How Regulators Are Helping Fintechs Thrive
Fintech in MENA has been a rapidly developing sector for the last few years, becoming more and more mainstream as big corporate players and financial institutions recognize the evolution of finance solutions happening globally, and in the Middle East. As a region, the Middle East is absolutely ripe for disrupters in fintech joining the market. However, when something new is happening in finance, players must tread carefully. Rightly, there is a world of red tape and bureaucracy that must exist to protect consumers, but it can be stifling for new business models without the right support.
Business models like Careem, Zomato, Airbnb did not exist some 12 years ago. Regulators, under the sway of behemoth corporates and entrenched banks, had no knowledge of these models and how to regulate them. So, arguably, the most exciting awakening to fintech innovation in the region is that of the regulators. Now they’re open to the insights and advice fintech can offer them, and we’ve seen the emergence of ‘sandboxes’ like ADGM, DIFC, DFSA, with Bahrain and Egypt following suit with sandboxes of their own.
More opportunity has been created, with the recognition of banks that finance is changing, and that to remain relevant and competitive, they need to present something to the customer that the tech giants do not. How can a bank survive when faced with financial solutions like Facebook’s cryptocurrency?
The answer is that they need to link themselves with new businesses and services, and so must open up their APIs. Some in the region have already started creating their own internal digital sandboxes, welcoming new solutions and propositions and linking them with their APIs. New digital banks will also increase their role in the banking landscape. Across the region, the pattern is the same. The Central Bank of Egypt has launched Fintech Egypt, Bahrain has the Bahrain Fintech Base, and we have Saudi Fintech in KSA.
Ultimately, the fintech movement does not apply only to bankers and financial institutions. Whatever industry you are in its modus operandi is being disrupted by financial services technology. If Careem didn’t have the option to pay in the app it wouldn’t be as easy and wouldn’t present so much of a challenge to the traditional way of commuting.
All of a sudden, innovators are creating platforms that make financial services easier than ever before, but without access to the regulators who will enable them to operate within legal frameworks. The frameworks were built with no input from the true innovators, those who are truly moving the industry forward. They missed out on a very integral part of the ecosystem. This is the first way in which an industry body comes into play.
The new MENA Fintech Association offers, as bodies of other industries would, connectivity, both geographically and across the ecosystem of fintech. Through their management, corporates can come together, students get access to these giants, academia meet the regulators, corporates and banks encounter startups and entrepreneurs, it brings in investors and accelerators—so it becomes a representation of the entire ecosystem, a web of connections. And they have one common cause—to make the financial services industry better, make it relevant, and sustain it.
Yet whilst the ecosystem as a whole must come together, the offerings of fintech are multiple and disparate. MFTA has various vertical groups, such as WealthTech, payments, open banking, blockchain, big data and financial inclusion. Payments, as an example, is led by the likes of U.A.E Exchange because they are active in this space. Similarly, for open banking, Token know what needs to be done for the region, so they will lead that conversation. Targeted action is key.
Perhaps most crucial among their roles, industry bodies also plan for the future. Regulation is, of course, a key part of it. But at the same time, supporting the startup ecosystem, making sure they can establish themselves, connect and create new business opportunities is vital. Then they have access to the other parts of the ecosystem as well, fostering success.