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Consumer appetite for digital banks in Saudi Arabia: Boston Consulting Group

More than half of Saudi consumers would have “no problem” switching banks as competition from financial services intensifies amid the rise of digital lenders, according to a new survey.

Fifty-two percent of Saudis would be comfortable making the switch, and 63% are actively seeking new loan offers, says U.S. consulting firm Boston Consulting Group in its 2021 Consumer Sentiment Study in Banking report.

Customers say the big banks offer poor customer service, lower interest rates and limited products, the survey reported, which surveyed 2,000 people.

In contrast, consumers are impressed with the speed at which online accounts can be opened, their convenience, and the range of loans and savings new banks offer on a smartphone.

BCG Managing Director Mustafa Bosca said: “With digital capabilities presenting consumers with new possibilities, the Saudi banking industry is seeing more and more people proactively engage in multiple banking relationships.

“Demands and expectations change, and we’re finding it easier to switch banks thanks to the simplicity of digital integration. “

Bosca added that these trends “underscore the growing level of competition in the national retail banking landscape, with many banks changing in the past year alone.”

In June, the Saudi Cabinet approved the licensing of two digital banks in the Kingdom, with total capital amounting to SR 4 billion ($ 1.07 billion).

STC Pay will be converted into a local digital bank, STC bank, with a capital of SR 2.5 billion ($ 667 million). In addition, several companies and investors, led by Abdul Rahman bin Saad Al-Rashed and Sons Company, will establish a local digital bank – Saudi Digital Bank – to conduct banking activities in the Kingdom, with a capital of SR 1.5 billion. ($ 400 million).

These new lenders will try to cut market shares from the Kingdom’s biggest banks, such as Saudi National Bank, Al Rajhi Bank and Samba.

The BCG study also found that 49% of those surveyed had switched banks in the past five years to seek “better banking experiences”.

This is in stark contrast to the traditional retail banking model where most customers stayed with the same bank their entire lives.

Bank watchers said this was the case because most of the big banks offer similar services, while switching lenders was complicated and risked missing direct debit payments.

However, the BCG report found that 88% of customers are now ready to open a digital-only bank account, and 79% of Saudis are ready to share their data in exchange for better banking service.

That’s more than the 66% of European customers who were willing to share their data with new financial services companies.

In Europe, digital banks such as Revolut, N26 and Starling have added tens of millions of customers in just over five years. However, they struggled to generate profit as most customers use them as a secondary account keeping only a few hundred pounds a month to take advantage of additional services like free travel money or vouchers. for high street stores.

This leaves Europe’s digital banks with reduced liquidity reserves for loans.

However, BCG project manager Martin Blechta said that “the widespread appetite for digital banking services in the Saudi market is an almost certain trend to continue to grow.

“With these considerations in mind, it’s up to every bank to continue to accelerate digital transformation and reinvent the customer journey. “

Blechta added, “The acceleration of digital transformation has undoubtedly set a new benchmark for incumbent retail banking operators. Customers are looking for convenience and personalized experiences through digital, and the majority will look for alternatives if they come across more compelling propositions. “

Customers were drawn to the speed and convenience of digital banking, but also appreciated the “innovative savings and investing” options that the industry is making more readily available.

The report found that 44% of those surveyed had invested or were planning to invest in cryptocurrencies.

Blechta said all types of banks should “position themselves to remain competitive and meet consumer demands,” which should include “integrating new asset classes into investment portfolios and creating new cases. innovative open banking uses “.

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