5 trends to watch in the Middle East’s banking landscape

Banks in the Middle East are being transformed by a potent combination of fast-evolving customer preferences, new technologies, cost pressures and a mounting regulatory environment. Experts from Capco share five trends that should be top of mind for any CxO in the Middle East’s banking landscape.
Digital Banks – From Customer Acquisition to Profitability
Digital-first banks are being established across Middle Eastern markets by disruptive new entrants and – a particular feature of the region – by incumbents seeking to leverage digital technologies to offer a fintech-like banking experience. However, long-term profitability depends on building a bank model that attracts customers, not costs.
Newly launched digital-first banks need to acquire customers fast. However, they should also adopt a mindset that supports future profitability from the start, based on three key pillars.
Customer focus
The new bank needs to solve customer pain points and fulfill their aspirations, so that it can build a brand that attracts customers at the lowest possible cost per acquisition (CPA). This must include easy onboarding experiences that reduce drop-off by balancing the user experience, straight-through processing, and regulatory requirements.
As recent customer surveys from Capco in Saudi Arabia, UAE and Qatar indicate, the bank will also need to offer ‘everyday banking’ that feels anything but ordinary. This should include differentiating features that use tools such as data-driven personalization, AI, and gamification to delight customers and offer them the right mix of tailored insights, convenience and value-added services.
Some relevant data points from the surveys are that more than eight in ten consumers across the three markets would be attracted by a banking ‘super app’ that integrates financial with non-financial services, while between two-thirds and three-quarters are comfortable with AI guiding their day-to-day financial decisions.
Modern technology
New banks need to have modern technology stacks that allow them to build, launch, learn and evolve at speed. The platform must be ready to scale up to an ever-larger customer base, e.g. by adopting a best-in-class microservices architecture with features that can be scaled independently, and by leveraging cloud-native infrastructure and optimal workload distributions.
It takes experience to rapidly launch a digital-first bank while also putting quality first, e.g. through establishing ‘digital factories’ that take requirements from inception to implementation, and testing via streamlined processes that balance innovation with time to market and quality of delivery.
Neobank cost model
The technology stack needs to incur low costs in terms of running the stack, scaling it, and adapting it to the evolving market.
As many processes as possible must be STP from the outset, with a plan to drive others to STP as soon as the bank scales and can realize cost advantages. The approach should include an open platform architecture to unlock ecosystem strategies that can drive conventional and non-conventional growth via banking and non-banking partnerships.
The three pillars should feed off each other, through disciplined tracking of marketing initiatives to ensure the customer segments attracted really will support the bank’s plan for longer-term profitability. Meanwhile, product teams and marketing teams must work closely with the teams developing new features so that the conversion funnel is constantly optimized – reducing CPA for target segments.
Embedding GenAI across the Business
According to Forrester, over two-thirds of AI decision makers say their organization plans to increase investment in GenAI. However, for those investments to pay off in highly regulated and risk-aware financial institutions, firms need to move beyond one-off pilots and embed the capability to use GenAI deeply and widely within the business.
This means making the right preparations across areas that include data governance, target operating models, technology architectures, and planning for the workforce of the future. For example, firms may need to:
• Look closely at how they prepare and manage structured and unstructured data
• Align innovation strategies from the start with emerging AI regulatory guidance, which means putting the right governance framework in place
• Build best-practice innovation sandboxes with managed access to synthetic and production data
Preparing businesses to explore, pilot and then scale new use cases should include considering the most valuable AI-use cases beginning to come on-line around the world. It’s important to consider how these might reshape the firm’s value chain and target operating model in the short and long term.
Most of all, perhaps, firms must democratize AI innovation by offering their workforce better and wider access to AI skills, tools and techniques.
This should include making AI tools easily available in the right interfaces, holding well-organized ‘promptathons’ and other educational events, and using metrics that reveal the true take-up of AI tools. In the race to deploy AI through 2025, the right business culture may determine the biggest winners.
Further reading: Generative AI could add $24 billion to Saudi Arabia’s GDP by 2030.
Hyper-personalizing the Banking Experience
The trend to tailor financial products and services ever more closely to customers’ needs and lifestyles will assume even greater importance in 2025. Recent Capco research among consumers across Saudi Arabia, United Arab Emirates, and Qatar found that retail banking consumers are enthusiastic about personalization – and are willing to share the necessary additional personal data.
For example, in Saudi Arabia, the vast majority (84%) of respondents say they want apps that provide personalized insights into their finances. To unlock ambitious personalized services, two-thirds (67%) would ‘probably’ or ‘definitely’ share additional personal data such as social media profiles. Payments history, geolocation, and social media profiles are the leading types of data they will consider sharing.
A more personalized data-driven approach helps financial services offer more timely, convenient and relevant products and services to customers. Personalization can also mean offering apps and modular services that customers can themselves easily tailor around their preferences and lifestyles.
However, deciding which kinds of personalization to offer, and how to deploy these, has strategic implications for financial services organizations. Depending on the approach to personalization, banks may need to:
- Modernize data infrastructures and API strategies to enhance real-time data integration
- Double down on data management and analytics to enable a comprehensive, 360-degree view of the customer
- Strengthen connectivity and collaboration with industry partners
Going forward, banks may need to leverage AI-driven analytics to facilitate tailored engagements with customers in real time, or redesign apps so that customers can configure these more easily around their needs. Through 2025, banks should consider and prioritize their personalization initiatives and plan for how these will need to be supported into the future.
Leveraging AI in Compliance
The use of AI in compliance is accelerating, as more financial institutions aim to streamline operations, reduce costs, and tackle increasingly complex regulatory requirements. In the Middle East, where regulations are rapidly evolving, AI has huge potential for ensuring compliance while boosting operational efficiency and resilience.
AI algorithms are already being applied to analyze massive datasets across bank systems, review contracts, and extract and analyze data – identifying suspicious activity more accurately and quickly than traditional rule-based systems. Common use cases include applying AI to transaction monitoring, Know Your Customer (KYC) tasks, and anti-money laundering (AML) processes.
Deployments are showing tremendous promise in helping compliance teams to better manage risk, reduce false positives, and focus on high-priority risks. However, key challenges remain around ensuring data quality and consistency across multiple systems, as well as aligning AI models with regulatory expectations concerning transparency:
- Data quality. Poor data quality can lead to inaccurate predictions and increased regulatory scrutiny. Firms must put in place a robust data management framework and infrastructure that prioritizes data quality and accessibility, enabling AI to perform at its best while supporting compliance integrity.
- Transparency. As AI tools become more embedded in compliance functions, institutions need to balance predictive power with accountability and transparency. For example, they must apply careful model governance and regular audits that maintain trust with regulators.
A key word is explainability. Banks must adopt explainable AI techniques, maintain documentation and audit trails and collaborate with regulators. They must also learn how to incorporate human oversight in the most optimal and systematic ways.
The benefits extend beyond improved risk management. Adopting a robust AI-driven approach to automate routine compliance processes can improve their quality at the same time as allowing the reallocation of human resources to higher-value areas.
Central Bank Digital Currencies
The Middle East is emerging as a significant hub for central bank digital currency (CBDC) innovation, with the UAE’s ‘digital dirham’ initiative highlighting the region’s commitment to leveraging CBDCs for enhanced payment efficiency, cross-border integration, and financial inclusion.
The region has seen notable progress in CBDC initiatives, driven by collaboration and innovation. Back in 2020, Project Aber, a joint effort between the Saudi Central Bank (SAMA) and the Central Bank of the UAE (CBUAE), demonstrated the feasibility of a dual-issued digital currency for cross-border payments.
Building on this momentum, in June 2024, the CBUAE, in collaboration with the Bank for International Settlements (BIS) Innovation Hub, the Hong Kong Monetary Authority, the Bank of Thailand, and the Digital Currency Institute of the People’s Bank of China, announced the launch of a Minimum Viable Product (MVP) platform for the mBridge project.
This multi-CBDC platform, built on distributed ledger technology, aims to facilitate efficient, low-cost, and instant cross-border payments settled in central bank money.
Meanwhile, in a second phase of the CBDC program, the CBUAE plans to design a domestic, retail CBDC. With both wholesale and retail CBDCs evolving from planning stage to pilots, and then potentially to broad adoption, Middle Eastern banks must prepare strategically by:
Evaluating the potential impact on business models
Banks should assess how the proposed CBDCs might affect key business areas, such as deposit mobilization, transaction fees, and cross-border services. The bank may need to innovate by bundling value-added services such as faster settlement options, detailed analytics for merchants, and integrated trade finance solutions, or by integrating CBDCs into the bank’s existing cross-border trade and remittance platforms.
Building technological capabilities
Banks must ensure their readiness, for example, to offer seamless payment processing and real-time transaction capabilities. They may wish to invest in smart contract technology to provide value-added services such as programmable payments for supply chains or escrow services for e-commerce.
Staying engaged with regulators
Active engagement with regulators and central banks will be critical. Banks may need to develop strategic alliances to gain early insights into emerging regulatory requirements, and to monitor developments at the regional level and their implications. For example, CBDC solutions may not only simplify trade settlements but also reduce reliance on foreign currencies and, potentially, support remittance services.
In addition, the gradual emergence of CBDCs may require banks to rethink operating models across several broad dimensions, such as an increased focus on digital offerings, enhanced cybersecurity, and new customer engagement strategies.
Authors of the article are: Naim Alame, Kushal Dhammi, Nadir Basma and Rob Jameson from Capco, a global financial services consultancy firm.