How Data-Driven Finance Will Transform Middle East Banking
By embracing data-driven finance, banks can transform their services, remain competitive, and meet the evolving expectations of their customers.
The Middle East and North Africa’s (MENA’s) banking and finance industry has undergone a significant transformation over the past few decades, driven by technological advancements and changing customer expectations.
The early 2000s marked the beginning of the Middle East's digital transformation, spurred on by the rapid growth of the internet and advances in information technology. Online banking platforms emerged, allowing customers to conduct transactions, check account balances, and apply for financial products from the comfort of their homes.
This digital revolution brought about significant cost reductions, increased operational efficiency, and expanded reach, enabling banks to serve a wider customer base.
Digital banking transformed customer expectations, emphasizing convenience, speed, and accessibility.
The digital transformation also gave rise to a proliferation of fintech startups, which introduced innovative solutions such as peer-to-peer lending, robo-advisors and mobile payment systems.
As the industry embraced these changes, it became clear that data generated from customer interactions and transactions held immense untapped value.
Today, we stand on the brink of another seismic shift: the transition towards data-driven finance.
With every transaction that banks process, they accumulate vast amounts of data. In this new paradigm, this data is not merely a byproduct of transactions, but a crucial asset in its own right that can be leveraged to create new revenue streams, enhance customer experience, and drive profitability.
But is the Middle East ready to adapt to this new era?
Data-Driven Future
We can already see the advent of data-driven finance in the US, where the banking sector is being revolutionized, as vast stores of customer data are leveraged to offer targeted advertising.
In July 2022, JP Morgan acquired Figg, a card-linked marketing platform, which seeks to unlock value through harnessing data.
In April this year, the US bank launched Chase Media Solutions, a new transaction-based marketing platform that provides business brands with the opportunity to deliver personalized adverts to its 80 million customers. The platform leverages transaction data to create targeted advertising campaigns that are relevant to individual customer spending habits.
For instance, a customer who frequently shops at sporting retail stores might receive personalized ads offering discounts on products or exclusive offers from related brands. The benefits here are two-fold. First, it helps customers save money and enhances credit card engagement by increasing activation and promoting frequent usage. Second, it benefits businesses by driving higher engagement and sales from a targeted audience. Ultimately, this win-win approach generates additional revenue for the bank.
This approach could inspire other banks, including those in the Middle East, to adopt similar strategies built on targeted advertising. Given this methodology relies on anonymized data and therefore doesn’t use any personally identifiable information (PII), it can be viewed without compromising customer privacy to gain insights, and it would therefore be compliant with the local legislation.
Payment and transaction data, in particular, hold a treasure trove of insights, as banks process millions, if not billions, of transactions every year.
This data provides a deeper understanding of customer behaviors, preferences, and risk profiles, whether they are retail or corporate clients. For instance, by analyzing the spending patterns of Emiratis during the annual holy month of Ramadan, banks can uncover data regarding the most popular brands within a particular market segment, such as high-end retail or dining, and use this to develop a variety of targeted product offerings.
Currently, the potential value inherent in this data remains largely untapped, presenting a missed opportunity for innovation and growth.
Another opportunity for leveraging transaction data is in the design of financial products such as credit cards, a process which traditionally involved months of field research, or the hiring of consultants for offline benchmarking.
Today, banks can streamline this process by analyzing their existing transaction data. By identifying spending patterns and preferences within their customer base, banks can design new credit cards with brand partnerships that are highly relevant and attractive to their customers. This data-driven approach should in turn increase the likelihood that these credit cards drive higher activation, engagement, and usage.
Beyond designing financial products, the ability to monetize generic data is another critical opportunity that the sector is just beginning to realize. Financial institutions can anonymize and aggregate customer data to offer valuable insights to third parties such as retailers, insurers, and investment firms.
This data-as-a-service approach can become a significant revenue stream, providing financial institutions with a new profit and loss (P&L) line.
Hurdles To Overcome
Despite the clear potential, many banks face significant challenges with their data infrastructure. Banks often have very limited understanding of where all their data resides, leading to data gaps and cleansing issues in terms of finding the missing demographic information in the transaction data. These problems can obscure the profound value of the information.
To address these issues, banks first need to consolidate their data into a single, comprehensive repository. Once the data is consolidated, it is crucial to invest in the latest data cleansing techniques in order to ensure data integrity and consistency.
Whereas manual data cleansing can be time-consuming and expensive, artificial intelligence (AI) can automate this process, reducing the time and resources required.
AI technologies can automatically detect and correct errors, inconsistencies, and redundancies in data. This automation not only improves the quality and reliability of the product, but also frees employees to focus on strategic and value-added tasks, thereby enhancing overall business efficiency.
Adopting the latest technologies to facilitate this will enable both external fintech clients and internal teams to view, understand, and act on the insights derived from the data, helping businesses to stay ahead in the race with their competitors.
Once banks have consolidated and cleansed their data, they face the next challenge: understanding the transaction data itself.
Transaction descriptions can often be misleading or hard to decipher; for instance, “Emirates Leisure Retail” could relate to a wide-ranging portfolio of restaurants, cafés, and bars that the UAE company operates, and a purchase made at Starbucks could be listed as “AlShaya Group STRBKS,” a reference to the Gulf retail giant which owns the rights to operate the international coffee chain in the Middle East. Relying solely on merchant category codes can result in categorizations that are irrelevant to the actual transactions, creating confusion and inefficiencies.
This is where we at Lune come in. We empower banks, financial institutions, and retailers to understand and derive insights from their data, enabling them to provide the best targeting and personalization for their customers.
By leveraging advanced techniques, we transform raw data into actionable insights that enhance customer experience and engagement, driving innovation and profitability.
Lune’s innovative solutions demonstrate how banks can unlock the full value of their data. Through advanced data analytics and hyper-personalization, banks can enhance customer experiences, develop competitive financial products, and uncover new revenue streams. Global examples like JPMorgan Chase’s adtech business must serve as an inspiration for Middle Eastern banks to follow suit.
Financial institutions that fail to adapt to the data-driven paradigm risk falling behind their more agile and innovative competitors. In a landscape where data is the new currency, those who can harness its power will be well-positioned to lead the industry and capture new growth opportunities.
By embracing data-driven finance, banks can transform their services, remain competitive, and meet the evolving expectations of their customers. The journey may be challenging, but with the right strategies and partnerships, the potential rewards are immense.
