Speed and getting ahead of the game are vital to ward off competition in the fast-moving cash management field in Saudi Arabia. PAUL MELLY reports
One of the largest economies in the Middle East, the world’s top oil producer and an emergent industrial power, Saudi Arabia is an increasingly sophisticated financial market.
As competition intensifies with a steady growth in the number of international banks present on the ground, local institutions know that they, too, must keep raising their game to meet the demands of local personal and business customers whose expectations are always rising.
For example, in 2009 Saudi Hollandi, the Kingdom’s oldest bank, opened a new operations centre and also introduced automated teller cash recycling machines. Meanwhile one of the market leaders, Samba, has launched mobile banking products tailored to work with i-phones and Blackberrys, while Riyad Bank regularly upgrades its remote banking package for customers to use from their homes and offices.
But, of course, the capacity to provide keenly priced funding and good service – outwardly expressed through bilingual online banking websites, sleek new branches or big-ticket project financings – ultimately depends on the internal banking basics: treasury, accounting, risk control and cash management.
Top performance in these key functions is fundamental, and particularly for banks operating in an economy that continues rapidly to expand, diversify and liberalise, generating demand in new forms and on a rising scale. As Saudi businesses evolve, they expect their banks to evolve as well.
“Recently we’ve noticed a great development in the infrastructure of Saudi corporates – using more technology, for example, relying on the internet to ensure that work is accomplished. And you must factor into the picture the impact of more young and educated management, who are expecting advanced and electronic cash management services,” says Abdullah Mohammed Al-Amri, of Alinma Bank.
“They consider the basic services such as internet banking and trade services as a must if they are to establish a relationship with a bank. This makes the banks compete hard to provide highquality cash management services to win over the customer.”
Alinma is one of Saudi Arabia’s youngest financial groups, with ambitions to develop a network of 100 branches over just a few years. And in trying to expand its share of the market it has looked at ways to improve the traditional range of banking services and the way that they are delivered.
“At Alinma we believe that cash management is not just a standard products set. Hence, it is a combination of standard products and customised solutions to enhance our clients’ use of their money. Through cash management we try to serve the specific financial needs of our valuable customers,” says Al-Amri.
“As a new bank we did not build all our capabilities in this field. But we are moving forward to be one of the top banks in the cash-management area.”
He outlined the wide range of services that Alinma now offers: current and direct investment accounts, online banking, internal, local and international transfers, foreign currency payments, a bill payment facility, payment “sweeping” to allocate cash most effectively, cash collection and delivery, merchant services, payroll products and Sharia-compliant trade finance.
Moreover, other products such as payment collection, direct link to a client company’s internal enterprise resource planning (“ERP”) system or the management of different accounts in different banks through the SWIFT network are available for those customers who have the need and are technically equipped to handle them.
Alinma is not alone in pursuing such product innovation. Osama Bukhari, head of banking solutions at Arab National Bank, says that his institution now provides a range of cash management services, e-banking, payment services, collections, liquidity management, and customised solutions.
“ANB’s customers expect fully automated and reliable solutions to their payment and collection needs, in addition to a variety of investment opportunities for excess funds,” he explains.
However, Bukhari feels that the development of new products is often led by the banks more than it is being pushed by the expectations of customers – albeit with some exceptions.
“In Saudi, banks are more of the “market makers” type, rather than the type that is driven by market demand. But there are some customers such as Saudi Aramco that take the initiative and mandate highly innovative solutions” he explains.
All the banks now have dedicated cash management teams to look after the needs of their business customers, says Bukhari. But he adds that some more old-fashioned companies still prefer to deal with bank branches.
Underlying the banks’ own investment in service improvement is the strength of the country’s national financial infrastructure, overseen by the Saudi Arabian Monetary Agency (SAMA). In 1997, the Kingdom established the Riyal Interbank Express (SARIE) system, through which local banks can make and settle local currency payments, on the basis of real-time settlement of transactions: payments are made the same day by the system within its operating cut-off times.
Meanwhile, cash dispensers and points of sale are linked by the Saudi Payments Network (SPAN), which has facilitated a gradual rise in the use of electronic and card payments and a decline in the use of banknotes. More than 6,000 ATMs and 55,000 points of sale are linked to SPAN; in 2006 the system handled more than 340 million transactions, with a combined value of SR160 billion ($42.5bn).
The system has now been upgraded, partly to resolve technical issues at points of sale, which had been a problem for the original version.
The third major strand of payment infrastructure is the SADAD system for electronic bill payments, launched in 2004. Th e old practice of paying bills in cash at bank branches imposed a heavy administrative burden on the banks – and they then sought to recover some of the cost by sitting on the funds they had collected for between seven and 30 days aft er a bill had been paid by the customer.
SADAD continues to attract major public and private sector users, who see it as a convenient way to collect payments due from customers. Recent new adherents include Ola Almajd Trading, the provider of the Al Majd television channels, the municipality of Taif, near Makkah, and the Royal Commission for Jubail and Yanbu, which is developing two of the Kingdom’s main industrial centres.
So the introduction of an electronic payment system has brought savings in both time and money.
The state of Saudi Arabia’s payment infrastructure is now “very stable”, says Bukhari. “It allows all the banks to off er services effi ciently and reliably… SAMA has invested heavily in making the Saudi marketplace ready for the banks to seize the opportunities.”
He adds that SAMA is now implementing a new strategy to integrate payment systems.
Even so, despite the progress achieved so far, big challenges still lie ahead.
“Th ere is a scarcity of skilled resources. To be able to develop and manage cash management solutions with creativity, you need to build a team that understands the fi eld inside-out,” says Alinma’s Al-Amri.
Th ere is also, he says, pressure generated by the expectations of customers, who compare Saudi banks with advanced international banks that have been in the fi eld for a great deal longer.
And speed is vital in developing new products if a bank is to stay ahead of the game. “In the cash management field you need to fulfill the client requirements very fast before your competitor does. Our internal process of product development should be geared to deliver any new idea in less than six months,” says Al-Amri.
And, he adds, to generate a worthwhile return, having invested so heavily in the development of services, a bank needs to capture a good share of the market and cross-sell other products to the clients.
That represents a considerable marketing challenge in itself, as the Saudi banking scene attracts both local and foreign newcomers, further intensifying the competition.
The Kingdom’s banks have sustained a steady flow of new service and product announcements over the past two years as the tussle to win and retain customers.