EXCLUSIVE: “A Dawning Realisation” – Miljan Stamenkovic, Tuum and Rohit Mathew, Publicis Sapient in ‘The Fintech Magazine’

Local banks in the Middle East are dependable and profitable – the backbone of the financial services system. But the market is changing and its culturally specific demands create particular challenges for any modernisation programme. So how should they go about it?

Financial modernisation tops the agenda in much of the Middle East, providing opportunities for fintechs to form partnerships with the region’s banks. Policies such as Saudi Arabia’s Vision 2030 seek to diversify the economy beyond oil and serve the needs of a young population by focussing on digital technologies; meanwhile, the UAE’s Vision 31 gives the region a roadmap for social, economic and investment change.

But are banks ready? And could cultural and traditional barriers thwart progress?

Core banking platform provider Tuum and consultancy Publicis Sapient are both experts in the region and have collaborated on modernisation programmes for clients there. Milestones for Tuum this year include being chosen to power the digital Uptex Bank in Oman and entering a strategic partnership with AI-driven financial services enabler Abwab.ai to deliver a lending solution for SMEs.

Publicis Sapient is a partner of the Saudi Company for Artificial Intelligence, known as HUMAIN, part of the Public Investment Fund, and provides solutions across Saudi Arabia and the wider region. We asked Tuum’s Chief Revenue Officer, Miljan Stamenkovic and Rohit Mathew, MENA Head of Financial Services at Publicis Sapient, to share their opinions.

The Fintech Magazine: What does progressive modernisation mean for banks in the Middle East?

Rohit Mathew: We have cities in the GCC [Gulf Cooperation Council area, made up of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE] which are becoming global financial services hubs. Some of the regulators in the region are really flag bearers. They have been pushing the whole digital agenda.

In Saudi Arabia, it’s a relatively young population, digitally savvy, with high internet and smartphone penetration. So, there’s an absolute focus in terms of customer experience because customer preferences are changing. From a traditional bank’s perspective, their legacy systems were just not built to change an application on the fly or to integrate with the broader ecosystem of players. So that puts a lot of pressure on traditional banks in this region, in terms of how they move to a customer-first model, with personalisation, ease of experience and an omnichannel approach. The business, operating model and the tech and infrastructure models need to come together for banks. And you can’t have a discussion without talking about AI.

The discussions I’m having with banks here in the region, everybody’s doing something on AI. But what I always tell them is it’s not about use cases anymore, it’s about how you prioritise. How you create a proof of concept. How you find the business value. How you scale – and that comes back to modern infrastructure.

The same thing will be true for digital banks. While they have the advantage of modern, light core, Cloud-native solutions, they have work to do. For example, how do they get their customers on the deposit side, on the lending side, across the entire value chain of banking?

TFM: Many banks in the region are just beginning their Cloud journey. What’s the smartest way to get started?

Miljan Stamenkovic: Ten years ago, if I’d suggested a bank hosted its main workloads in the Cloud, the answer would have been no. It was risky to even mention it in front of the regulator. I had a client who said, ‘bringing my emails to the Cloud is one thing, but bringing my main workloads to the Cloud is a no-go’.

Today, risk appetite has changed but the approach of many vendors and consultants is still to start slowly by thinking about which ‘less important’ workloads can be brought to the Cloud first. We argue against that. Banks need to think about how they compete with the digital challengers. It’s much better to identify a first use case, for example, SME lending, that can be migrated to the Cloud and brought to market.

That way you capture certain markets and then you can continue your Cloud journey.

TFM: Both Tuum and Publicis Sapient have worked with banks on Sharia-compliant solutions. What’s the best strategy for supporting both conventional and Islamic banking without creating two parallel infrastructures?

MS: In the regional context of conventional banking and Islamic banking, the proposition was always that it does require two cores. That is both acceptable and recommended. You could argue that brings double the licences and double the IT overhead. And that is the primary cost. But what’s typically unseen is a hidden cost. How do you run an entire customer journey or customer relationship if you have these two legacy cores in your dual core tech stack? That’s the biggest challenge that most of the banks have.

So, I would reframe it: how do you architect a single platform that can support both your conventional banking and your Islamic banking proposition? And take it from there.

TFM: Which use cases are best suited to kick-start a transformation journey without requiring full core replacement?

MS: Progressive modernisation is the risk-based approach to transforming your tech stack because the biggest risk for any bank is taking a big-bang approach and it failing. You can de-risk it by starting small and building capabilities step-by-step, while hollowing out your existing technology stack. Transformation and progressive modernisation is a marathon. So, it’s important you start with a first win, and in that respect, we often talk about a sidecar strategy – starting with a particular use case that creates the biggest proof of value.

In the Middle East, the cornerstone of any national vision is SME lending. SMEs have been underserved by larger banks due to the banks’ legacy technology, but also because of the way traditional banks would either target retail customers or corporate customers. They’ve basically given up this growth market due to their incapacity to serve it properly.

So, digital providers have stepped in. They target SMEs with a rapid deployment of digital lending solutions, whether it’s loan origination, loan management. So, I think SME lending would be a phenomenal use case for a bank to start with.

TFM: If banks want to launch a speedboat business instead, what do they need to consider?

RM: A speedboat strategy is creating a digital venture separate from your legacy bank. And the idea is you’re able to take the advantages of the balance sheet, the regulatory licence, the brand of your bank, but you’re not dragged down by the policies, culture, the organisational structure, the legacy tech. That’s key.

With speedboats that don’t go well, it’s probably because they’ve just tried to have digital front ends or digital products, while at the backend, they’restill leveraging the legacy core and the same processes. So, they’ve not really changed anything. That’s why when you’re looking at the speedboat approach, it’s critical to ask why you are doing it. What’s the value proposition?

Let’s say you’re looking at creating an SME lending platform or a digital AI-first retail-only bank in Saudi Arabia. You need to be laser-focussed about the value proposition. What macro and micro segments are you looking at? What’s the niche? How are you differentiating? Is it in terms of real-time lending? Is it with onboarding within two minutes? The strategy and approach must be crystal clear.

The other aspect of a speedboat is costs. You need to be looking at leveraging software-as-a-service (SaaS) solutions. Do you have flexible vendor arrangements? How do you ensure that you have the best lean processes and a very flat organisational structure?

TFM: What causes modernisation programmes to stall, and how do you avoid this in the Middle East?

RM: The CIO of one of my client banks in the region told me 60 to 70 per cent of his IT and developers’ effort is spent on bug fixing and maintenance. That’s unfortunate; they should be doing far more value-added, innovation-related work. Now, core modernisation journeys are not a six-week programme, and they present challenges. But there are a few things you need to keep in mind, particularly in the Middle East.

You need to be very clear about why you are doing this. Goalposts can’t keep changing; that’s a recipe for disaster. And, with regards to your total cost of ownership, what are you comparing it against? You need to be clear about the business case for making change, and also the case for not doing anything. Also, don’t underestimate the costs around change and programme management.

The other thing I see is banks that still want to build customised solutions in-house; they want to do everything themselves. I can’t fathom that logic. Because you’ve got fintechs – leverage what you can use from them. Doing everything yourself doesn’t work.

And finally, when you work out your requirements and decide on a design, cast them in stone. Otherwise, you get into a loop of never-ending journeys. So there’s a clear playbook, and we at Publicis Sapient have a trusted blueprint and experience.

TFM: Tuum and Publicis Sapient collaborate on bank modernisation. Why is a tech vendor and consultant partnership effective?

RM: A typical core modernisation journey involves a number of participants. It needs your compliance team, product team and your business team. At Publicis Sapient we advise on the entire value chain in terms of core modernisation. We define the case for change, the business case, the business value. We identify the target architecture. We do the design, the building, the testing, the deployment, change management, programme management.

So, there’s a lot of synergy there between the likes of Tuum and Publicis Sapient. When we support clients jointly, we can co-create and co-deliver customer journeys. Vendors and consultants must work together towards one shared success. These partnerships are absolutely critical and I expect to see much more collaboration.

TFM: How is modernisation enabling banks to go beyond compliance and drive growth?

MS: The fact that modernisation has advanced here in the region is due to forward-looking regulators such as Sama [Saudi Central Bank] and the CBUAE [Central Bank of the UAE], who are pushing the traditional banks. They’ve been a great catalyst for change. However, it also creates a strategic compromise. And then the question is, are we creating a compliance engine versus a growth engine? Do you have a gold-plated system that excels at reporting, but which fails when it comes to generating new revenue streams and products, which the digital challengers do very well?

Forward-looking leaders in these digital organisations think of their business more as tech companies that offer financial services. So, they think very differently about their tech stack and how to target use cases rapidly. Banks need to ask how they can compete with the most modern of these financial service providers, as well as technology players that offer financial services. And there are quite a few here, the likes of Tamara and Tabby [BNPL lenders]. They really excel at being digital-first.

TFM: What would you say to bank leaders who are still hesitant to modernise?

MS: First, I’d empathise with them! But if you look over the last two to three decades, the biggest risk was the risk of failure of that big bang. As the markets have shifted, the risk has inverted. The banks’ biggest challenge now is the risk of inaction. Every month that you’re not modernising your platform, you’re moving further away from your clients’ expectations. Because, if you seriously think about customers’ expectations today, and where the banking capability is, there is a big gap.

So I think the conversation then becomes a strategic conversation, which shouldn’t be asking ‘what if we fail?’, but should ask ‘what if we don’t change? What if we don’t modernise? What happens then?’.

TFM: Looking ahead, what trends will shape core transformation in the region over the next 12 to 24 months?

RM: AI is not going to remain on the edges; we will start seeing it embedded as part of the core. We’re going to start seeing real-time risk monitoring, real-time credit scoring. We’re also probably going to see agentic solutions, not just on the backend, but at the front end, too.

I think we’ll see banks in the region pivot more to the whole platform-based economy, where the banks are at the core of this ecosystem, and owning that customer journey, end-to-end. And then I would say core and legacy modernisation is no longer just about keeping the lights on.

Unless you really do it – by which I mean get your business operations and tech models to come together – you’re not going to see new revenue models, the value of the ecosystem play, and real AI-first experience, going forward.

This article was published in The Fintech Magazine Issue #37, Page 40-42

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