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At the crossroads of change

Rajesh GK, CEO, Sharaf Exchange discusses the transforming landscape for the Exchange house Businesses in the region and how Sharaf Exchange is steadily consolidating with a strategic omnichannel approach


Is the outlook for the Exchange Houses very competitive in the UAE? How is the industry changing?

The market is competitive and there are 100 plus companies on the landscape in the UAE alone, with a large majority of them being based out of Dubai. The changes are in the new regulations that have come into place.

The Central Bank has come down with new regulations, primarily to protect the interests of the consumer. there have been instances in the past where Exchange houses have either folded up or have failed to make the customer remittances on time, or cases of mismanagement or fraud. The Central Bank has taken some steps to strengthen the policies, the framework, the governance etc and that is beginning to impact the Business. The implementation has started from the 1st of January and so we expect this to be a year of more changes.

There have been changes in the model of remittances, the types of remittances, consumer behavior. There are many factors underlying any change and that is also impacting. Traditionally, the business has been more brick and mortar based but consumers are doing more online or off-branch transaction methods. They are gaining more confidence doing transactions, personal or business through a kiosk, a mobile app or online interfaces. That behavior will also start impacting change in the Exchange industry.

So the two major drivers of change, new Central Bank Regulations and changing consumer behavior, happen to coincide this year and we can expect an accelerated pace of change for the industry.

What have been your initiatives to cater to customer conveniences in transacting through multiple non-traditional interfaces?

Brick and Mortar is still the mainstay of the Business. Non traditional channels- Mobile app, online or kiosk based or even third party hosted, which is in turn delivered to a customer, all are in the pipeline. This is pretty  much the standard roadmap for almost all Exchange houses, which have a large physical retail branch footprint. 

That perhaps is not the key and is actually quite routine. The fact is that in each of these models, there seems to be no direct replication of the consumer behavior seen with the traditional brick and mortar model.

Consumer expectations in terms of comfort, convenience, transaction velocity, risk appetite, brand recognition are all different in each channel and each of the channels have their own unique winning or losing models. If a feature for instance works out well in the brick and mortar model, there is no surety that it will work well with the mobile app. That interplay of understanding the consumer behavior across each channel needs to be mastered. Creating the channel part is the easy part but understanding the behavior is key. 

We have an omni-channel approach but we would like to be more successful than we have been in past.

Is the Brick and Mortar Business where the majority of teh Business comes from?

Brick and mortar business is still around 85% of our overall Business. The percentage of off-branch Business has grown year on year and that Business has a higher growth rate than the Brick and mortar Business. The competition in the off-branch Business is even higher. It is a lot easier to launch an commerce website or a mobile app than to set up a physical branch. The players are also quite diverse in the off-branch space unlike the brick and mortar domain where you can clearly differentiate between Banks and Exchange houses. In the off-Branch space, the boundaries get a little blurred - there are telecom operators, Banks, government entities, wallet providers, payment gateways, e-commerce service providers etc. So the landscape is much more competitive.

Is the Exchange Business an increasing focus for Banks? 

Exchange is a vey small sub-part of the Banking ecosystem. It is a niche product and is based on high volume transactions, low cost. The margins are lower.  So a Bank with a full set of services could diversify into the Exchange House but do they find it lucrative or whether they can deliver at the right price points is also an outcome of the Bank’s cost structure, the Bank’s Business model etc. Having said that, a Bank can provide the Exchange House services but an Exchange House cannot provide the Banking services like credit, lending etc.

What is the rough split percentage between your corporate and retail businesses in terms of revenues?

We have B2B and B2C model. 40% is corporate and about 60% is retail. The roadmap on the off branch is consumer oriented largely as corporate requirements are more bespoke based. The timelines are different between the two.

Is there differentiation in the Business models of different Exchange Houses?

If you look at the majority of Exchange houses, there is a similarity in their Business models. There may be limited differentiation in terms of some bing more retail focuses, some with a larger focus on the corporate Business, and some are only focused on Bulk deals. In sum, there is a very a limited variety in the Business. There is a change now in the nature of the Business and that is predominantly because of Technology.

There used to be a preponderance of aggregators in this Business but now more Exchanges are running their own bilateral, their own direct relationships and thereby improving their profitability. When you have an aggregator model, the profitability is lesses and divided i the value chain between multiple players. when you run a bilateral model, the value chain is consolidated between one or two players and there is a higher profit percentage. More Exchange houses are now trying to bring this change and Technology is enabling with easier integration for direct relationship management, Blockchain coming in and likely to have a lager impact in future etc.

Are you considering Blockchain implementations?

For a Blockchain implementation roadmap, it is important to understand your partner ecosystem, and have relevant use cases. Technology needs to be embedded deeply in the Business model. Without a valid Business ecosystem or a relevant ecosystem, it wouldn’t make sense. We are exploring the options but are yet to find a relevant use case for our Business.

Today we are an UAE based Business. We are a mid-sized Exchange Business House with thirty plus branches but we have an aggressive roadmap to emerge in the top five. We are also keen to explore expansion outside the UAE as well but that is a question of fining the right synergies or opportunities. At the moment, we want to consolidate the home base and the UAE is still a very lucrative market.