Banking On Digital— The Significance Of Fintech In Middle East

 In the Middle East new industries and new commercial imperatives have been developing to take the region in a new economic direction, and away from its traditional reliance on petro-chemicals. The use of digital technologies in the financial services sector has emerged as an area of huge potential. Fintech is considered a key strategy for local governments, and is destined to drive digital transformation in the banking and financial services industry across Middle East.

What is fintech?

As the name implies, financial technology refers to the evolving crossover of traditional financial services using digital technologies. ‘Fintech’ implies new digital services launched by traditional banks, the emergence of disruptive start-ups, and big technology companies or telecoms providers launching new innovations like mobile money that changes the way financial services are provided. Fintech gives traditional banks and financial services companies an edge, by bringing traditional banking services into the 21st century. Fintech allows banks to embrace the new platform economy, by offering a multitude of innovative and profitable financial services to existing and new clients, primarily using mobile and digital channels. Fintech is bringing banking to the unbanked in geographically disparate places, it can mean making payments and money transfers quicker, easier and cheaper than ever before.

Why is fintech important?

It is not overstating things to say that fintech has already transformed the lives of billions of people, especially when we think of the incredible success of mobile money in Africa or mobile payments in Asia. Over the last years digital banking services have been launched in Europe and Middle East. Not very long ago the only way to open a bank account was by walking into a physical high street branch—fintech has changed all that. In developing and emerging nations, where high street banks do not exist in the same way as in the west, hundreds of millions of people the coming years are able to digitally open accounts, make money transfers and payments and even apply for loans, all from their smartphones.

Fintech has also made borrowing and lending money easier than before. For example, traditionally, a small and medium enterprise would need to go to a bank and submit a dozen forms and statements to borrow a sum—typically at a high or punitive interest rate. Today, thanks to fintech, it is now possible for these smaller commercial entities to crowdsource funding to raise capital for a big idea or commercial proposition in a fraction of the time, often on competitive, and flexible terms. Fintech ultimately helps people bank and brings financial services to the unbanked.

What is the situation in Middle East?

Compared to other parts of the world, fintech has been a little slow to get up and running in MEA mainly due to the region having a very established way of doing things in the financial sector and strong regulators being a little wary about throwing such a traditional industry into the arms of innovators and start-ups. Today however, things are changing: 2017 saw the Dubai International Financial Centre’s (DIFC) fintech Hive announce the first 11 start-ups that had qualified for its 12-week accelerator programme, an annual scheme designed to nurture innovative talent and help fintech start-ups thrive. Furthermore, United Arab Emirates, Bahrain and Kingdom of Saudi Arabia governments in 2018 are actively pursuing ‘sandbox’ strategies, where the impact of new fintech solutions can be tested and evaluated prior to market launch.

Also, private entrepreneurs abound. The Middle East is home to pioneering companies like Arabot, a ‘Bot-as-a- Service’ provider that is helping banks in UAE, Saudi Arabia, Egypt and Jordan build their own customised chatbots using Artificial Intelligence and Big Data to offer a greatly enhanced customer experience. As Abdallah Faza, CEO of Arabot says, “It is a hugely exciting time for fintech in the Middle East. Banks are recognising the importance of using digital technology to improve the customer experience, to improve their own operations over all, removing human error and interference wherever possible and, ultimately, to offer simplicity in a traditionally complicated industry.” Also, global fintech companies are targeting the Middle East.

Swiss-based Additiv is currently piloting a number of robo-advisory solutions for wealth management with local Middle East banks. Michael Stemmle, CEO of Additiv, said, “Our cloud-based Digital Finance-as-a-Service solution (DFaaS 4.0) allows financial institutions to automate their wealth management services and addresses the urgency to reduce operating costs. The integration into the financial institutions’ existing core banking system is simplified through standard API layers. We see ourselves as the catalyst for change in the financial services industry through easy, quick and affordable digitalisation.”

What approach should Middle East banks take to fintech?

Fintech is such an exciting area precisely because it forces companies to change traditional ways of doing things. Digital often disrupts companies and their established processes, but it is with positive long-term benefits in mind. At Orange, we see fintech development and success in the Middle East being centred in four distinct areas pillars:

1. Innovation-on-demand. Successful banks today recognise the importance of the as-a-service (XaaS) approach that lets them control costs better and only use as much of a technological service as they need. With innovationon- demand, Middle East banks and financial institutions can proactively partner with regional digital start-ups to uncover new ways of doing things that create new revenue streams and strengthen the customer experience.
2. Channel-as-a-strategy. A great way to drive competitive advantage in financial services is to differentiate between direct and indirect channel strategies. Think about channels today – you used to have to go to the bank, today you choose to go to the best app. Banks will need to design API libraries, in order to design, build and implement a variety of digital banking channels to bring simplified banking operations for customers and employees alike.
3. Banking-as-a-platform. Banks tend to suffer from a legacy environment, where they have an amalgam of technology systems from across the last 20 years or so. Knowing that these technologies are insufficient for the digital era, banks need to develop new services on platforms outside of the legacy. The deployment of new platforms and the ability to offer new services, directly and thru fintech partnerships lets banks be more flexible and more agile, and enables banks to create API-driven infrastructures and architectures in which legacy systems and cloud-based systems can co-exist, enabling controlled IT transformation.
4. Network-as-a-service. Using network resources on demand will give banks better control and therefore greater cost-effectiveness, bandwidth flexibility, application visibility and cybersecurity of all the applications in a hybrid network-environment. Banks in the Middle East will want to scale network services as and when they need to, and the controlled move towards XaaS approach empowers them to do that.

Why fintech is the future?

The signs are good. The past ten years have seen fintech start-ups in the Middle East raise more than $100 million in funding, with this investment forecast to double by 2020 according to the 2017 State of Fintech report. Three out of four banking customers in our region say they are prepared to change banks to enjoy a better digital experience. The potential is there. Let’s make it happen.