Research Essay: Innovation in the Modern Banking Sector of the UAE

This essay examines innovation within the modern banking sector of the UAE, focusing on operational and communicational advancements while excluding earlier developments. It highlights the inevitability of change in the UAE's banking industry, emphasizing the importance of innovation for competitiveness, cost reduction, and enhanced customer experiences. The study explores innovations like ATMs, chatbots, smart recommendations, and automatic express branches, noting their impact on efficiency and customer service. Statistical data illustrates the positive effects of these innovations, including faster problem resolution, reduced non-performing assets (NPAs), and lower operational costs. The essay concludes that technology significantly influences banking operations in the UAE, with continued advancements poised to shape the sector's future. Desklib provides access to this and many other solved assignments for students.

ECONOMIC RESEARCH

Abstract
This paper contains an essay on the topic of innovation pertaining to the banking sector of the
UAE. The specific focus of the paper is on the modern banking sector and hence it has
excluded the earlier advancement that took place in the banking sector of the country. The
research paper points out that change has been an inevitable factor in the operation of the
banking industry of the UAE.

Contents
Introduction................................................................................................................................4
Changes in banking operations over the years...........................................................................4
Importance of innovation in modern banking in the UAE.........................................................5
Scope for innovation in the modern banking.............................................................................6
Facts and statistics regarding innovation in the banking sector of the UAE.............................6
Conclusion..................................................................................................................................7
Reference....................................................................................................................................8

Introduction
The economy of a nation rests on a number of pillars that helps the economy to become
stabilised. One such important pillar of the economy is banking operations. The banking
operations not only maintain a healthy flow of money in the economy but it also controls and
regulates the distribution of capital within the economy. The distribution and the control of
the capital are important in the modern economy as it has been providing that higher savings
rate and capital investment fosters economic growth. With the changes in the level of
technology, banking operations have also changed. The same has been the case for UAE also;
the communication and the operational innovations have brought drastic changes in the
overall operation of the banking system in the country. The aim of this essay is to present a
research paper based on innovation in a modern banking sector taking the specific case of the
UAE.
Changes in banking operations over the years
Innovation in the banking sector can be of different types. The innovations can either be in
terms of operational or communicational. Operational innovation of banking refers to the
changes in the principles of the basic paradigm of banking. Innovation in this area is not
much likely given the fact that banking itself is a very age-old concept. Parameswar, Dhir &
Dhir (2017) stated that the modern form of banking started back in the 18 centuries in various
European nations. Despite little changes here and there, the main structure and the operations
of the banking have remained the same over the years. Therefore, this aspect of the
innovation pertaining to banking does not come under the scope of this paper.
The most important aspect of innovation in banking has been in terms of communication and
technology. The communications between the management of banks and the customers have
changed over the years. In addition to that, the process of storing the valuable banking data of
the customers and the clients have also changed significantly. Just a decade ago, the banks all
over the world used to collect and store data manually that not only required huge manpower,
but it also used to be costly for the banks. Hu & Xie (2016) noted that managing the number
of files had become one of the biggest problems of the banks as the customer increased since
the end of the 20th century. Since then the banking sector in UAE has gone through important
changes which can be seen through the extensive use of computers by all the banks in the
country. Computers not only provided support to the existing workers of the banking sector,

but it also reduced the cost of operation of the bank as well. Furthermore, the computers
bought into the systems of banking also increased cooperation among different operations of
the bank as well.
One of the notable innovations in the banking sector of the UAE as well as the world is the
introduction of ATM machines. These machines dispense cash upon the demand for the
customers without an employee having to interfere in between. Introduction of ATM had a
significant impact on the liquidity of money in the economy as well as on the cost of
operation of the banks. ATM machines allowed the banks to improve cash availability in the
economy. Sarkar & Kumar (2017) noted that ATM significantly reduced the cost of operation
of the banks and this paved the ways for other services of the banks as well. The banks saw
smaller queues in the branches and the employees of the banks could take up other jobs
related to various other services of the banks as well.
Importance of innovation in modern banking in the UAE
Most of the banks in the UAE operate in a competitive market where profits drive their
decision making. The main goal of these banks, like all the other businesses operating in a
competitive environment, is to attract more customers. Now in order to increase the profit
margin, cost needs to be brought down and innovation helps the banks to reduce the cost of
operation as well (Singh, Sidhu, Joshi & Kansal, 2016). For example, the introduction of the
ATM machines was a revolutionary step that allowed the banks to recruit comparatively
fewer employees and save on cost and time. Therefore, in terms of competitiveness,
innovation is important for banks in the UAE.
Apart from that, along with the rise in the population of the world, the population of the UAE
is also estimated to increase in the future. The market size of the overall banking industry of
the UAE has expanded by 37% since the last decade (Agolla, Makara & Monametsi, 2018).
Therefore, the number of customers of banks is increasing. In addition to that, the products
being sold by the banks have also increased in number. Thus, it is important for the banks and
the management to look for ways that can reduce the time and the cost of operation.
Lastly, one of the important goals of modern banks is to enhance the experiences of the
customer base. (González, Gil, Cunill & Lindahl, 2016) stated that as the competitiveness has
entered the market after the deregulation, the banks have started to take the experiences of the
customers seriously. Better the user interface of the banking system and the apps, more and

more customer will be satisfied attracting more customers increasing the overall customer
base of the banks. Thus, in order to be at par with technological advancement and to gain a
competitive edge over the other players of the market, it is important to innovate in the field
of banking.
Figure 1: impacts of different innovations in the banking sector
(Source: Muthinja & Chipeta, 2018)
Scope for innovation in modern banking
The banking sector of the UAE saw various changes in terms of communication and
technology in the first decade of the 21st century. However, the state of the technology has
advanced further which has provided more scope for the banking sectors of the UAE to
innovate (Cumming, Rui & Wu, 2016). One of the most important innovations that have been
seen in the field of banking in the UAE is the use of intelligent communication programs
such as the Chatbot. Emirates NBD has started using Chatbot in order to communicate with

the customers. This has not only reduced the labour requirement of the bank but it has also
reduced the time to resolve customers query as well.
Furthermore, modern banking has also paved the way for smart recommendations to the
customers of the bank as well. Previously, a bank employee would be the one to consult
regarding the choice of banking product depending on the financial capability of the
customer. This innovation and the application of data analysis have allowed the bank to save
on the cost of consulting. Abu Dhabi Commercial banks, for example, have introduced an
app feature that collects user information and suggests policies and products best suited as per
the financial capabilities of the customer.
Another important innovation that has been seen in recent years in the field of banking in the
UAE is the automatic express branches. These are the small branches of banks with no
human representative of the bank. Abu Dhabi Commercial bank introduced automatic
machines that communicate with the customers automatically in order to accomplish the
works of the customers. Beck, Chen, Lin & Song (2016) noted that these innovations and
modern machines work similar to the ATM machines that were introduced earlier in the first
decade of this century.
Facts and statistics regarding innovation in the banking sector of the UAE
 The banks of the UAE have experienced around 163% higher growth rate since the
year 2002.
 The customers’ problem resolution has become 32% faster than before.
 Study finds out that 70% of the customers of the UAE market respond to improved
customer service (Goyal, Chawla & Bhatia, 2016).
 Use of advanced analytics and machine learning in the banking system allowed the
banks to reduce NPA’s by 43% (Pradhan, Arvin, Hall & Nair, 2016).
 Use of cloud processing and the storage reduced the cost of operation of the banks in
the UAE by 14% on an average.
 Use of automated chatbots and the voice device interface increased the percentage of
successful and timely resolution by 39% (Corsi, Marmi & Lillo, 2016).
Conclusion
Therefore, the study depicts the changes in the banking sector of the UAE gone through over
the years. The basic principle of banking has been the same its inception in the 18th century;

however, its operation and products have changed as per the changes in the customers’ taste
and the level of technology. Innovation is very much important as most of the banks in the
UAE operate in a competitive market environment. Innovation provides the management
scope to have a competitive edge over the rivals of the market. Various banks of the country
have introduced different innovative changes including the use of chatbots, smart consultant
many more. Use of these technologically advanced tools, not only increased the profitability
of the respective banks; it has also enhanced the experience of the customers of the banking
sectors of the UAE as well. The study implies that the state of technology deeply influences
the banking operation in the UAE and further advancement in technology can influence it in
the future.

Reference
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