The growing demand for digital financial services and the rapid adoption of fintech solutions are driving economic growth while enhancing the banking industry’s competitiveness. In the UAE and wider GCC, digital interactions are creating seamless experiences across all touchpoints, connecting with a new generation of users in a way that traditional banks have not been able to. Some banks are even exploring the metaverse as a new channel to provide financial services to their younger and more tech-savvy customers and connect with the larger banking ecosystem. There is no doubt digital banking offers consumers a convenient and sustainable solution to manage their finances, but it also promotes sustainability through a multifaceted approach that encompasses environmental, technological, financial, and security dimensions.
Digital banking and sustainability
Banks have long been concerned about sustainability, but this has been mostly fragmented, driven largely by regulatory and market changes. However, this is slowly changing as ESG is moving up on the regulatory agenda, prompting banks to incorporate sustainability proactively into their business strategy.
Digital banking has emerged as a tangible way to drive green outcomes, and the benefits are enormous.
Digital banking processes reduce paper usage through electronic transactions and e-statements, helping conserve the environment. They also require less infrastructure, thereby cutting energy consumption and carbon footprints. By reducing the number of physical branches, digital banking helps reduce carbon emissions. Energy used for lighting, heating, and cooling, as well as resources for maintenance and upkeep, are conserved. Customers don’t have to travel to a bank to make transactions, thereby reducing emissions from transportation.
The green financing market
Closely linked to sustainability in banking is the green financing market, which has been growing at an exponential rate in the UAE. The country has made significant strides toward its sustainable development and decarbonization efforts in the lead-up to achieving net zero by 2050, with green finance instruments growing rapidly.
The Abu Dhabi Global Market (ADGM) and the UAE’s Security and Commodities Authority (SCA) have both announced ambitions to develop their own carbon trading platforms. In 2022, ADGM partnered with Air Carbon Exchange (ACX) to develop the world’s first fully regulated voluntary carbon trading exchange and carbon cleaning house. The proposed mechanism is unique, as it shifts traditional views on carbon as a waste product and global issue to recognizing carbon as an investment opportunity and emissions instrument.
The UAE has set a goal to mobilize over AED1 trillion in sustainable financing by 2030, focusing on green projects. Consequently, banks are adopting green ledger approaches and digitalizing procurement processes to reduce environmental impact. Technological advancements such as blockchain, AI, and Central Bank Digital Currencies (CBDCs) are central to the region’s sustainable digital banking strategy. The global trend of open banking, where data is shared between various entities, is also gaining momentum in the UAE. This shift requires modernizing infrastructure with service connectivity and intelligent systems that enhance customer experience while ensuring security.
Open banking and more modern technology
Open banking is another revolutionary practice that the Middle East is committed to. It will enhance customer experience by offering personalized financial services and greater control over financial data. The practice will not only naturally foster innovation and competition by encouraging fintech but also improve customer service quality through increased access to banking data.
Technology has played a critical role in driving digital ambitions in the banking industry. Without it, the UAE would not be able to envision a digital revolution across multiple sectors, including education, healthcare, tourism, manufacturing, and financial services. Recognizing the transformative role of technology in social and economic development, the UAE is empowering leaders to achieve the nation’s future aspirations. UAE tech leaders are setting a global example in strategic AI adoption, prioritizing cybersecurity and ESG.
Automated and AI-enabled digital operational processes will help improve the speed and quality of decision-making and enhance the customer experience. However, banking leaders and teams will need to act as a moral compass to embed ethics, regulation, and security into technological innovation.
There is no doubt that digital banking and carbon credits and offsets are effective ways of redirecting finance toward carbon-zero or carbon-net-positive projects and initiatives. They are ideal in the short- to medium-term until technologies and solutions mature enough to contribute to achieving the ambitious emissions targets.
Abbas Basrai is partner and head of financial services and financial risk management at KPMG Lower Gulf.
About Abbas Basrai
Abbas leads financial services (FS) at KPMG Lower Gulf and focuses on audit and advisory services within the FS sector. He also leads the Financial Risk Management (FRM) practice. He has extensive experience working with banks (both conventional and Islamic), sovereign wealth funds, investment and asset management companies and private equity funds. He has a particular interest and experience in the accounting, regulatory and control aspects of banking operations (from risk assessments to full reviews of front office supervision, product control, treasury, risk and operations functions), including extensive work with regard to derivatives and structured transactions. Abbas qualified as a chartered accountant (ICAEW) while with KPMG in London.
For more op-eds, click here.
