The Era of Digital Banks: Advantages of UAE banking system

The Era of Digital Banks

Advantages of UAE banking system

 

The banking industry in the UAE is as advanced as one would expect it to be, considering the status of a new-age financial hub that the UAE has acquired. The UAE banks are mastering new technologies and actively using them in their operations, be it AI or blockchain.

 

THE BOOM OF DIGITAL BANKS IN THE UAE

 

According to a survey conducted by UAE Banks Federation (UBF), customer confidence in the UAE bank accounts for 84% in 2022, and this is the second highest rank for customer confidence in the banking system globally. UBF has also revealed that the rate of digital banking use has risen over 100 per cent in recent years.

 

The main reason for this rapid development is the huge continuous effort of the UAE government to adapt to the changing conditions of the global market as quickly as possible. It has succeeded in establishing the UAE as an attractive center for modern business.

 

Digital banks in UAE offer corporate banking, retail services, as well as cards, loans, accounts, bill payments, and financial management.

 

ADVANTAGES OF DIGITAL BANKS

 

1. Low or no fees
   Since digital banks do not need to significantly invest in maintaining their physical offices, they have lower or fewer fees in comparison with conventional banks. However, it is a common practice in the UAE that digital banks would have one or two physical offices and a number of ATMs throughout the country. This is a major plus point that makes it possible to visit an office if the need arises. 
   
   
2. Convenience
   The main advantage of a digital bank is that it provides you an opportunity to bank anytime and anywhere. This is a real time saver, and along with well-known features like checking your balance and making quick money transfers, some digital banks provide various features that would traditionally require a branch visit, for example, remote check deposit. 
   
   
3. Increased safety
   According to Forbes Advisor, it has been reported that digital payments and e-wallets offer more security in some cases than physical cards. Digital banks focus on online security and invest in additional encryption, firewalls and multi-factor authentication to protect customer data and prevent unauthorized access.  
   
   
4. Financial control and awareness
   One of the most important reasons to choose a digital bank for your business or personal use is the real-time access to managing and moving money as you see fit. 
   
   

Digital banks may offer personalized financial advice, saving tools, big-purchase calculators and AI assistants. View account statements, transfer funds, pay bills, and receive investment returns on your mobile app - the process of managing a digital bank account is as transparent as possible.

 

Digital banking also has a major benefit and opportunity for an individual to increase their knowledge of banking and finance, as this is a supported and intuitive self-service rather than the old method of relying on a banking officer to navigate and choose for you or your business.

 

TYPES OF BANKS IN THE UAE 

 

There are about 50 national and foreign banks operating in the UAE that are members of the UAE Banks Federation. Out of them, almost 50 % are national banks and the rest 50% are foreign banks. Many of these banks actively develop their digital banking services, and some decide to launch their own digital banks that can be independent or semi-independent. New digital banking products and services are constantly being introduced in the UAE.

 

Below is the chart of the UAE’s biggest banks of 2022 according to The Banker ranked according to their overall performance. 

 

 

 

We can distinguish 4 types of banks in the UAE based on their function and purpose:

1. Commercial banks - financial institutions that accept deposits, provide loans, and offer various banking products and services suitable for individuals and businesses.
   
   
2. Investment banks - these institutions act as a bridge between large enterprises and the investor.
   
   
3. Industrial banks in the UAE provide loans to individuals and for both large and small companies for industrial development purposes.
   
   
4. Islamic banks or Sharia-compliant financial institutions function based on ‘financial justice’ and provide an alternative in the global approach to the banking system. As the UAE is known as the leader of Islamic banking worldwide, we will touch upon the basic principles of Islamic banking below. 
   
   

WHAT ARE ISLAMIC BANKS

 

Islamic banking or Sharia finance is an alternative banking system that sparks interest worldwide in the face of globalization in trade and the rising demand for affordable financing.

 

According to Forbes (2022), the idea of Sharia financing in a nutshell is based on a partnership notion. There are two fundamental principles of ‘financial justice’ that Islamic banking is based on: no interest in returns and sharing of profits instead.

 

A bank may loan money to a company and receive a portion of its profit according to an agreed ratio of profit instead of a fixed interest rate which creates a safe relationship and an exchange between the client and the bank. That is also a reason why Islamic banks can be selective when it comes to lending money to an enterprise and they tend to be socially responsible and not sponsor activities that may inflict harm in the social context, namely alcohol, tobacco, or gambling business. But if the venture seems socially appropriate and profitable to the bank, the entrepreneur can make an agreement with the bank that will be highly beneficial for them, and that is the main advantage of Islamic banks.

 

The UAE’s Islamic banking focuses on the global Islamic economy and hence this sector is generally of high standard. There are eight Islamic banks in the UAE. Collectively, they account for 19% of the total banking sector assets.

 

If you are a savings account holder with an Islamic bank, the profits made by the bank are shared between the bank and the account holder.

 

THE MOST PROGRESSIVE DIGITAL BANKS IN UAE

 

Some digital banks are powered by conventional banks of the UAE, like ABID Amwali and ABID Smartbanking created by Abu Dhabi Islamic Bank, or Liv and E20 powered by Emirates NBD. E20 is a bank that specializes in providing services to small and medium-sized enterprises. Dubai Islamic Bank has also introduced a Sharia-finance lender’s banking platform that focuses on tech-savvy customers and offers globally accepted debit cards as well as convenient money transfer services.

 

As we mentioned earlier, the concept of Islamic banking that is influencing the UAE’s financial system is based on a partnership approach, hence it can be said that business relationship overall plays an important role in building a business in the UAE. The banking system is not an exception and an entrepreneur who opens a company bank account in one of the UAE’s banks acquires a partner for life.

 

Some progressive ideas are being introduced by the digital banks in the UAE, and new technologies are constantly being tested and implemented daily.

 

Mashreq Neo Bank offers to open an account using a facial recognition system. A customer needs to scan their Emirates ID and activate the facial recognition system to open an account. This bank is the first among digital banks to introduce a feature like that, and for now, additional verification by the bank official at the comfort of your home would still be required.

 

E20 Digital Bank offers a corporate digital banking solution. Any registered company can instantly get a banking account, the payments will be available in  3-4 days after account activation. 

The main reason for the boom of digital banking in the UAE is the decision of the government to give importance to this area. Digital banking keeps rising in the UAE with continuous support of the Central Bank of the UAE. The country is open to welcoming companies, startups, and freelancers from all over the world providing them with tax exemption opportunities, high quality of life, simplified residence permits, and of course, high-quality corporate banking. 

It is up to the company to navigate through the opportunities offered by the robust UAE economy and find solutions suitable for their specific type of business.