Online Activity of Banking Sector in the UAE

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Table of Contents

Historical Background
Important Statistics
Facts about the Industry and Market Specificity
Main Market Players
Conclusion
Works Cited

Online banking is considered to be the future of the banking sector and virtual trade. The technological progress and the ever-increasing availability of the Internet in almost every aspect of our lives promotes a transition of many day-to-day activities into the internet, and banking is no different. In the past, banking almost inadvertently meant a visit to a local bank in order to perform all the required financial operations.

The situation began to shift with the introduction of ATMs, which allowed for performing basic banking operations like payments, deposits, and billing without actually visiting the bank. This saved a lot of time both for the customers and for bank employees – the ATM machines did not require cashiers to operate and allowed the customers to perform all the necessary operations by themselves. Instead of opening up representative offices in distant areas, the banks were allowed to make do with ATM machines (Hanafizandeh 493). However, progress never stands still. With the internet available everywhere, even a short trip to the ATM machine could feel a little inconvenient. Online banking offers enable customers to perform the majority of financial operations available through a local branch from the comfort of their homes.

UAE is considered to be a regional economic power that follows the latest economic and technological trends. Naturally, the online activities of the UAE banking sector benefitted greatly from employing online banking operations and other related activities into their day-to-day practices. The purpose of this paper is to provide a detailed overview of online banking activities in the UAE, including historical background, market specificity, statistics, examples, and main market players.

Historical Background

The first bank in the UAE was the Central Bank of the United Arab Emirates, which was established in 1973 (Rusu and Shen 2). The purpose of that bank was to enable the government to control monetary, banking, and financial policies and oversee its implementation in accordance with the State’s general policies. These policies were aimed at supporting the national economy, subsidizing local businesses, and ensuring the stability of the local currency. The Central Bank oversaw the activities of private banks, while at the same time imposed great regulations on any foreign capital operating in the region. These policies ensured that the local banking system was not ousted by foreign banks and gave it time to mature and grow (Rusu and Shen 2).

The majority of private banks were established between 1987 and 2002. This coincided with the creation of first personal computers and the development of the World-Wide Web. The prospects for the incorporation of online financial transactions into the country’s banking system were, thus, promising. Despite that, the use of internet banking in the UAE between 2000-2005 was not as wide-spread or developed in the UAE as it was in western countries.

Instead, physical branch banking and ATMs were the most common channels of interaction between customers and banks. Only 20% of all banks in the UAE offered any online services by the start of the year 2000 (Rusu and Shen 3).

This was due to the fact that the internet was not as widespread back then as it is today. Another factor that initially hampered the adoption of online banking services in the UAE was distrust towards new technology – many customers found physical banking performed at the branch offices to be safer. However, since 2004, UAE saw a great increase in internet availability, which forced the banks to expand their online presence if they wished to remain in the market. Another factor that helped promote online banking in the UAE was the construction of Dubai Internet City in 2000 and the opening of Dubai International Financial Center in 2004, which allowed foreign banks to enter the regional financial market (Rusu and Shen 3).

The rates of online banking activity of the UAE were growing exponentially through the years associated with the economic boom of 2004-2008. During these years, UAE saw increasing growth of its GDP every year, topping at 122% growth in non-oil GDP by the end of 2008 (Rusu and Shen 4). The increasing activity in the private sector and the growing independence of the country’s economy from oil prices were the catalysts for a surge of online banking activity in the region. This surge was largely associated with extensive crediting services offered by banks to various companies. Online banking, thus, grew from offering basic service information and advertising to offering tools for online credit management, projection, and payment.

The rise of the internet banking industry in the UAE ended with the economic crisis of 2008 (Mehta 385). Although the main initiator of the crisis was the USA financial bubble, the echoes from it affected the economies around the world, and the UAE was no exception. The economic decline of 2008 was followed by decreasing trust in online banking operations and resurgence in the use of physical banking in branch offices and through ATMs.

Despite this, earlier development of online banking left the country with a fully-operational and extensive web of internet-based financial transactions available to the customers at all times. This allows making a prognosis for the future, stating that online banking will experience another resurge once the aftermath of the crisis of 2008 and the oil crisis of 2014 is overcome (Mehta 386).

Important Statistics

UAE is considered to be the country with the second-largest internet penetration rate. With the total population of 9.5 million people, over 92% are active internet users (Shaikh and Karjaluoto 130). This figure is beaten only by Canada, with 93%. At the same time, the number of customers who use online banking frequently is 33%, which is low, considering the overall internet availability within the country. Out of that number, according to Statista, over 55% use online banking services about once a month, meaning that over half of respondents use them to pay the monthly bills (“Online Banking Frequency”). After the international banking crisis in 2008, trust in the online banking sector decreased considerably.

According to customer surveys, the three main factors that they value in online banking are Independence, Convenience, and Security. The research performed by Mansumitrchai and Chui (110) in 2012 involved the distribution of 330 questionnaires to customers of 7 major banks in the UAE. Below is a 3-factor statistical analysis of UAE internet banking users’ satisfaction:

– Independence. Over 80% of respondents expressed the importance of the privacy of banking transactions. The second most important factor was the ease of use, with 63% of respondents mentioning it. This is closely followed by instant feedback on transactions and the number of provided services to satisfy the customer’s banking needs (57%) (Mansumitrchai and Chui 110).

– Convenience. The majority of respondents stressed the issue of accessibility – online banking should be available to them from any spot with internet access (77%). Other factors deemed important by the customers include 24-hour availability (71%), Low to no cost for performing internet transactions (70%), and time saved on using online banking when compared to physical transactions (67%) (Mansumitrchai and Chui 110).

– Security. The customers of 7 major banks that were interviewed in the study outlined three main criteria for internet banking. They expect IB services to be reliable and ensure that no transaction is lost somewhere along the way (82%). Aside from that, IB services and e-banking assets are expected to be protected from theft and hacking attempts, and have safeguards against them (77%). Lastly, over a half of the customers expect the transactions to be done quickly (53%) (Mansumitrchai and Chui 110).

An important factor that explains why the use of e-banking in the UAE remains relatively low in comparison to the total number of citizens using the Internet is the age of the population. Online banking is a relatively modern invention, which older generations have to adapt. According to UAE 2016 census, 61% of the UAE population is between ages 25 and 54 (Rusu and Shen 7). While the younger portion of that number would have an easier time adopting e-banking, the older part of the population prefers doing things the “old-fashioned way.” This contributes to why physical banking still makes up for the majority of banking transactions.

Facts about the Industry and Market Specificity

Services and Customer Tools

Modern online banking systems in the UAE offer a great variety of different tools that are available to the customer. These tools can be separated into three distinct groups:

Informational tools. Basic information tools provide contact details, information brochures, advertisements, and pop-ups about special events. The more advanced tools include search engines, reports, and specific economic information. Superior services offer subscriptions and interface customization (Hanafizandeh et al. 501).
Transactional tools. These include the ability to open accounts, answer checkbook and card requests, make balance inquiries, payment, and fund transfers, managing electronic cash, electronic checks, and using a unique electronic signature (Hanafizandeh et al. 501).
Customer relationship tools. These tools provide feedback forms, suggestions and complaints forms, access to electronic mail, advising tools, management tools, and probability calculators. The most advanced services include video conferences, and the ability to address the needs of a customer directly (Hanafizandeh et al. 501).

Quality and Reliability of Internet Services

The UAE is known for the quality of internet services that it provides across the country. Most of the coverage is provided by DU – a government corporation that holds a monopoly over the market. There are several other smaller providers operating in the area, but they are largely affiliated with the DU (Mansumitrchai and Chui 112).

Although the quality of provided services is very high, censorship laws and governmental control serve as detrimental factors that frighten foreign capital and investors from investing in and using the available e-banking system services. Those companies who are willing to tolerate state monopoly and absence of any other available options, however, enjoy the benefits of a well-established infrastructure and benefits offered to private enterprises by the government, such as tax cuts and simplified registration process.

The cost of domestic broadband internet in the UAE is considered to be one of the highest in the Persian Gulf. This is due to the lack of competition with DU. At the same time, due to high competition between DU and Etisalat, which is another large internet provider that specializes mainly in mobile internet services, UAE has one of the most available mobile internet services in the area. It is outdone only by Qatar, Kuwait, and Bahrain. Standard internet speed for cable internet in UAE varies from 10-50 Mbps, while the standard speed for mobile internet devices is 24 Mbps. Annual fees for DU and Etisalat range between 250-500 AED, depending on the quality of the service package (Mansumitrchai and Chui 113).

Competitiveness in the Banking Sector

The banking sector in the UAE is known for its highly-competitive environment, particularly in the retail sector. Before 2004, the local banking sector was under strict regulations by the UAE government, which imposed restrictions upon the activity of any foreign banking offices, which prevented any competition between the local services and the outside world. However, after the pressure from the World Bank, UAE was forced to open its borders to foreign capital and remove many restrictions that previously hindered foreign involvement (Mehta 385).

Ever since then, American and European banks have been vying to enter the UAE finance market. Financial giants like Standard Chartered, Lloyds Banking Group, the Royal Bank of Scotland, Barclays, and others took the opportunity to expand into the region (Mehta 385). While each of them managed to win their share of the market in order to remain somewhat relevant, they were faced with strong competition from the local banks, such as the Abu Dhabi Islamic Bank (ADIB), and various other banking enterprises. In the years following the economic crisis of 2008, most of the foreign banks were unable to maintain competition with the local banks and were forced to close enterprise. After 2014, the list of 25 major banking enterprises in UAE contains only the local banks, and banks from neighboring Arabic countries such as Qatar, Bahrain, and Kuwait. Not a single bank present in the list contains a major banking entity from Europe or the USA (Mehta 386).

Main Market Players

Although the UAE has many banks that offer online banking services, the financial sphere is dominated by 5 main market players. These are the biggest banks with the largest amount of assets. These banks are:

Emirates NBD

This is considered to be the largest bank in the UAE. It was created in 2007 through merging of two large banks – the Emirates Bank and the National Bank of Dubai, which were the second and fourth largest banks respectively. This merger created the largest bank in the Middle East, with over 280 billion dollars in assets. It allowed the bank to expand its reach into other regions, including the USA, Great Britain, Pakistan, and India. The bank offers numerous ways of online activity, including e-banking, phone banking, mobile banking, e-statements, and e-payments. In order to remain competitive, its online banking system is made top-notch and provides all the necessary functions that it is supposed to have (Mehta 387).

The National Bank of Abu Dhabi (NBAD)

This bank is the first largest corporate bank and the second largest bank in the UAE. Its head office is located in Abu Dhabi. It has a reputation for being the bank with the largest market capitalization. It provides services in retail banking, wholesale banking, private banking, investment management, leasing, and wealth management. It possesses assets within the Islamic Bank. NBAD has been expanding abroad for some time and has a strong foothold in Singapore, Kuala Lumpur, India, and China. Its online banking system is top-notch and compatible to that of its competitors. However, it also allows for extensive loan and mortgage management (Mehta 386).

Abu Dhabi Commercial Bank (ADCD)

This is one of the oldest banks in the UAE. It was created in 1985 through a merger of three banks – Emirates Commercial Bank, Federal Commercial Bank, and Khaleej Commercial Bank, each dating back to 1975. This bank is government-backed, with the government holding over 65% of its shareholder assets. The rest is being held by public persons and private organizations and corporations. ADCD is one of the largest banks in terms of assets and revenue. Its net profit in 2013 was around 3.600 MN. The bank has an elaborate online banking system that is optimized to comfort all major operating system like Windows, Apple, and Linux. In addition, it was optimized for touchscreens employed in smartphones. While the online banking system ADCD implements are similar to those of its competitors, it also allows an outlet for Islamic banking – a banking service compliant with Sharia law (Mehta 386).

First Gulf Bank (FGB)

This bank is the fourth largest bank in the UAE. It is also one of the oldest and largest banks in the region that was not created through the merging of assets of several smaller banks. The bank’s headquarters were established in Abu Dhabi in 1979, eight years after the creation of the Central Bank. The bank operates in areas around the Persian Gulf and offers services in South Korea, Hong Kong, Seoul, and India, which lie outside of its direct sphere of influence. Due to its position among the 5 leading banks in UAE, it offers a wide variety of traditional and online banking services, such as Islamic banking, retail banking, consumer and treasury banking, brokerage, and Takaful. The bank’s online services can be accessed via computer, smartphone, or touchpad. They offer a great variety of information about the bank, its services and information, enable most services offered at a conventional branch, and offer a unique what-if calculator that allows making prognoses on stock prices and currency shifts (Mehta 387).

Dubai Islamic Bank (DIB)

This bank was established in 1975 and, as its name suggests, was the first bank to develop its banking practices in accordance with the Sharia Law. As such, its operation focuses mostly on the Islamic region. However, it expanded towards Europe and Asia in the last years, opening over 62 branch offices in these regions. It is the 5th largest bank in the UAE, with almost 20 billion dollars in assets. 90% of its branch offices currently operate within the country. Its online banking system prides itself on its security, as even its basic features are unavailable for viewing without registering an account. DIB was criticized for the inconvenience of such a system, as it does not do a good job of presenting itself. In order to alleviate it, the bank created the “Quick Login” system, which allows a person to enter and view the products offered by DIB without creating an account. It still requires the user to have a credit card number, which makes the use of the system inconvenient. Once logged in, however, DIB offers many conventional services and banking products, approved by the Fatwa and Sharia law (Mehta 387).

As it is possible to see, all five leading players in the market of online finance transactions are somewhat evenly matched. While every system has an inclination towards particular operations, be that mortgaging, Islamic banking, security, or something else, the majority of services provided to customers in day-to-day operations are remarkably alike in terms of available options and system functionality. This means that neither bank has the edge or something truly unique to offer in the area of online banking. All five major players retain its competitive edge by borrowing all advanced online banking practices from the West, which explains the fierce competitiveness within the banking sector.

Conclusion

Despite the fact that online banking activity in the UAE has suffered a decline following the economic crisis of 2008 and the oil crisis of 2014, the majority of experts conclude that online banking will see quick rates of growth in the following years. Once the world economy stabilizes and geopolitical situation in the region becomes more predictable, customers will regain confidence and trust in the regional banking sector, and, by extension, in online banking systems.

UAE has a very developed Internet infrastructure, and the majority of the population have access to it. Coupled with the fact that the 5 major banks are constantly competing with one another to provide the best possible service to the customers, it is safe to assume that online banking systems in the UAE will be improved upon in order to ensure safety, security, and convenience – all three factors deemed most important by the clients. As online banking becomes more commonplace and widespread, even people who are very slow to adopt new technology will eventually learn the basics of online banking and use it for day-to-day monetary transactions. The overall share of online transactions is going to increase, while the use of ATMs and branch facilities is likely to fall, in the long run.

Works Cited

Hanafizandeh, Payam, Byron W. Keating, and Hamid Reza Khedmatgozar. “A Systematic Review of Internet Banking Adoption.” Telematics and Informatics, vol. 31, no. 3, 2014, pp. 492-510.

Mansumitrchai, Somkiat and Candy Chiu. “Adoptation of Internet Banking in the UAE: Factors underlying Adoption Characteristics.” International Journey of Management and Marketing Research, vol. 5, no. 1, 2012, pp. 103-115.

Mehta, Anupam. “Financial Performance of UAE Banking Sector – A Comparison of Before and After Crisis Ratios.” International Journey of Trade, Economics, and Finance, vol. 3, no. 5, 2012, pp. 381-387.

“Online Banking Frequency in the United Arab Emirates as of 4th Quarter 2012.” Statista. Web.

Rusu, Ramona Valentina and Kathy Ning Shen. “An Empirical Study on E-Banking Acceptance in the United Arab Emirates.” Journal of Electronic Banking Systems, vol. 2012, 2012, pp. 1-8.

Shaikh, Aijaz and Heikki Karjaluoto. “Mobile Banking Adoption: A Literature Review.” Telematics and Informatics, vol. 32, no. 1, 2015, pp. 129-142.

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