Middle East fintech scene is set to explode

Brid-Aine Parnell

Wednesday 20 July 2016

The Middle East has been slow to start investment in financial technologies but the tide is turning fast as governments move to support startups and innovation.

The global financial technologies (fintech) market is a growing one, with global investment in the first quarter of 2016 alone reaching $5.3bn, a 67 per cent increase on the same period in 2015, according to research from Accenture.

The Middle East has a strong financial sector but it has lagged behind its counterparts in Europe, the US and Asia in embracing the disruptive power of fintech. This is perhaps down to its relative insulation from the global financial crisis. While banks in the US and Europe were closing their doors to lending and opening the field to disruptive startups, Middle East banks were more capable of maintaining the status quo.

However, the Middle East has woken up to the possibilities of the fintech market.

Government support and startup success

“A consensus is emerging among governments and financial institutions that nurturing [fintech] ecosystems is important and beneficial for the region,” said PwC in a recent paper, Developing a Fintech ecosystem in the GCC.

The UAE in particular is already showing strong signs of support for the industry, as well as some early success stories. In May this year, Abu Dhabi proposed setting up a Regulatory Laboratory to help firms to deploy new technologies in the financial services industry.

“By providing fintech participants the certainty of obtaining relevant regulatory approvals on a stable platform where they can test or deploy new technologies, the RegLab draws on a holistic approach to support Abu Dhabi’s vision of developing an innovative financial services sector that is underpinned by robust regulatory principles,” said H.E Ahmed Al Sayegh, chairman of the Abu Dhabi Global Market.

A number of fintech startups have already sprung up in the Emirates. Beehive is a peer-to-peer lending platform while Democrance is a mobile micro-insurance company and Pi Slice provides micro-financing. There are also payment providers such as PayFort and Bridge Payment Solutions.

Companies like these are making a mark in the market, with Beehive, for example, helping 48 businesses to raise AED25 million through its crowdfunding platform in the 12 months since it launched.

The four critical elements

But more needs to be done in the region to encourage the sector. According to PwC, there are four critical elements to supporting the fintech industry: access to markets; government support; access to capital; and financial expertise. The consultancy believes that all four of these elements are present in the region; they just need a nudge to bring them together.

The PwC report (Developing a fintech ecosystem in the GCC) concluded: “In the GCC, where fintech ecosystems have yet to take root, governments will have to play a more significant role than in established markets. However, the Gulf Cooperation Council does have an advantage over other emerging markets: all four critical elements for a fintech ecosystem are already in place. The challenge is to achieve the necessary level of coordination to make the ecosystem work.”

Government and regulatory support is already on its way, with incubators and enterprise funds popping up as well as initiatives such as Abu Dhabi’s RegLab. And startups have appeared all over the Middle East, from Beirut’s Zoomaal crowdfunding platform to Cairo’s Sharia investment site Shekra.

Meanwhile, corporations are also moving to support fintech startups. Intel has teamed up with Tel Aviv-based hub The Floor to create an Israeli fintech innovation lab. And banking group Emirates NBD has launched a global innovation program in partnership with Berlin-based Open Bank Project.

Financial institutions need to act fast

Existing banks also need to embrace digital banking or risk being left behind. At financial technology conference MEFTECH, Middle East banks were urged to catch up to their Western counterparts.

“There are now in the West internet-only banks that don’t have any physical presence,” said Faisal Husain, chief executive officer of Synechron Technologies, a New York-based technology services and consulting firm.

“The population will be mobile and digital first, and physical second, and I think that shift will continue to happen in the next five to 10 years to a point where banking will be 90 per cent digital.”

Another event, Fintech 2020, was hosted by financial software firm FIS, and its Middle East and Africa managing director Wissam Khoury said that banks had to start investing in fintech solutions.

“Our clients are crying out for more sophisticated and efficient technology solutions to innovate and adapt to change. This is especially true of the Middle East, which has seen its financial services landscape change beyond all recognition in less than two decades,” he said.

“We believe that between now and 2020 we will see a radical increase in reliance on cutting edge fintech in the region.”

The ingredients are all there for a thriving fintech industry. Now it’s up to Middle East governments and financial institutions to keep the drive towards digital disruption going.