Interview: Sandeep Chouhan on digital banking and Fintech

EVP – Group Head of Operations & Technology, Mashreq Bank

EVP – Group Head of Operations & Technology, Mashreq Bank talks about the latest trends in digital banking, investing in fintechs and the importance of China’s belt and road initiative.

Mashreq Bank is the oldest private bank in the UAE having been established in 1967 as the Bank of Oman. Tell me about where the bank is at now in terms of size and scale.

The bank is in its 51st year of operation and we now operate in 14 countries. The bank was set up by entrepreneurs and retains that spirit of entrepreneurship. We have close to five and a half thousand employees and close to 70 branches. We do the full range of corporate banking, investment banking, Islamic treasury, capital markets, retail and consumer banking, and now we have a full-fledged digital bank as a second segment.

We have four main lines of business in our corporate banking; we have taken an industry specialization-based approach and focus on six or seven industry segments including real estate, manufacturing, oil and gas and government. We build specialization around that and our corporate banking business is heavily based on face-to-face relationships with senior relationship managers and senior corporate bankers. The retail banking business on the other hand is digitally driven to bring more customers to consume banking services electronically. Today, almost 92 percent of all transactions we perform are digitally originated. That’s very high in comparison to our competition.

It sounds like technology is an important focus for the bank?

The bank has always invested in technology. At each era of technology evolution the bank has been able to refocus its business model through adopting the latest technology that is available at the time, whether it was introducing ATMs, bringing in credit cards, point-of-sale, through to mobile banking, digital and more recently leveraging technologies such as robotics and AI.

Leveraging technology has been fundamental to the business model and reinventing the bank. The bank has been very nimble in its ability to reinvent itself by using new technology; that is significant.

The bank’s most recent transformational move is to focus around digital. As technology organizations are beginning to enter financial services under the fintech banner, we as a bank are now beginning to think more like a technology company. So we are organizing ourselves like a technology company; we are developing our thinking and philosophy in that way. If our competition is technology then that’s where we would like to prepare ourselves. Our competition is unlikely to come from banks in the future.

We look to work with a lot of partners on technology. One of the things that the emerging digital economy is bringing out is the need to create and play in multiple ecosystems. Ecosystems by design allow for partnership models: they could be financial services, they could be technology companies, or they could be in the many industries we cater to.

The banks are providing the railroads for the underlying financial transactions that take place within that ecosystem. But the shift towards partners is twofold: One is we are bringing in and trying to incubate fintechs. We work with seven fintechs at the moment which are helping us deliver point solutions to point problems. These fintechs have a very deep understanding of those specific problems that they solve, they are passionate about it – and we in turn provide them the real world use-cases which allow them to industrialize and scale up their solutions.

Where do you find these fintechs?

We participate in multiple incubators and fintech accelerators including DIFC’s (Dubai International Financial Centre) FinTech hive. We also are part of Fintech Forum in India and we’ve been participating in the recent fintech fairs in Singapore. In the Middle East, Dubai is attracting India and Singapore-based fintech in particular. We’ve used one or two from the US which have brought some very specialized experiences or solutions. By investing in fintechs we also gain a foothold in potentially fast growing technology companies, so these investments offer potential new revenue streams in themselves as well as allowing us to serve customers in new ways. Currently we’ve invested in one from the US, one from Italy, two in Dubai and another in India.

What we have seen in the last two years is that a few technologies have grown in maturity. The technology around AI and robotics is maturing very rapidly, so we are looking for use-cases to solve for areas that will drive customer experience and cost efficiency.

In some instances, technology can be developed to eradicate old and inefficient practices that have stubbornly persisted in the industry, such as the use of paper.

On the analytics side, we have seen the need for far better insights on our customers in terms of our ability to serve them with newer products but also using analytics to offer deeper insights to our customers in terms of their own portfolio or their transactions, including the level of transparency they have in tracking their transactions, fees and charges.

Banking typically has been a bit of a black box; after the transactions are submitted to the banks there was not adequate transparency. This is definitely changing.

How is your corporate banking unit performing and how our corporate clients’ needs changing?

Our corporate banking business, serving medium and large corporates, is the fastest area on the corporate side. We are seeing a very strong drive on the part of corporates to engage with the bank digitally. These corporates are themselves on a rapid digitization journey, and they are looking for banks that can serve them in a far more digitally-enabled way.

How about consumer banking? What level of growth are you seeing?

The second area of growth that we’re seeing is in the pure digital with our retail digital bank, Mashreq Neo, which we launched in 2017. Around September 2017 we were opening around 500 accounts a month for customers. Right now we’re doing almost 10,000 accounts a month, so that’s a very fast growing area.

Mashreq Neo is our first foray into a purely digital offering. We are very encouraged with the results. We are now well underway in the transformation of the entire retail bank to be core digital. The successful digital banking stories around the globe have shown that once you understand the formula, there’s no point having a champion challenger for the same brand. You might as well take the mothership and digitize it completely.

What’s behind that growth?

I think the consumers are driven towards the power of self service on mobile and anything that helps provide the ability to consume banking services on a mobile is attractive. There’s also associated transparency which the customers find very refreshing. They can see the fulfillment of their transactions and requests in a much more convenient way than they could do previously.
Customer demand has moved beyond speed and they now want something closer to instant. Instant is becoming a new expectation and companies pride themselves on instant: You can open a Netflix or iTunes account instantly and start consuming the services immediately. Similarly in banking customers want instant – to be able to do banking transactions and almost instantly fulfill the fees.

Our experience in pure mobile digital banks is that all segments of customers are keen; it’s not just millennials. We are seeing high net-worth customers, salaried customers, and other categories gravitating toward digital banks. Convenience, transparency and ‘instant’ stand out in the mind of the customer.

Mashreq is also adopting the Agile system. How will this help the bank?

Yes, that is another dimension of our behavior that is like a technology company. We as a bank have gone Agile front to back. The bank is operating on an Agile operating model, which is very similar to these leading technology companies. We’ve been working on this for about a year and we’ve seen amazing results in terms of service improvement according to what the customers are telling us. We’ve seen remarkable improvements in the quality of credit that we are writing, and we’ve seen improvements in the growth orientation.

Agile is an operating model through which you get all functions of the bank into a small unit. Typically you would have cycles in an organization with a normal hierarchical operating model: You have functional departments, somebody managing risk, somebody managing operations and so on. With Agile you pick people from all those departments and bring them into one ‘drive’, as they call it, which is working to a common goal.

It’s effective at improving processes that affect the whole organization and it is good at reducing things like replication of work around different departments. We have staff across all departments who are part of dedicated groups called “tribes” and “squads”. They work together to run these businesses with all departments and functions integrated, and they are aligned around customer journeys and customer segments that we solve problems for. The speed at which we solve problems is very different from how conventional banks do it; a lot of those silos are broken. It refocuses the organization around the customer.

The transition to Agile has been welcomed by our staff. We’ve invested in our people, in teaching them the new Agile methodology and they appreciate that.

A lot of our managers, directors and executive committee members will be put through deeper technical skills on analytics, on programming and so on and so forth, to understand the power of these technologies firsthand for them to be able to effectively lead that world for us. Analytics is an integral part with which a digital business runs.

Data is the new oil as they say, so we want all our executives to be able to extract that information that is hidden within our ecosystem and make decisions that are based on analytical insights. We are equipping them with these new analytic tools. We’re going to spend significant time in the next three to six months upskilling a lot of our people with the advanced digital tools that we require.

Looking at the commercial side of your operation, which industries are most prominent for you?
Services, manufacturing and real estate are all big industries for us and we also have a lot of government related enterprises. We also do a lot of work with healthcare and retail, among other sectors.

Various services like manufacturing and real estate remain the leading sectors in the marketplace. We also work with a lot of specialized agencies that give us the ability to give industry insights to our clients. So we draw on the expertise of industry specialists and we use analysts. We bring out a lot of industry reports and bring that insight to our clients as they act in an advisory capacity on their sector as well.

Trade and trade finance is an absolute sweet spot for us. We specialize in it; we are able to structure project financing in a far more intelligent way than our competition does. Because of our very strong technology-led services, we find that corporates that are equally advanced in their use of technology want to do business with us, and so the global corporates find that very refreshing. We have an international business like this in 14 countries and we are beginning to see a lot more of these customers who are driving their global businesses.

We have a presence right from Hong Kong to India, Pakistan, Bangladesh, through to London and New York. Our ability to handle trade in particular across all these geographies and sit on the main trade groups is solid. We’ve been in these markets for over 40 years, so we’ve got some deep relationships with local banks and local corporates.

Do you see much work and much growth coming from China’s Belt and Road Initiative?

That’s a big flow for us and Dubai is ideally positioned to benefit from the China’s ‘One Belt, One Road Initiative’, so we play a big role there. We are already present in Hong Kong and we are exploring representative offices in China as well, possible as early as 2019.

Are you looking at expanding in any other countries as well?

Yes, aside from China we’re looking at countries including Saudi Arabia, Russia, Nigeria and Kenya. We also intend to increase our presence in India and Egypt, which is one of our high growth markets internationally. We will continue to expand our operations in Egypt with more retail branches, and on the corporate side.

How do you see 2019 panning out?

We are very optimistic for 2019. We believe the IMF and all the projections of growth of about 3.5 percent, and we believe the banking sector will do at least double that – so our growth outlook as a bank for next year is anything between seven to 10%.

With overall oil prices looking to remain relatively healthy for next year, and with the infrastructure that is being built in the region, the outlook is quite encouraging. We are very positive on how this will play out in the next year. We just finished our three-year plan and we are very optimistic about the banking sector here.

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