Are Arab banks ready to make major changes to their payment processing infrastructures? Before answering that question we probably need to ask why?  Do they really need to make changes? Why would they, or should they, want to undertake such major internal surgery - is it worth the risk?

When one looks at the fundamentals, there’s really no great difference between the Arab banking market and the banking market in the rest of the world. Of course there are nuances specific to country markets, demographic factors that can be different to other parts of the world, and some offerings, such as Islamic banking, are certainly more prevalent in this region than most other parts of the world. However, the big fundamentals are pretty much the same the world over.

Customers need servicing. People need bank accounts. Corporates need financing. Deposits, loans, payments, interest/profit rate, credit cards, debit cards, account statements, bonds, guarantees, foreign currency exchange, these are the fundamental transactions supported by banks throughout the world, including in the Arab market.

Although timing and priorities may change, the problems that Arab banks face are pretty similar too. Customers continue to demand greater transparency, real time servicing, more options for initiating and processing payments, more channels to connect to which in turn leads to yet more self-servicing.

The market is becoming more dynamic, more competitive, and nowhere is this seen more than in payments. There’s a revolution taking place in payments processing around the world with a rapidly growing plethora of alternative channels to service, new real time clearing services, new expanded messaging standards to transform data to and from, all of which places enormous pressure on the IT systems of each and every bank.

Banks have to ask themselves if their payment environments are agile enough to cope with such market dynamism.  How can they standardize processes across these competing product types and emerging technology platforms?  How configurable is their environment? Can it cope with real time processing and XML message data within the core systems? Can we rollout new services in weeks not months or indeed in some cases, months, not years?

In many countries, the answer to these questions have driven banks to make fundamental changes to their payments systems, be it through evolution or revolution.

The evolution seeks to fill gaps in current systems with specialist solutions whilst the revolution sees the introduction of a dedicated payments hub to replace core systems’ payments modules or legacy applications. In Europe, the drive for change can be linked to SEPA, in the UK the introduction of Faster Payments, in the US the main changes to date were to replace older, less flexible mainframe payment engines.

In other parts of the world it has been the major regional players, especially those with footprints in multiple countries and jurisdictions that have tackled the issue and made investments in new systems and new servicing engines.

However, so far, in the Arab banking world the focus of change has generally been on the customer channel and a revolution in the back end payment engines has been slow to emerge, but is that about to change? 

The pressure appears to be mounting. Arab banks are starting to realize that their investments in the channel can sometimes struggle to deliver value because their back end processing engines are not able to service with flexibility and speed. Adding to these customer channel pressures are the continuing changes in clearing services, which again require flexibility and speed to be tackled efficiently.

If there’s one buzzword that sums up what everyone needs, it’s agility. The Arab banking market has now reached the point where their internal payment infrastructures need to be updated to support the much needed agility to cope with the pressures of the modern digital payments age.

It’s starting to happen. The larger, regional players are starting to ask the question, what should our strategy be? What do we need in order to cope, to be competitive, to protect our customer base, to win new business and grow market share?

A number of Gulf Cooperation Council (GCC) based banks have already come to market seeking new tooling to speed up their capabilities. Some have already started to evaluate new, enterprise payment hubs.

Is this the tipping point for mass change or just the few lone wolves who will differentiate themselves in the market?

Whether the decision is taken to evolve and enable one’s current core system, or to grab the revolution by the horns and implement a new payments hub, I believe that the tipping point has been reached, and over the next few years the Arab banking market is going to see significant changes in the systems and software they use to process payments.

The simple question that every bank CIO must ask themselves is ‘Do I have the right tooling and systems to compete effectively?’