Savvy solutions: Technology upgrades provide new services and lay the groundwork for increased penetration

In overhauling their technological infrastructure and rolling out new tech-based services to their customers, Saudi Arabia’s banks have a strong platform to expand their operations. As participants in one of the most venerable financial sectors in the region, the country is served by a well-established technological framework that continues to evolve under the guidance of the central bank, the Saudi Arabian Monetary Agency (SAMA).

Since 1997, SAMA has operated the Saudi Arabian Riyal Interbank Express (SARIE) system, which forms the backbone of the nation’s payment architecture. The network deals with interbank settlement, supports a wide range of electronic banking products and services, and caters to the settlement functions for the cash legs of equity and bond transactions traded on the country’s stock exchange. SAMA has used its SARIE system to promote electronic banking ever since its inception, and had 20 domestic lenders signed up to it as of 2012.

ON THE UP: Traffic on SARIE continues to grow exponentially. According to SAMA data, the total number of transactions executed via the system in 2012 rose by approximately 24.6% over the previous year, with both customer payments and interbank payments showing a significant increase.

The 1990s also saw the introduction of the Saudi Payments Network (SPAN), which today handles all of the cross-bank automated teller machine (ATM), debit card and point-of-sale transactions in the country. Similar to SARIE, there has been a notable increase in the volume and value of transactions processed by the SPAN system over the intervening years, driven by an expansion in the Saudi ATM network to around 13,000 as of 2013, which in the Ramadan period of that year alone dispensed SR32bn ($8.53bn) in cash. The latest available SAMA data shows that the number of transactions carried out via the SPAN system in 2012 rose by 9.7% over 2011 to reach 533m, while the value of SPAN withdrawals increased by 11.4% over the same period, to a total of SR301.5bn ($80.4bn).

A third key component of the banking sector’s technological infrastructure is the SADAD Electronic Bill Presentment and Payment System. Established in 2004, it provides a framework for the payment of one-off and recurring bills through bank branches, ATMs, telephone and e-banking services, and therefore plays a crucial role in a variety of public and private sector payment options.

By 2012, the number of banks participating in the SADAD system had reached 14, while the total number of customers using its service stood at 119. The number of transactions carried out over the SADAD network totalled 137.3m over the year, the combined value of which reached SR132bn ($35.2bn).

GROWTH DRIVERS: SAMA continues to develop the various systems that underpin the nation’s banking sector, adding capacity, enhancing security and developing new technologies that answer the increasing complexity of the modern financial arena. Its proactive stance in relation to the technology utilised by the nation’s banks establishes it as an important driver of technological growth in the sector. For instance, in recent years SAMA has altered the regulations governing cash-in-transit companies to allow more players to enter the market, which has considerably reduced the costs involved with restocking the ATM network with banknotes. The central bank has also published a new advisory notice regarding the depreciation times of ATMs in which it recommends their replacement every eight years – the first such directive in the sector’s history.

Demand from an increasingly tech-savvy public is also driving development in the sector. Saudi Arabia, similar to other markets in the region, has seen a rapid uptake of communications technology in recent years. According to SAMA, there were 12.3m broadband customers in the country by year-end 2012, making use of a range of technologies such as digital subscriber line, worldwide interoperability for microwave access, optical fibre and other wire lines to take out data subscriptions. Further, the number of Saudi residents connected to high-speed internet continues to grow thanks to better infrastructure and the widespread adoption of smartphones. To this end, total subscriptions to broadband, both in the home and mobile, rose by 30% from the close of 2011 to the end of 2012, giving the country an overall broadband penetration rate of 41.6%. Internet penetration, which includes the slower dial-up technology, stood at 53.5% at end of the same period (see Telecoms & IT chapter).

NEW DEVELOPMENTS: As Saudi Arabia’s tech-savvy population carries out an increasing amount of activity online – whether it is applying for a passport, paying a fine for a traffic violation or settling an electricity bill – the nation’s banks are responding by altering their approach to technology usage.

“All great societies depend on innovation to grow. There must be provisions in place to enforce intellectual property rights and thereby foster innovation,” Abdullah bin Jebreen, president of ABANA, a local financial services group, told OBG. To date, the most visible example of this innovation trend has been the wholesale adoption of online banking services in the industry, which has almost completely supplanted the interactive voice response systems that were once the main technology channel between banks and their customers. This transition has been aided by the promulgation of e-banking legislation in 2011, which gathered the previously fragmented regulatory code into a central framework. As a result, online banking has expanded beyond the traditional web interface and, riding on the popularity of smartphones in the Kingdom, has entered the arena of mobile applications – a technological shift that has proved popular with customers. “The growth in mobile banking via applications has been exponential. We launched our app in August 2013, and as of January 2014 there had been a 200% increase in transactions. There is an obvious demand for it,” Sami Al Rowaithy, head of e-business and channel management at Saudi Hollandi Bank, told OBG.

LOOKING AHEAD: Saudi Arabia’s banks continue to invest in new technology as a means to lower costs and to offer customers better service levels, both important factors in such a highly competitive market, and the technological battleground appears to be establishing a new frontline centred on the provision of high-end infrastructure. Over the coming year, bank customers are likely to see an increasing number of interactive ATMs through which they can carry out a wider range of activities, such as collecting a new debit card and communicating directly with a live agent, among other services. In late 2013, for example, Al Rajhi Bank ordered some 560 Diebold Opteva ATMs offering advanced, non-traditional selfservice options, which will be made available to its customers at some point in 2014. The anticipated expenditure on new ATM technology has attracted other international infrastructure providers to the Saudi market. Some of them, such as global tech company NCR, have entered directly, while in other instances they have sought business in partnership with a local firm, including the partnership formed by Germany’s Wincor Nixdorf and Riyadh-based firm ABANA. In addition to advanced ATM units, many of which will be located at dedicated e-branches, these firms are also helping banks enhance other aspects of their customer interface, such as with new queuing solutions that are able to actively manage flow distribution, monitor branch performance in terms of time productivity, and link with human resource departments to provide actionable feedback.

Corporate clients, too, are enjoying the fruits of the latest wave of technology investment. Indeed, the daily cash collection from corporate clients in is significant, with firms often keen to offload cash sales quickly and have their account credited. The provision of safe deposit machines capable of accepting bulk cash from businesses has thus become a large growth area. The ability to provide new clientfacing services such as these is a key distinction in the sector, and for that reason the Kingdom’s financial institutions, aided by the central bank, are likely to remain enthusiastic adopters of technology.