Even by superficial measures, the scope of influence that FinTech has is vast. Banks, stock exchanges, payments, digital currencies, security, innovation, start-ups, employment, and many other areas are all impacted by the rise of new technologies centred around finance.
It’s an industry that is blossoming in earnest across the world, with investments worth $7.7bn taking place in China last year, $6.2bn in the US, and $1.5bn in the UK. It’s an industry that was valued at a staggering $867bn in 2016.
To date, the Middle East has accounted for only a small proportion of this, with regional FinTech companies expected to raise $50m in 2017, according to a report by Wamda Research Lab and Payfort – a marked improvement on last year’s $18m. In total, the report shows that only $100m has been raised in the past 10 years, while a 2016 report by FinTech Week said less than 0.1 per cent of global FinTech investments originated in the Middle East.
In recent months, however, things have started to change. The GCC has staked its claim as an emerging leader for FinTech – with designs on being among the world’s most innovative markets.
“For shifts in technology in the past, there was always a lag between the onset of the trend in Western countries and their adoption in the GCC,” says Sudeep Nair, senior director at Cedar Management Consulting International.
“However, by virtue of being location agnostic and not dependent on any premise infrastructure, the FinTech boom is spreading in the GCC at the same speed as in Western countries.”
A portmanteau for ‘financial technology’, FinTech can be applied to any industry, but understandably enjoys a particularly strong focus in payments, ecommerce, banking, wealth management, securities and insurance.
As such, some Gulf states’ regulators have rolled out new rules to not only sure up the legalities of the industry, but also bid for regional prominence in the field.
Dubai, Abu Dhabi and Bahrain have all launched regulatory frameworks and licenses that aim to boost innovation, start-ups and investment, with Saudi Arabia also placing FinTech as a focus of its King Abdullah Financial District in Riyadh, as well as having it as a core component of its Vision 2030. Indeed, diversification plans across the Gulf have enhanced the importance of FinTech to governments, as they look to move away from oil-centric economies.
As a result, a wave of FinTech companies have sprung up in recent months, including the likes of peer-to-peer lending platform Beehive, challenger bank NOW Money, and payments processor PayFort.
And many more are sure to follow soon – not least in the DIFC, which launched its FinTech Hive accelerator programme earlier this year.
Covering a range of FinTech concepts including big data and analytics, blockchain, payments and more, the accelerator has already received more than 100 applications from around the world to take part in its inaugural programme.
Led by the DIFC and Accenture, the Hive aims to foster the next generation of technology leaders and entrepreneurs in a bid to meet the needs of the financial services industry.
“As the leading financial centre in the region, with an existing community of more than 21,000 professionals working across 1,600 firms, DIFC is well positioned to help both technology innovators and financial institutions harness this potential,” says Raja Al Mazrouei, acting executive vice president of FinTech Hive at DIFC.
“We’ve been very impressed with the creative ideas we’ve received, which span a broad range of FinTech sub-sectors – everything from big data analytics to blockchain, roboadvisory and mobility.”
Al Mazrouei explains that in the coming months, the Hive plans to establish a co-working space, more specialised mentorship programmes, and partnerships with public and private sector entities. All of which will help put Dubai and the DIFC at the heart of regional FinTech development, she says.
“The MEASA region is in a unique position, with its combined GDP of $7.4 trillion and yet a largely unbanked population. The UAE is located at the centre of this untapped market, and DIFC offers a bridge along this South-South corridor and beyond,” she adds.
“Dubai is committed to becoming a ‘smart city’ for the 21st century, and is a natural home for innovative industries like FinTech.”
But while innovation is a key aspect of the FinTech landscape – and central to entrepreneurs and SMEs in the region – many larger companies are trying to find a balance between new technologies, and customer comfort.
“Where we are cautious is with the idea that there is such a thing as too much technology, or being ahead of your time,” says Reena Vivek, chief operating officer for the Middle East at insurance firm Zurich International Life.
“It’s one thing to see a piece of ‘wow’ technology in the US or Europe, for example, but does that translate to the local market? Are the market enablers in place to ensure that the same offering will work in your market? Is the framework in place to support the use of that technology?”
FinTech, argues Vivek, should first and foremost be about customer engagement, meaning companies need to ensure any technology they adopt is providing added value for the people they are serving.
“It’s about getting close to the customers and understanding their expectations,” she says.
“The new age technologies present opportunities for data gathering to make product offerings more suitable. This data gives companies greater insight into customers and their needs, which they didn’t have previously. It’s fascinating to see what FinTech can do for your business and your customers.”
The COO cites regional banks as good examples of how businesses are using technology in a balanced, customer-centric way.
“The banks are very much invested in using technology as an enabler to make the client’s life a lot simpler,” she explains.
“For example, one of the large regional banks introduced voice recognition for their call centre client authentication, which is taking biometric technology to the next level.”
Cedar’s Nair adds that, despite the benefits to customers, companies and governments need to be aware of potential threats.
“For customers, FinTech is a boon because it will enhance financial inclusion and the ease of financial transaction. However, there are some inherent threats related to cyber security and privacy that will have to be proactively mitigated by the governments and financial institutions,” he says.
Customer experience is not the only challenge faced by FinTech. The regulatory side of the picture is also a difficult one to fully grasp.
“The complex landscape of regional regulations can be a challenge for entrepreneurs and start-ups to navigate,” says DIFC’s Al Mazrouei.
“In particular, regulations are not consistent across borders in the GCC, and unlike trade zones such as the EU, being cleared to operate in the UAE doesn’t allow a business to move easily into neighbouring nations.”
It’s an aspect that the Dubai Financial Services Authority, Abu Dhabi Global Market, Bahrain Central Bank and others are working to improve, and no doubt the fruits of their labours will blossom in the coming months.
All of a sudden, thanks to the GCC, the Middle East looks a lot less like the loose link in the FinTech chain it has been in recent years. And with the rate of change in the region, you wouldn’t bet against it becoming a significant global player in years to come.