It's All About New Ideas At Saudi Arabia's Oldest Bank

Imagine that you’re at a  shopping mall in Saudi Arabia. You’ve been roaming around for hours looking for the perfect pair of shoes or even the latest tech gadget. Now you’re tired, thirsty and in need of a pick-me-up. You spot the nearest coffee shop and help yourself to an energising black coffee and rich cheese croissant while you relax on a plush sofa chair. Except you’re not in a coffee shop at all. You’re at the outpost of Saudi Arabia’s oldest bank, Alawwal. But don’t let its decades-old history fool you. This is no outdated bank. All you have to do is look around at artificial intelligence-powered screens luring in shoppers with offers on products, services, credit cards and of course, coffee.

The high-tech gizmos of Alawwal – formerly Saudi Hollandi – are a far cry from the bank’s origins in 1926, six years before King Abdul Aziz Ibn Saud established the kingdom of Saudi Arabia.

The bank – whose name in Arabic means “first” – was originally founded in Jeddah by a Dutch entity called the Netherlands Trading Society. At the time, Muslim pilgrims from the Dutch East Indies (now Indonesia) were in dire need of services on their long journey to Makkah.

“Prince Faisal – later King Faisal – went to Amsterdam. At the time, going on a trip like that wasn’t your average day trip,” explains Alawwal managing director Soren Nikolajsen. “The Dutch got the approval they wanted and opened a bank.”

We should all know that our business is changing, because our customers want to do banking in a different way. We need to be ready for it

In years following Prince Faisal’s historic trip, the bank played a key role in developing Saudi Arabia’s fledging pre-oil economy. The bank was involved in the first notes printed in the kingdom, financed the first import of Ford cars and, more importantly, facilitated payment for Saudi Arabia’s first oil exports - all this happened at a time when the Saudi finance minister kept the country’s economic records in a handwritten notebook in his pocket.

New times, new measures

Fast forward to the 21st century following the acquisition of ABN AMRO by RBS, Santander and Fortis Bank in 2007 and the lender’s rebranding as Alawwal in 2016, the bank’s links to the Netherlands have vanished. The purely Saudi institution now stands as a mid-tier bank in the kingdom, with a net profit of more than $301m in 2018.

These days, the bank is more concerned with how to remain clued into the tech-savvy Saudi population – 65 percent of whom are under the age of 30. “They live and breathe on their mobile phones,” Nikolajsen says. “What that tells us about how we interact with our customers is that we have to be really good at this. We continuously listen to our customers in terms of what they want to see, in terms of easy access.”

That’s where the Alawwal ‘Ibda’ bank branch/coffee-shop comes in. Located in Riyadh’s busy Nakheel Mall, the experimental branch opened in 2017 as a partnership between Alawwal and Costa Coffee. According to Nikolajsen, the branch uses the coffee and croissants on offer as a ‘pull’ to attract potential customers, often without them being aware of where they are.

“Customers walk into this mall, right into the food court, and suddenly they find themselves in a coffee shop,” he explains. “They suddenly find out where they are and didn’t even know they were in a bank. Nobody goes into a bank because they want to. They go because they have to.”

We continuously listen to our customers in terms of what they want to see, in terms of easy access

So far, the gimmick has worked. Nikolajsen says that the branch is “by far” the most active of all of Alawwal’s 65 branches around the kingdom.

“We never expected that,” he says, shaking his head. “We’re learning a lot of things by having that one branch. We have a higher proportion of younger customers and a higher proportion of female customers, because that’s the kind of people that come into the mall.”

The branch, he adds, is powered by the sort of technology that the new Alawwal is actively seeking to pursue.

“You can order a cappuccino and sit down. If you want a new bank account or debit card, you type in your details, and within 10 minutes, before the cappuccino is cold, you have your debit card printed on site,” he says. “In the best case before, that would take a couple of hours, or even two weeks.”

Going back to (AI) school

This new reality, Nikolajsen adds, require a new workforce properly equipped to meet the demands of a 21st century bank. To this end, in January Alawwal became the first bank in the Middle East to offer basic artificial intelligence (AI) training to its entire workforce, including Nikolajsen himself.

“It’s not just for the guys in IT or the guys in retail,” Nikolajsen adds. “It’s for everyone across the board, from senior management all the way down.”

According to Nikolajsen, the online course designed by the Finnish tech firm Reaktor includes workshops led by experts brought in from Finland to give all of Alawwal’s employees a general overview of what AI can do in the banking sector. While he admits he “wasn’t sure” how well the instructions would be received within the company, he says that the initial course attracted three times the number of staff members who could actually be accommodated.

We aim to create the best bank in the kingdom across the whole range of customer segments

“[The course] isn’t about making everyone an AI expert. What I got from the course was a lot about what AI actually is, and what it can do,” he recalls. “What it also did is highlight what AI is not. There is an enormous amount of hype.”

To highlight his point, Nikolajsen points to the photographs that come up when one searches for AI online. “Do a Google search for AI images. All you’ll get is a screen full of blue images with Terminator-style robots and human brains,” he explains, seemingly exasperated. “That’s exactly what AI is not. It can’t think. It is not conscious. It has no common sense. It can only do what we humans tell it.”

In Alawwal’s case, Nikolajsen says that he believes AI can help the bank process and analyse the massive amounts of data it processes, detect fraud, improve customer experience and help Saudis with financial literacy education.

“The fact that everyone [in Alawwal] has an understanding of what AI is and what the limitations are is really important,” he adds. “We should all know that our business is changing, because our customers want to do banking in a different way. We need to be ready for it.”

The new Alawwal

Nikolajsen’s comments come at a time when the days of Alawwal in its current form are numbered. In October, the bank and Saudi British Bank (SABB) – another long-standing Saudi bank that dates back to the 1950s – announced that their respective boards approved plans for a merger, which will create the kingdom’s third largest bank overall, in addition to the second largest corporate bank in the kingdom based on combined assets.

Nikolajsen says that he expects that the two lenders will legally become one sometime in the first half of 2019, with customers benefitting from a bigger, better bank, able to do everything that Alawwal can do today and more.

“We aim to create the best bank in the kingdom across the whole range of customer segments,” he explains. “Both banks today are reasonably similar. They are traditional corporate banks, and the majority of the focus has been on the corporate side [but] both are making an effort to increase their retail banking.”

The fact that everyone in Alawwal has an understanding of what AI is and what the limitations are is really important

The merger comes at a time of drastic changes for Saudi Arabia’s economy, which will put considerably more focus on the private sector.

“When you look at what it takes from a bank’s perspective to finance things in the private sector, and project finance and privatisations, you need scale and capacity,” Nikolajsen adds. “It is fully in tune with the transformation changes that are happening in the kingdom.”

Just as important, Nikolajsen is quick to point out, is the message the merger will send to other Saudi banks and to the world about what is possible in the Saudi economy: that the kingdom is equipped with the infrastructure and regulatory environment that it will need in the future.

“The capital market in Saudi Arabia is allowed to do what a capital market does. They look at things from a commercial aspect. Does it make sense for both parties?’’ he notes. “There’s always been a perception that in Saudi Arabia that was not going to be allowed… this sends a really strong message to the wider world.”

Looking back

Even as Alawwal and SABB head towards a new, combined future, Nikolajsen – whose office boasts a photograph of Prince Faisal alongside Dutch banking executives in Amsterdam in 1926 – says the bank will never forget its history. Just as much as the AI and  coffee, he says, it is the bank’s long-standing relationship among Saudis that will carry it forward.

“Our customers identify with the bank in a way that you can’t buy. I’ve lost count of the number of meetings I’ve had with customers in which the conversation goes back to when their father or grandfather opened their first bank account with us. You’ve got that connectivity with customers, and that’s invaluable. We have to make sure that we protect that legacy.”

A history shared: Alawwal Bank’s journey to success

1926 First office. The bank (then the Netherlands Trading Society) opens its first office in Jeddah.

1928 The kingdom’s first independent currency. The bank’s Jeddah office assists the government in issuing its first independent currency.

1930 Financing imported Ford cars The bank provides finance for the importation of Ford cars.

1931 First branch opens in Makkah The bank opens its first office in Makkah, run by Hussein Al Attas.

1952 SAMA established. The Saudi economy enters a new age with the establishment of the Saudi Arabian Monetary Agency (SAMA). The agency assumes the organisation of financial establishments in the kingdom, issuing coins and paper currency.

1977 First chairman, Hussein Al Attas The bank appoints Hussein Al Attas as its first chairman.

1983 Head office opens in Jeddah. The bank inaugurates its head office in Jeddah.

1990 First ATM. The bank’s first ATM is installed in Dhahran Airport, while the main Jeddah branch establishes a corporate banking department.

2004 First bond issue. The bank becomes the first to comply with SAMA legislation and successfully issue a regulatory subordinated bond worth SAR700m ($186.7m)

2015 Launch of new generation mobile banking The bank launches Alawwal Mobile, the new generation of mobile banking application, to provide our customers with easier and more convenient services.

2018 Touch ID and face ID recognition With the introduction of touch ID, Alawwal Bank makes logging in to its mobile app easier via fingerprint identification for iPhone. Face ID service was introduced later for fast and secure log in to the mobile app using face recognition.

Saudi women in leadership

In late 2018, Alawwal launched a women’s leadership programme designed to help young Saudi women move up the corporate ladder. The three-day programme includes sessions on effective leadership, time management, critical conversations and the ‘role of self-belief’.

“The important thing is that it isn’t about favouring anyone because of their gender,” Nikolajsen explains. “It’s about creating an environment where anybody can have exactly the same career opportunities, irrespective of their gender. There’s an enormous upside in doing this better. You have a really quality, untapped [women] workforce in Saudi Arabia.”