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Middle East: Foundations for a fruitful FinTech ecosystem

Publish date: 22 March 2019

Fahim uz Zaman, Efma’s general manager for the Middle East, looks at bank and fintech activity across the region.

Senior bankers believe that fintechs have the capability to replace banks unless banks reinvent themselves to provide better financial services to their customers. Middle Eastern banks are on the journey of transforming themselves to emerge as fully digital entities, but this is a task which cannot be achieved by the bank alone. Here, we can see the need for collaboration between banks and fintechs arise.

Most of the big players globally are working hand-in-hand with fintechs and are providing new and innovative solutions for their customers’ daily banking needs. Saudi Arabia and the United Arab Emirates (UAE) are two big markets in the region, and they are leveraging their strengths in technology and innovation. Saudi Arabia has its vision for 2030, which is expected to take the country out of its oil dependency. On the other hand, UAE has initiated Smart Dubai, which comprises 100 initiatives to transform 1,000 government services to smart services. Fintech is one of their key priorities and they are aiming to become the hub for financial technologies in the region. Below are a few initiatives that regulators have taken to promote collaboration and innovation in their respective markets.

The Saudi Arabian Monetary Agency (SAMA) launched the Fintech Saudi initiative to uphold the financial technology system and advocate the kingdom to become a hub for financial technology. Through this initiative, SAMA proposes to promote small and medium enterprises, diversify the local economy and create job opportunities. The initiative has several goals: most importantly, launching the first version of the financial system in the kingdom; educating individuals and inspiring them to develop their knowledge and skills in the field of technical finances; and encouraging local banks, international financial technological companies and partners to enact various events in the financial technology sector within the kingdom.

The UAE’s minister of economy has issued a decree adopting a regulatory framework for fintech firms conducting operations under experimental licenses. Under the plans, experimental license holders in the form of emerging companies, existing companies and individual projects, will be able to apply to be exempt from some regulatory requirements with appropriate safeguards for consumer protection.

Kuwait’s central bank has issued regulatory guidelines for companies wishing to experiment with new financial technology products and services. Participants will have one year to go through four stages in the sandbox before being evaluated by a taskforce on readiness to enter the market. Kuwait is joining several other Middle East players in the fintech race. Abu Dhabi, Bahrain and Dubai have been active in establishing sandboxes and accelerators and signing cooperation agreements with other domiciles, while Saudi Arabia recently issued its first fintech licenses.

Bahrain, the fastest growing economy in the Gulf region, will soon see the launch a new $100 million fund dedicated to its budding fintech sector. The Economic Development Board (EDB) of Bahrain has taken several steps over the last couple of years with a vision to transform the financial powerhouse of the Gulf region into a leader in digital economy. Earlier this year, EDB floated Bahrain Fintech Bay, a plug-and-play hub for startups in the sector, in partnership with the Singapore-based Fintech Consortium. Housed in EDB, the Fintech Bay has top financial institutions, government bodies and tech companies as supporting partners. It provides a co-working space with access to incubation, venture acceleration and educational/training programs to support scalable fintech initiatives.

Qatar Central Bank launched a banking service platform to support and promote the fast-growing fintech sector. This initiative is part of the objective to transform Qatar as a knowledge-based society and enable the country to emerge as a regional hub for innovative technology and services, including fintech.

From this we can see that the Middle East is catching up with Europe and Asia-Pacific and laying the foundations of a framework which will bear fruit in the coming years. Most of these initiatives will play a vital role in making the region’s financial sector successful and counted among the pioneers of innovative technologies. Examples of their progress include FinTech Hive, which welcomed 22 innovative startups for its 2018 accelerator program, and Egypt's Commercial International Bank, which is launching the country’s first venture capital arm to focus squarely on investment in fintech startups.

According to a report by Accenture in partnership with FinTechHive, fintech will account for 8% of Middle East financial services revenue by 2022. The number of startups is expected to top 250 by 2020 and will grow by up to $125 million a year to reach $2.5 billion in 2022.

If you want to know more about retail banking in the Middle East, please download the 2019 Efma Middle East review

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