First Abu Dhabi Bank is developing a payment system that will allow customers to pay and receive cash using sound files, an executive said, one of several new innovations lenders in the region are using to try and increase their market share of the highly competitive banking sector.

Speaking at the Digital Banks and Innovators conference in Dubai on Tuesday, the bank's senior vice president and head of payments, Ramana Kumar, said: "We are going to launch the first sound-based payment in the region - actually, in the world other than India - where you can go to the existing point of sale network or electronic cash registers (and) the payment is made through a sound file."

Kumar explained that although digital wallets were becoming more commonplace, with the bank launching its own 'payit' system in February this year, a common hurdle for their adoption is the technology required by small and medium-sized enterprises (SMEs), such as small retailers, to be able to accept payments.

"Putting in a point of sale machine is extremely costly," he said, adding that small retailers who sometimes operate on very low profit margins may be averse to paying the high transaction costs that come with certain card transactions.

First Abu Dhabi Bank has instead attempted to use QR codes, with payments being made via smartphones to merchants who are issued with QR codes, but he said that a sound-based payment would be even simpler still (the system used in India by Google involves an Audio QR code that is inaudible to the human ear).

"This is innovation where using existing investment by the merchant - it may be a phone, it may be an electronic cash register, it may be a point of sale machine, or it can be a small pod... anything can produce a sound because they are all smart machines, your phones can accept the sound and the payment happens in real time," he said.

The innovation was one of several discussed on a panel event, titled Revolutionising the Customer Experience, at which several regional banks discussed technologies.

Elie Nasr, the managing partner of Lebanese fintech firm Foo, said that there were still a lot of unbanked people in the wider Middle East and North Africa (MENA) region for whom digital wallets and payment systems allowed access to e-commerce portals.

"Iraq is 91 percent unbanked," he said. "Not having a bank account means people don't have a salary paid into an account so they have to get paid in cash. They cannot buy online using e-commerce, they have to pay using cash on delivery."

In Iraq, he said it had worked with telecoms operator Zain to devloped the Zain Cash wallet system, where a 'KYC-lite' (Know Your Customer) system can offer the phone's owner the ability to transfer limited amounts of money and gain access to a prepaid card that can be topped up. He said that digital wallets had been utilised by the United Nations to send monthly payments to refugees in Iraq.

"Currently, we're working on releasing a micro insurance feature," Nasr said. "So, basically you pay $1 to $2 per week and you get up to two months’ salary if anything happens to you."

Credit on call
He also said that the company was looking into the potential to offer microloans using telecoms data for credit scoring.

On the other end of the spectrum, NBK Capital is using artificial intelligence for a new digital investment service known as Smartwealth, which head of investment products Hazem Rasbeih said had simplified the process of onboarding clients seeking investment accounts, meaning customers can start deploying funds within three days, as opposed to between three to six weeks previously.

It has also allowed the bank to bring down the minimum amount required to open an investment account to just $5,000.

"You can do this from your couch - open your laptop, put in your details on the website, we'll guide you through your risk profiling and then you will upload your personal information, we will conduct KYC, so we've also built a direct connection with the Kuwaiti authorities so we can vet IDs. There's no paperwork whatsoever. You can use a digital signature to sign your contract and then you're ready."

Omar Yassine, senior vice-president of digital banking at Saudi Arabia's National Commercal Bank, also said opening accounts in the kingdom had become much easier, and that although lending decisions can be more difficult, its centralised credit office "has open APIs with the banks" that allows it to assess how many existing loans and credit cards a customer has, thereby giving them a better picture of their credit exposure. It has also just begun using blockchain-based technology from Ripple as the backbone for a same-day, cross-border payment system.

Credit crunch
Jonathan Rawling, chief financial officer of UAE-based financial comparison website yallacompare, said that although the process of arranging insurance is now much simpler than it used to be because of comparison sites, it could be made much simpler as many insurers don't allow direct access to their data, meaning that aggregators need to recreate insurer's algorithms within their own portals.

He added that a lack of access to customer credit data made offering loan approvals difficult. Despite the fact that the Al Etihad Credit Bureau launched a national credit scoring last year, a customer looking to access their score needs "to go to the building on Sheikh Zayed Road and you have to sign, in pen", Rawling explained.

Access to credit scores in Saudi Arabia is simpler, and the chief commercial officer of Bidaya Home Finance, Mohamed Badat, said that it was looking to use artificial intelligence to gauge the likelihood of customers repaying loans.

"There are AI companies out there we will partner with moving forward to understand whether this customer is going to pay back their one million riyal loan or not. It makes or breaks companies like us," Badat said.

Bidaya Home Finance was co-founded in 2015 by the Public Investment Fund and the Islamic Development Bank. Speaking to Zawya on the sidelines of the event, Badat said that the company had generated a portfolio of loans worth 1.4 billion riyals ($373 million) in three years through an online-only model, with its three offices in Riyadh, Jeddah and Dammam used mainly to collect physical signatures required for mortgage contracts.

"If you look at the entire ecosystem of home finance collectively, with the 13 commercial banks and the six mortgage companies, we are on target for six percent market share," he said.

In February last year, Saudi Arabia's housing minister Majed al-Hogail said that it was preparing to provide 1.5 million new homes over the next five years, according to the Saudi Gazette. In March this year, Reuters said that Al-Hogail also pledged to raise the amount of financing available to the sector to 502 billion riyals by 2020, up from 290 billion riyals currently.

Badat said that with so many new projects requiring funding, "it's only through having a strategy of being in the digital space" that this can be delivered.

(Reporting by Michael Fahy; Editing by Shane McGinley)
(michael.fahy@thomsonreuters.com)

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