Beyond “Rip and Replace”: The GCC playbook for modern banking

The Middle East region – particularly the Gulf Cooperation Council (GCC) countries – is gaining a reputation as a hotbed of financial services innovation. Driven by the need for economic diversification away from oil dependence, Gulf governments are embracing digital banking and fintech, investing heavily to support sustainable growth.

Ambitious national plans, such as Vision 2030 in Saudi Arabia, UAE's Digital Economy Strategy and Oman’s Vision 2040, prioritise developing digital economies and positioning the region as a global fintech hub. Deploying key technologies, such as artificial intelligence (AI), blockchain and real-time payment systems, is an integral part of their future plans.

Importantly, digital transformation in the GCC banking industry has been supported by progressive regulators in many countries. For example, Bahrain was the first Gulf nation to adopt a ‘cloud-first policy’ in 2017, while the UAE rolled out its national digital identity solution, UAE Pass, in 2018, which lays the know-your-customer foundation for digital financial services.

There has been a significant top-down push across the region to create a more innovative and competitive market for financial services. All six GCC nations have implemented or are developing open banking legislation and frameworks, as well as supporting fintech ecosystems with regulatory sandboxes and accelerator programmes. According to Fitch, the expansion of open banking is likely to influence M&A strategies, fostering joint ventures between tech companies, telecoms and banks.

Such developments have spurred GCC institutions to reimagine their operations from a digital-first, mobile-native and increasingly decentralised perspective. Many larger incumbent banks have responded by launching digital spin-offs, such as Emirates NBD’s Liv Bank, meem by Gulf International Bank and Bank ABC’s Ila Bank, or ‘big bang’ digital transformation projects.

Incumbent banks are facing an imperative to modernise now, as growing young, tech-savvy populations demand digital services. Customers across the GCC now expect seamless digital experiences – from opening an account via an app to receiving AI-driven financial advice. In Qatar, for example, internet penetration is 99%, and 94% of the population uses digital banking channels. Similarly in Saudi Arabia, a 2024 survey found 81% of retail customers use mobile banking apps, versus only 30% who still visit branches. Two-thirds of Kuwaitis and Omanis are under 35, which means they are digitally native. There are now many wealthy young people in the region, whether acquired wealth from inheritance or from building businesses.

Many traditional banks in the region are stuck in the mindset that culturally customers are relationship-driven and want a personal banker to manage their money. Many continue to believe that young people won’t deposit their wealth in a fully digital bank like a Revolut, but that’s no longer the reality. Young people want ease of use and 24/7 accessibility without having to go into a branch.

Despite an increasingly supportive regulatory environment, a large swathe of the banking industry across the Gulf is still lagging behind. Many are grappling with legacy technology and don’t have the know-how or innovation culture to digitally transform. Being behind the digital curve can lead to a loss of competitiveness and market share, and make it difficult to attract and retain talent. It also opens up possibilities of consolidation at some point down the line, as customers move to digitally-enhanced competitors.

Not all banks have the resources – or the courage – to rip and replace their core systems, a risky endeavour likened to open heart surgery. But there is another option open to them today. It is possible to accelerate a bank’s digital transformation by taking a progressive modernisation approach. Progressive modernisation allows an institution to create change from within existing architecture and leverage technologies that support a multi-core strategy, without having to replace the whole core all at once.

To embark on a progressive modernisation journey, banks should seek an open platform that gives them the freedom to quickly achieve parity with current market offerings, and then build their own competitive edge. This effectively means having standard journeys ready in weeks, then creating unique experiences on the same flexible platform. It allows them to wrap their existing core, connect to leading third-party providers, leverage new technologies like blockchain, AI and APIs, respect data-residency requirements, and run on their cloud of choice.

In addition to changing customer behaviour, technology is evolving at a rapid pace. Banks need to modernise their technology infrastructure to be able to take advantage of what AI and cloud can deliver, such as improving efficiency, security and customer experience. They will also need to be able to engage with developments in digital assets and central bank digital currencies, such as UAE’s Digital Dirham, Digital Saudi Riyal and Bahrain’s Digital Dinar pilot.

As such, banks need to think about how to fast-track modernisation in the most effective way. The first step is to choose the right partner, who can bring together the best practices and innovation from within and outside the region.

By working with a digital accelerator, such as Plumery, banks can transform quickly in an evolutionary manner. Progressive modernisation provides the freedom to move faster with a predictable total cost of ownership, avoiding a costly, risky ‘big bang’ project, and the burden of vendor lock-in.

The GCC’s governments and customers are highly supportive of digital modernisation, with national agendas explicitly call for a technology-driven financial sector and customers showing an eagerness to adopt new digital banking services. In this favourable environment, the Gulf banks that act decisively today can leapfrog into a new era of competitiveness.