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Blom Bank: Dealing with digital transformation

Publish date: 28 March 2019
Author: Blom Bank

Elias Aractingi of Lebanon’s Blom Bank discusses digitization and the importance of scale.

Lebanon’s banking sector continues to provide stability in a region that is often turbulent. Blom Bank, one of the country’s largest financial institutions, is also adapting well to changing consumer demands, with banking customers increasingly looking for digital services to simplify their lives.

“We are already starting to reap the benefits of digitization,” says Elias Aractingi, the general manager in charge of retail banking at Blom Bank. “It’s very clear that we have lower transaction volumes in branches and increasing transaction volumes in the other channels. As a result, we have already started to adjust, and we see that also for other Lebanese banks in the market. Almost every bank has stopped recruiting in the branch network, so they are aware and are taking advantage of digitization.”

For digital transformation to proceed, banks need a regulatory environment that fosters innovation.

“What we are seeing from the regulator is very positive,” says Aractingi. “We had three ideas that put a little bit of pressure on the regulator, and all were approved so we are now developing them.

“In addition to that, in Lebanon the law about digital signatures, or e-signatures, has been approved. We are waiting now for Banque Du Liban (the central bank of Lebanon) to issue its detailed implementation, so the future looks good in terms of more things that we can do digitally, and the regulator is now on our side.

“From the regulator, I would like to see not just a passively supporting attitude, if you want, but more aggressive mandates. Instead of just requiring more compliance, more paperwork and more bureaucracy, to also mandate digital evolution.

“This may be being more aggressive with banks – allowing certain transactions to happen faster in terms of pushing for control to be done electronically and in real time, rather than holding them up for compliance reasons.

“I want the regulator in my dreams to look at the nuts and bolts of how a transaction is happening and to push for it to happen more digitally and faster. Maybe they can mandate that certain transactions can only happen digitally, not at the branch, for example, just to push for this digitization.”

But with digital services also bringing the threat of ransom and cyber-attacks, defenses need to be strong.

“We have to be vigilant and within the transaction we have to look at more than one way to identify, says Aractingi. “Like multiple OTPs (one-time passwords), especially when there is money getting out of the bank. The strongest players must be vigilant and it’s an argument for size also – that’s why the regulator must look at how prepared some of the smaller players are to deal with this. Implementing technologies to make sure the transaction is genuine and there is no fraud – maybe using sophisticated software to control that, just like we are doing with credit cards – is very expensive and requires scale.”

The cloud has an impact too.

“I am obviously supportive of cloud, it’s a very efficient way to handle all your data and to have proper backups, but you need the top protection against attacks and threats.”

How ready are the banks to enable digital transformation, in terms of the skills required for the digital age?

“It is important to get human resources that are adapted to the new roles at the banks. To get these people and motivate them, you have to offer an environment in which they can see themselves developing and enjoying.

“The bank will not offer the same ‘get rich quick’ environment of a start-up, but banks have a lot of advantages that can be very attractive to talented people. Not everybody is going to look at a start-up career, especially given how much sacrifice such a career is going to entail. A bank can give you more stability and more structure.”

Aractingi says that for a bank to attract these kinds of people, it has to give them a slightly more entrepreneurial career path. “I see that happening with smaller teams and the responsibility for P&L, so they can have more autonomy in how they control their destiny,” he says. “A little bit like a startup but with a little bit more security. That could be a good value proposition to work at a bank, while giving the bank the characteristics that they need to continue to be innovative.”

New players in financial services, such as fintech start-ups and large technology firms, are competing with established banks, without the burden of fiduciary duty. Where does this leave banks?

“The fact that we have a fiduciary duty and we have to put so many controls against failures is something that attract customers,” says Aractingi. “Maybe in certain areas that are very technical, very transactional and also very small, somebody can be bit nimbler than we are, but overall we are the place where the customer feels safe and that’s where the big profits will come.”

Is there a need for reinvention?

“If you want to sustain your competitive advantage you have to be more agile and innovative, and to use your scale,” says Aractingi. “The first challenge is to increase the role of IT, because it has always been a little bit boxed. IT has to go inside the core of the organization and at the same time open itself up for more of the organization to have effect on it. That is a big change on both the IT and the management side. In the Middle East we are still not at the stage where this is make-or-break, but we don’t have a lot of time if we don’t address the situation.

“We are making steps to become ready at Blom Bank. We have created a board committee for fintechs – it involves people from the management of the bank, it involves IT, it involves the board and it involves other areas of the bank. So this kind of conversation is starting to take place.”

As well as feeling local economic trends, the Lebanese market is impacted by the international environment.

“Interest rates are going up and, in my view, there is a liquidity challenge, not just in Lebanon but in the entire Middle East, even the GCC (Gulf Cooperation Council) countries. Because of these challenges there is a stronger push on reducing cost and expenses – becoming leaner.

“The economy today is not that great so you would expect the level of bad loans to increase. But at the same time, we are introducing so much technology in how we handle bad loans and how we process recoveries that the productivity gains from better recovery are outpacing the deterioration. So far, we are doing well but we must continue to work on the benefits of technology.

“There are other challenges apart from the economic and liquidity challenges that everyone is confronted with. For the long-term, banks should work on scale, because the advantage of scale continues to increase.

“It’s not necessarily more mergers or acquisitions, but to at least identify what the benefits of scale are and to work on them. Sometimes it’s not feasible, like in today’s market, to do a lot of mergers and acquisitions, but we can find in which areas we are not very big and areas where we are very big, and focus on reaping the advantages of scale where we can. What I see, even in the fintech world, the big players continue to become bigger – like Amazon, Facebook, Apple and Google. The emergence of new entities is secondary to the big players becoming bigger, so scale is very important, even when we talk about payment systems, for example.

“It is very important to have alliances. If Google is going to come to Lebanon to make an alliance, it is going to look for the biggest player in Lebanon, so I need to be cultivating scale and making the alliances to reap the benefits of it. And because things are changing so often and so much, you need your organization to be agile, too.

“The banking industry is still in evolution. It is there to stay, but there will be more consolidation and more of the smaller players will fizzle out.” 

If you want to know more about retail banking in the Middle East, please download the 2019 Efma Middle East review