Here’s why banking could soon get easier for UAE start-ups

Banking for start-ups is set to become considerably easier in the UAE thanks to a raft of new proposals from Dubai Chamber.

The proposed changes can only enhance the UAE’s status as one of the world’s leading start-up destinations.

The measures are designed to remove the biggest barrier to starting a new venture in the UAE – opening and managing a new account.

1. Speeding things up

A magnet for start-ups, the UAE is on course to become a global leader in innovation and yet opening a bank account here can be quite challenging.

Entrepreneurs see banking, in particular opening a bank account, as ‘the number one challenge in the UAE’, according to a new white paper on start-up banking by Dubai Chamber, Dubai Start-up Hub, and its knowledge partner Roland Berger.

Opening a bank account can take up to three months, Dubai Chamber reveals following a series of focus groups and interviews with entrepreneurs and corporate services firms. Clearly delays opening an account can have a detrimental effect on business and may even put people off setting up a company.

Proposal: No-frills bank accounts

To speed up the star-tup banking process, Dubai Chamber is calling on banks to introduce a basic starter product, such as an IBAN-only account with basic transfer services. These services could be capped at a certain amount, particularly for foreign currency cross-border transactions, or even further restricted to domestic transactions only. Document requirements would be kept to a minimum within regulatory compliance requirements.

The Chamber claims this would ‘speed up the bank account opening process allowing entrepreneurs to conduct basic business activities while keeping the risks for banks under control’. Once additional requirements are met, the bank account could be converted into a full-service account.

A no-frills bank account for new ventures could instantly speed up the banking process for entrepreneurs and help banks get off to a more customer-friendly start.

2. Improving transparency and advice

Corporate banking isn’t just time-consuming for start-ups, it’s downright ‘painful’, according to Dubai Chamber.

Common complaints from start-ups include:
• Lack of simple guidance on the process, timing and documents required
• Lack of clarity evidenced by repeated requests for additional documents or verifications
• Limited empathy and competence among bank employees

Stress levels are highest when entrepreneurs feel they have no control over the process and its duration.

Proposal: New guidance on banking processes

Dubai Chamber is calling on banks to publish a clear, readily available, step-by-step guide to provide transparency on the banking process, timing and documents required to open an account.

This would be a good start but training is also important. The Chamber rightly urges banks to place greater emphasis on better trained and more responsive banking personnel. It also encourages financial regulators to consider providing guidelines for minimum training and certification requirements for bankers dealing with start-ups.

It doesn’t end there. The UAE could follow the example of other countries with the Central Bank or similar authorities issuing specific clarifications on what CDD (customer due diligence) requirements mean in practice, and what they do not. This would help entrepreneurs understand which documents are an absolute must, which documents are optional and which CDD measures are considered unreasonable or irrelevant.

3. Streamlining and connecting processes

One of the most frustrating aspects of starting a business in the UAE is the disconnect between company set-up and banking, in particular the separate processes for obtaining a trade licence and establishing a bank account.

This is time consuming and creates unnecessary paperwork for entrepreneurs who are already extremely busy with getting their businesses up and running.

Proposal: One-stop solution for banking and licencing

Could the due diligence (CDD) required for issuing a trade licence be leveraged to speed up the subsequent account opening? Dubai Chamber thinks so, and while it may not be straightforward, this idea would seem both practical and sensible, especially if a no-frills bank account was available.

Under this proposal, free zones could partner with banks that have branches there to create a one-stop solution for licencing and bank account opening.

4. Going digital

The UAE is the number one environment for innovation in the Arab World according to the Global Innovation Index, but there is a surprising lack of new technology being applied to start-up banking to make it more efficient and easier to use.

Proposal: Use technology to drive efficiency

To address this imbalance, Dubai Chamber is calling for a steep change in terms of customer experience and cost efficiency for banks. In particular, it is urging banks to introduce greater digitalisation such as chat bots, video calls to provide guidance, easy document upload or remote customer ID verification.

Going one step further, application programming interfaces (APIs) or distributed ledger technology could enable information to be shared and validated between banks and other stakeholders, such as trade licencing authorities.

Government backing

The white paper containing Dubai Chamber’s proposals was developed in close coordination with the UAE Ministry of Economy and the SME Council, which consists of 15 members from different government entities.

All parties share the joint objective to promote the start-up and SME landscape in the UAE. Thus, there are strong grounds to believe these measures will be implemented. And judging by the speed of change in the UAE start-up environment, we can expect faster, better banking sooner rather than later.

The Chamber states: “This paper makes a call for action with a clear vision to leapfrog the status quote and become the global leader when it comes to ease of opening a start-up bank account. Our ambition is to engage with banks, regulators and other government entities to foster a dialogue on how to make this vision happen.”

The need for action

Why the urgent need for change? In its white paper, Dubai Chamber points to two problems that have made banking so challenging for start-ups:
• Banks feel under pressure to comply with increasingly stringent regulatory standards to fight illegal activities
• Banks ‘might feel start-ups are not as commercially attractive as other segments’

Nobody would question the need to safeguard the UAE and its banks from illegal activities. The challenge UAE banks face is how to create an environment conducive to the needs of entrepreneurs while keeping illegal business out of the country and protecting from excessive risks.

Similarly, the idea that banks may not regard start-ups as commercially attractive is surprising, especially given the spectacular success of a multitude of tech start-ups in the UAE, each of which have demonstrated an ability to scale up quickly.

Nevertheless, it would seem this notion is limiting banks’ commercial appetite to serve start-ups. It may partly be blamed on the fact some banks in the UAE ‘burned their fingers with non-performing SME loans in the past’.

Dubai Chamber points out, “UAE banks are making considerable investments in driving best-in-class customer experience for consumers, but it seems that doing the same for start-ups has not been a priority to date”.

This appears to be borne out by diverging practices in terms of CDD when opening a business account. Dubai Chamber suggests this could be down to banks potentially applying a more stringent approach than the minimum regulatory requirements as defined by the Central Bank, the Securities and Commodities Authority, Dubai Financial Services Authority, and other stakeholders.

A global problem

Corporate banking for start-ups isn’t just a UAE problem. Banks across the world are under pressure to be more start-up-friendly. One of the ways they can do this is to start behaving more like the customers they serve. Challenger banks are already doing this but traditional banks have been slow to respond.

If the UAE starts being as proactive and innovative in banking as it is in driving the economy, then it won’t just cement its position as a global hub for start-ups and SMEs, it will become the envy of the business world – and an even better place to locate a new venture.

Olga Melnik is head of Business Development at Virtuzone