Mashreq Bank, the Dubai lender controlled by the Al Ghurair family, will spend at least Dh500 million over the next five years on digitisation, as it plans to shut half of its branches in the UAE this year.
The lender will replace the physical infrastructure with digital 'branches', Mashreq chief executive Abdul Aziz Al Ghurair, told The National in an interview on Wednesday.
“The full-fledge [remaining] branches will still be there and over time we will see if we can do with less of these," Mr Al Ghurair said. "About 97 per cent of our transactions [are] online, so there’s very little need for branches.”
Like their peers globally, banks across the Arabian Gulf states are investing in digitising their operations and moving away from the traditional brick-and-mortar business model.
Mashreq's strategy is in line with a growing trend in the financial industry because large branch networks are expensive to operate and maintain.
“The industry is changing and the banks will have to come out of their comfort zone,” Mr Al Ghurair said. “They have to think like a big tech company – how did Google, how did Amazon come from nowhere and start dominating this business.”
Mashreq is among the pioneers in the GCC financial services industry to undertake digital transformation.
Last year, the bank launched Mashreq Neo, a digital-only financial platform.
The success of Neo has encouraged Mashreq to shut down half its branch network. The shift in strategy will not result in massive layoffs, Mr Al Ghurair said.
The lender is retraining and repurposing staff. However, if they are “unable to adapt and adjust, we have to find someone who is willing to do that,” he said.
“We will require more people on the back end and less people on the front,” said Mr Al Ghurair.
Speaking to the The National in September 2017, Mr Al Ghurair said the bank would cut about 10 per cent of its workforce of more than 4,000 as part of the digitisation drive.
The impact on the savings from leveraging technology will take a couple of years before they reflect on the bank's profitability.
While the average cost of a junior employee is Dh250,000 a year, the cost of replacing a staff member with artificial intelligence is a one-time investment of Dh30,000, Mr Al Ghurair had said.
Other lenders are following Mashreq’s digital pivot. Emirates NBD, Dubai’s largest lender, is spending more than Dh1 billion on digitisation.
National Bank of Fujairah is also boosting investment in technology, its chief executive Vince Cook told The National last week.
NBF has earmarked Dh160m to Dh200m for initiatives and about 80 per cent of that is being spent on digitisation. The lender has the technical capability to launch a digital-only bank and will do so if the demand is "compelling", Mr Cook said.
Elsewhere, Bahrain's Bank ABC is investing heavily in digitising its operations and plans to launch a digital-only bank this year, its deputy chief executive, Sael Al Waary, told The National in February. Investment conglomerate Dubai Holding also plans to invest up to Dh1bn over the next five years to launch a digital bank for the UAE, in line with the country's aim of becoming a cashless digital economy.
In addition to becoming leaner with digitisation, Mashreq is also open to acquisition opportunities.
A number of lenders have merged, or are planning to across the six-member economic bloc of GCC.
Mashreq is not in discussions to acquire a bank but "everything is open. Everything is on the table for discussion", Mr Al Ghurair said.
“I think it will be interesting to see more consolidation across the emirates and it will be interesting when consolidation is driven by pure shareholders’ interest,” he said.