UAE’s fintech adoption leads GCC and Middle East
TREND WILL REDUCE FUNDING COSTS FOR SMES AND IMPROVE FINANCIAL INCLUSION
The UAE has taken a lead in regional fintech investments and banking technology adoption in the GCC and the wider Middle East and North Africa (Mena) region, according to bankers and analysts.
“Fintech can deepen and enhance the efficiencies of financial systems, broaden access to financial services, support economic development and promote inclusive growth in developing and emerging economies,” said Boban Markovic, research analyst at the Institute of International Finance (IIF).
A recent IIF study on fintech adoption in the Mena region found that it can significantly lower small and medium-sized enterprise (SME) funding costs, extend financial services to unbanked populations, and reduce remittance transaction costs.
The IIF data showed the Mena region is lagging in SME funding. The financing gap for Mena SMEs is estimated at around $138 billion (Dh507 billion), equivalent to 26 per cent of consolidated GDP. Formal financing of the private sector, whether from banks or nonbank financial institutions, is limited. Loan concentration is high, reflecting the focus of banks on well-established large enterprises, including government-related entities.
Ernst & Young’s (EY) GCC fintech Play report finds only 42 per cent of GCC banks that participated in its survey were familiar (‘fairly familiar or more’ category) with the industry, while 93 per cent doubted that fintech could disrupt their businesses in the short term. 86 per cent of GCC banks estimated that no more than 15 per cent of business could be lost to fintech in the next five years, with fund transfer and brokerage most likely to be disrupted. “UAE has the region’s most developed fintech ecosystem, due to the government enabling a regulatory environment and financial support for fintech initiatives,” said Garbis Iradian, IIF’s Mena chief economist.
Disruption chain
A recent Standard & Poor’s report said fintech is likely to disrupt the retail banking business in the GCC while the overall impact on balance sheet and bank ratings will be minimal.
S&P analysts believe fintech could impact retail banking, especially money transfer and foreign exchange. This would push some banks to increased digitalisation, branch reduction and staff rationalisation.
In lending and savings, the impact of disruption has been slower compared to payments. Although peer-to-peer lending is catching up, market share is minimum and there are still questions about the model’s sustainability when it faces credit cycle extremes. “We think some banks are starting to realise the extent of threats and opportunities that fintech poses, and are putting in place measures to adjust to the new realities of their operating environment,” said S&P Global Ratings credit analyst Mohammad Damak.