Balancing Competition, Collaboration in MEA’s Evolving Digital Banking Landscape

The displacement of traditional banks’ dominance in the delivery of financial services has been one of the defining characteristics of the FinTech boom of the 21st century.

But while digital banks are popular, consumers generally keep a traditional bank account, too, and in the battle for “primary account” status, the incumbents still hold firm. A recent PYMNTS study, “How Consumers Use Digital Banks,” discovered that just 1 in 10 users of digital banking apps have their primary accounts with a digital bank.

Read the report: How Consumers Use Digital Banks

An emerging theme in the story of digital banking is that as much as competition between traditional banks and newer, pure-digital contenders has underpinned the narrative so far, in many cases, collaboration is proving to be just as important.

For example, in an interview with PYMNTS, Marwan Hachem, founder and group CEO of the YAP, in the United Arab Emirates (UAE), discussed the advantages of the platform’s digital-first account and app over an account with one of the UAE’s established banks, but stopped short of the polemical stance that pits digital banks in stark contradiction to their brick-and-mortar peers.

Instead, Hachem’s view was that both can coexist while serving different purposes for the same customers. “My savings or [main income] can be kept in my traditional bank to cover my mortgage or car payments. [However], if I want to have a BNPL [buy now, pay later] product or a multicurrency product, I will use digital banking apps,” he said.

See more: YAP CEO Says Collaboration, Not Competition, Creates More Wins for MENA Neobanks

Of course, the different ways that consumers use traditional versus digital bank accounts poses the question of what makes an account primary — if someone gets paid into and keeps their savings with a traditional bank but uses a digital bank for their everyday transactions, which one is their primary bank account?

Related: Study Finds Fewer Than 10% of Consumers Use FinTechs as a Primary Bank

To Jayesh Patel, the CEO of another UAE-based neobank, Wio, the tendency for people to use digital banks for everyday spending and little else is related to what has been a growing concern for digital banks the world over — monetization.

Watch the Patel’s interview: Banking License Puts Profitability Within Reach for UAE Neobanks

After all, in a space where free accounts have become the norm and customers have come to expect the full range of features without having to pay additional fees, if money only passes briefly through their accounts, there is little opportunity for the banks themselves to make a profit.

Learn more: As Macro Headwinds Mount, UK Neobanks Revisit the Profit vs Growth Debate

But as Patel explained, Wio is hoping that the greater range of financial services it is able to offer by leveraging the full banking license it received from the UAE central bank will allow it to move far beyond transaction banking.

“Once [customers] start using us, not just for transactions, but for other value added services … we expect them to start putting a lot more money through,” he said. And even if new business and personal customers don’t make Wio their primary account straight away, he is optimistic that the user experience and additional features will encourage people to increasingly switch their financial activity over to their new accounts.

Banks’ Supporting Role

In many ways, nontraditional banking is already mainstream. In the U.S. for example, PYMNTS research shows that two-thirds of consumers already use FinTech banking services in some form, including 84% of millennials and members of Generation Z.

And as the number of financial services for which people turn to FinTechs and digital banks grows, the role of incumbent banks will also have to adapt.

For clues as to what the future holds for the world’s legacy financial institutions (FIs), some of which have been around for several centuries, it is worth looking at the way they interact with the new generation of neobanks and non-bank payment service providers playing an increasingly important role in the global financial space.

Djiba Diallo, who heads up the FinTech division at pan-African banking giant Ecobank, recently offered some key insights on this.

In an interview with PYMNTS, she said that rather than seeing FinTechs as a threat, Ecobank has chosen to view them as partners that can help to extend financial services to the unbanked populations that the traditional, branch-based model has underserved.

And because the pan-African FI is licensed in 36 African countries and operates a massive regional network of ATMs, it is able to offer FinTechs a level of connectivity they would never be able to achieve on their own.

Diallo added that Ecobank also plays an enabling role in its partnerships with mobile money operators and other alternative financial service providers. The bank provides FinTechs with a suite of application programming interfaces (APIs) so that they can tap into its infrastructure to enhance their own offerings.

Read more: APIs Bridge FinTech Infrastructure and Bank Regulatory Expertise

FinTechs are even able to offer their customers what Diallo called a “light bank account,” whereby even though the user interface and onboarding process are managed separately, the underlying account is still held with Ecobank, giving consumers the assurance that their savings are still being held with a licensed and regulated bank.

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