Saudi Arabia’s vast landscape might soon be ruled by challenger banks that can provide a strong digital offering, as this article explains. Dr. Jan Engelke, based in Switzerland, is Partner in Simon-Kucher’s Banking Competence Centre. He can be reached at jan.engelke@simon-kucher.com. Matthew Jackson is a Director at Simon-Kucher’s New York office. He can be reached at matthew.jackson@simon-kucher.com.

The Pricing Advisor, March 2017

With its reputation for traditional relationship-based, face-to-face banking and its dispersed population, the Saudi Arabian market presents a distinct challenge to smaller banks without sufficient branch presence.

Studies of attitudes towards online banking have probed the reasons behind slower uptake of digital alternatives in Saudi Arabia. The leading inhibitors are related to psychology (attitudes and fears) and awareness (general digital literacy), but are not likely to remain an obstacle as the generational shift towards an online society moves forward. The YouGov BrandIndex BestBrand Rankings for 2015 show that six out of the ten most positively perceived brands in Saudi Arabia are digital – with newcomer WhatsApp at second place.

While society changes, the traditional branch-based banking model is under pressure.

The kingdom’s branch coverage and shortage of human capital is a growing problem. Furthermore, an emerging tech-savvy customer base has higher standards than the customers of yesterday. Where will this lead?

A new survey, conducted last year by Simon-Kucher & Partners in association with Lightspeed Research, reveals that the future may be not so very far away.

Although many Saudi Arabian customers (38%) identify ‘branch network’ as their main reason for choosing a ‘main bank,’ an almost equal number (34%) selects ‘ease of online banking’ as their main reason (see Figure 1).

Similarly, although the branch is the most widely-used channel, 46% of customers in Saudi Arabia say that they do most of their banking online (see Figure 2). The majority of these users are in the age range of 35 to 54, and branch usage is lowest in this range, indicating that users lack time, and value convenience (see Figure 3).

Customers who favor the branch do not do so out of love for the branch per se, but for the security and assurance of a personal relationship. Until now, the personal dimension has been a missing factor in the ‘remote’ bank.

However, technology is helping the remote experience to become increasingly personal. One example is the virtual assistant, already in use in the Middle East: ‘Sara’ assists customers of the Commercial Bank of Dubai.

Surely online customers are less sticky? Not so, according to the survey. On average, these online users purchase more products with their main bank than branch users, signifying that convenience breeds loyalty. What’s more, they tend to be higher earners, meaning higher revenue per product as well. (See figure 4)

The target is a consumer base that is predominantly concerned with getting a fair deal and avoiding inconvenience. The seemingly daunting banking landscape in Saudi Arabia is open to an innovative bank that provides an optimal omni-channel experience.

Figure 1: Relative Importance of Factors for choosing a main bank

Figure 2: Banking channel use in Saudi Arabia

Figure 3: Banking channel usage by age bracket

Figure 4: Banking channel usage by salary bracket