — Saudi Digital Bank — to conduct banking business in the Kingdom, with capital of SR1.5 billion ($400 million).

These new lenders will attempt to eat market away share from the Kingdom’s largest banks, such as Saudi National Bank, Al Rajhi Bank and Samba.

The BCG research also showed that 49 percent of those surveyed changed banks in the last five years to look for “improved banking experiences”.

This contrasts sharply with the traditional model of retail banking where most customers stayed with the same bank for a lifetime.

Bank observers said this had been the case because most high street banks offer similar services, while switching lenders was complicated and ran the risk of missing direct debit payments.

However, the BCG report found that 88 percent of customers are now willing to open a digital-only bank account, and 79 percent of Saudis are willing to share their data in exchange for a better banking service.

This is higher than the 66 percent of European customers who were willing to share their data with new financial services firms.

In Europe, digital banks such as Revolut, N26 and Starling have added tens of millions of customers in a little over five years. However, they have found it hard to generate profits, because most customers use them as their secondary account keeping just a few hundred pounds in them a month to take advantage of additional services such as free travel money, or vouchers for high street stores.

This leaves European digital banks with reduced reserves of cash for lending.

However, BCG project leader Martin Blechta said that “the widespread appetite for digital banking services in the Saudi market is a trend almost certain to continue expanding.

“With these considerations in mind, the onus is on every bank to continue accelerating digital transformation and reimagine the customer journey.”

Blechta added: “Digital transformation acceleration has unquestionably set a new benchmark for retail banking incumbents. Customers seek convenience and personalised experiences through digital, and the majority will pursue alternatives should they encounter more attractive propositions.”

Customers were attracted to the speed and convenience of digital banking, but also liked the “innovative savings and investing” options the sector makes more easily available.

The report found 44 percent of those surveyed had invested or were planning to invest in cryptocurrencies.

Blechta said that all types of banks should “position themselves to remain competitive and accommodate consumer demands,” which should include “embedding new asset classes within investment portfolios and building new and innovative open banking use cases.”