The Fintech Boon

Cumulatively, what is the current value of fintech companies in the MENA. How has this grown and how do you see this developing over the next decade?

The financial services industry is undergoing a transformation in the recent years and this is particularly noticeable in the Middle East and Africa. The region has one of the world’s fastest growing banking sectors, driven by the adoption of mobile applications by younger, tech-hungry consumers and the need to overhaul core banking systems in response to tighter regulations and governance standards.

Research firm Gartner estimates that IT spending in MENA this year will top $155 billion, with banking and securities firms leading spending growth (+3.6 per cent), followed by insurance (+2.9 per cent) and investments into analytics, blockchain, artificial intelligence and software applications.

The Middle East and North Africa region’s financial technology market, where the number of start-ups is expected to top 250 by 2020 (versus 46 in 2013), will grow by up to $125 million a year to reach $2.5 billion in 2022, according to forecasts. But whilst internet penetration in MENA is one of the highest globally, sitting at 64.5 per cent versus 55.1 per cent global average, a staggering 86 per cent of adults do not have a bank account.

For many that means not having access to small loans or credit lines, not being able to securely save money, and having no way of receiving and making payments. This leaves a huge opportunity for banks and fintechs alike to develop services and products for the unbanked.

Which areas do most of these fintechs generally cater to and why?

For the reason mentioned above, new payment services are regularly being launched by mobile operators as well as e-wallet services such as “Mada Atheer”, governed by the Saudi Arabian Monetary Authority (SAMA). The most mature sector, payments, includes start-ups offering bill payment, mobile and online payment solutions as well as wallets.

According to research by Wamda, the second most mature sector in fintech is international money transfer, wealth management, insurance solutions and blockchain-based services. In retail banking, many banks are starting to offer off-shore on-boarding and the opportunity to open retail accounts remotely, using latest technologies and authorisation platform and services provided by government to enhance digital experience.

Based on the above, would you say that the market is saturated? Which market segment would you say needs more sophisticated technological capabilities?

Customers are asking for more digital solutions to suit greater convenience. Fintechs are proving fierce competitors to traditional banks amongst millennials. Banks can either replicate what fintechs do by responding with equally innovative solutions, or partner with them. There is an appetite for this in the region.

Fintech innovations are being adopted by the banking sector and we are seeing increased collaboration between incumbent banks and fintechs. Innovation hubs are popping up throughout the region. Bahrain Fintech Bay launched earlier this year, gathering 50 partners including banks, corporates, government bodies, universities and fintechs. Its mission is to bring together the ecosystem to collaborate to develop new applications at low cost and speed.

Dubai’s International Finance Centre launched last year Fintech Hive, the first financial technology accelerator in the region. This collaboration will bring a new wave of innovative products, in response to customers’ needs. Emirates NBD (ENBD), one of the largest banks in the GCC, has committed no less than AED 1 billion for digital transformation.

Large-scale digital banking initiatives in the region are focused on creating digital-only platforms; rationalising branch networks; automating back office functions; and increasing mobile banking services as retail online buying activity is set to soar in the region in the years ahead.

Research estimates that the combined e-commerce sales of the Gulf countries will more than double between 2017 and 2020. Additionally the volume of e-commerce is set quadruple over five years but SME lending stands at half of the global average, meaning there is huge potential there.

With an expectation that fintechs would grow exponentially over the next decade, how do you see this impacting the banking and financial services sector? How would it shape the future of both banks and consumers?

Whilst traditional banks have the benefit of large and trusted client partnership, new challenger banks and fintechs are agile and often at the cutting edge of new technology, being able to experiment fast with leading innovations. In today’s digital-first economy, challenger banks are in a great position to gain market share.

Traditional banks legacy systems lack the agility to support the delivery of customer-centric products and services. Whilst traditional banks are modernising their core systems, it is still no match compared to agile fintechs. Until recently, fintechs posed a big threat to banks, weakening the loyalty of many long-standing customers with more personalised, transparent offers.

The reality is that if banks do not act fast, they risk becoming irrelevant. Instead of shutting down new entrants, banks need to focus on creating an open banking economy that will enable them to broaden their reach and benefit from the innovation taking place around them. Partnering with fintechs means that banks can offer new and attractive innovations to their customers.

They can provide the technology that augments a bank’s existing structure. They are nimble and able to experiment rapidly with new customer service propositions. Fintechs are all about the mobile-first customer experience and they are now actively seeking the banks’ customers to engage with. Technology moves quickly in today’s world and no single company can be expected to offer everything to everyone. We believe that the future of finance is open and collaborative.

Looking at how rapidly technology evolves in this space; how do you foresee MENA governments responding to this? What do you think is the best way to embrace this?

Regulatory government bodies like SAMA in Saudi Arabia and the Government of Dubai are helping drive fintechs in the region and the Middle East is now a highly lucrative space for investors as well as solution providers.

In Kingdom Saudi Arabia, government programmes Vision 2030 and Financial Sector Development programme aim to create an environment where the most innovative technologies and initiatives can prosper such as e-government; smart cities; the internet of Things (IoT); blockchain or fintech hubs for Islamic banking, position the Kingdom as an industry leader in the region and globally.

Governments like Saudi Arabia are issuing fintech licences which shows that governments are getting involved the race to becoming one of the top players in fintech in the region. We might expect to see regulations similar to Europe’s GDPR and PSD2 see light as the appetite for open banking in the Middle East is big.