In­no­va­tion And Reg­u­la­tion Set­ting The Scene For A Fin­tech Boom

Forbes Middle East - - CONTENTS - By Guy de Blonay

The GCC is primed to be­come a cen­ter for fin­tech star­tups, thanks to an evolv­ing reg­u­la­tory en­vi­ron­ment, rapid adop­tion of tech­nolo­gies by in­cum­bent fi­nan­cial ser­vices firms, and an in­crease in in­vest­ment across the re­gion.

In the GCC, be­tween 25%-50% of adults are un­der 30, and it has one of the high­est mo­bile and in­ter­net pen­e­tra­tion rates in the world. In such economies, dig­i­tal­iza­tion be­comes es­sen­tial. This ne­ces­si­tates in­no­va­tion and plays a fun­da­men­tal role in evolv­ing the on­line fi­nan­cial ecosys­tem.

More im­por­tantly, fi­nan­cial ser­vices firms be­come in­creas­ingly ex­posed to higher risks of dis­rup­tion when they choose to ig­nore the in­creas­ing sig­nals of fin­tech’s wide­spread im­por­tance. Out­dated back-room tech­nol­ogy, sys­tems and dig­i­tal-de­nial ex­pose com­pa­nies to un­nec­es­sary risk, which can be mit­i­gated through ed­u­ca­tion and tar­geted in­vest­ment. More tech-savvy com­pa­nies have rec­og­nized this by di­vert­ing re­sources to en­sure that they stay ahead of the curve.

JP Mor­gan has set the pace, hav­ing es­tab­lished a “10% of rev­enue in­vested in tech­nol­ogy” bench­mark. Such a prece­dent should sig­nal to oth­ers that main­tain­ing the pace of in­no­va­tion tra­jec­to­ries is cru­cial. Banks and the wider fi­nan­cial sec­tor, in­clud­ing in­sur­ance, ex­changes, pay­ment pro­ces­sors and spe­cialty fi­nance firms, should only be mov­ing as fast as the slow­est run­ners: clients and cus­tomers.

The GCC is per­fectly sit­u­ated to cap­i­tal­ize on this grow­ing re­quire­ment for dig­i­tal­iza­tion. With only 7% of banks choos­ing to de­velop all tech­no­log­i­cal so­lu­tions in­ter­nally, there is mas­sive po­ten­tial for growth in the mar­ket, with many choos­ing to in­te­grate the ser­vices of fin­tech com­pa­nies through part­ner­ships, in­vest­ments or act­ing as in­cu­ba­tors.

The fi­nan­cial sec­tor can of­ten be de­fen­sive when it comes to in­no­va­tion. Fin­tech can be viewed as a threat to ex­ist­ing ser­vices. But while com­pe­ti­tion grows with in­no­va­tion, there are many fin­tech com­pa­nies that are not only not seek­ing to dis­rupt the in­cum­bents, but ac­tively look to sup­port ex­ist­ing fi­nan­cial ser­vices com­pa­nies. Re­gional lenders seem to un­der­stand this.

Banks in the U.A.E. have se­cured a lead­ing role in em­brac­ing fin­tech. Emi­rates NBD launched its Fu­ture Lab and an­nounced a com­mit­ment to in­vest­ing around $272 mil­lion into the space. Oth­ers, such as NBK and RAKBANK, are also mak­ing ad­vances, adopt­ing tech­nolo­gies such as Rip­ple for their e-re­mit­tance busi­nesses.

A record-break­ing $111.8 bil­lion was in­vested glob­ally across 2,196 in­ter­na­tional fin­tech deals alone in 2018. Big­ger deals and con­sol­i­da­tion across es­tab­lished prac­tice ar­eas, such as cash­less pay­ments and in­ter­na­tional trans­ac­tions, have driven in­ter­na­tional growth. While trans­ac­tions in 2018 only had a mar­ginal year-on-year in­crease from 2,165 to 2,196, the cap­i­tal in­vested more than dou­ble from $50.8 bil­lion to $111.8 bil­lion. Ap­petite re­mains steady, but the value of such trans­ac­tions has in­creased dra­mat­i­cally. In the Gulf, au­thor­i­ties are step­ping up their ef­forts to sup­port fin­tech adop­tion.

Some GCC mar­kets have cre­ated a “sand­box” reg­u­la­tory en­vi­ron­ment, which sup­ports both new en­trants to the mar­ket and ex­ist­ing play­ers alike. Dubai sup­ports such in­no­va­tion through the DIFC’s Fin­tech Hive, a ded­i­cated area for star­tups to be­gin their jour­ney. The newly formed MENA Fin­tech As­so­ci­a­tion is al­ready look­ing to ex­pand to in­clude ded­i­cated gov­ern­ment lob­by­ing teams and global tal­ent ex­change pro­grammes.

The U.A.E. has adopted user-friendly reg­u­la­tory prac­tices that re­ward in­di­vid­u­als and SMEs for in­no­va­tion. The Saudi Ara­bian Mone­tary Au­thor­ity has es­tab­lished Fin­tech Saudi, which aims to sup­port the ecosys­tem. Bahrain’s Fin­tech Bay sup­ports growth by help­ing star­tups se­cure cap­i­tal, guid­ance and work­ing with reg­u­la­tions.

A reg­u­lated en­vi­ron­ment gives im­pe­tus for new en­trants to thrive and shape an emerg­ing mar­ket seg­ment. For in­vestors, de­vel­op­ment in the sec­tor will con­tinue to cre­ate compelling op­por­tu­ni­ties.

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