After witnessing sluggish growth rates for the past few years, Middle East nations have finally something to cheer about as the new financial year promises an economic rebound. Riding high on the marvels of latest technologies, most rating agencies forecast the regional Gross Domestic Product (GDP) growth to recover to 2.3 percent on an average in 2018-19 from 0.6 percent in the current fiscal. And they pin high hopes on financial technology, popularly known as fintech, to play a crucial role in this economic turnaround.
As per the latest reports, Middle East’s financial landscape is changing fast as technology shapes core business operations and brings into sharp focus on digital inclusion of all and on cashless future.
Is fintech new oil?
The region has emerged as a perfect launch pad for new cost-effective fintech solutions and the growth of tech startups. Nearly 500 startups in the region are growing in a very supportive environment.
The pace of fintech innovation in MENA, especially in the GCC, has been rapid over the past couple of years, primarily on the back of investors’ unmoving confidence in startups. The Middle East has amassed over $100 million in fintech startup funding in the past 10 years. As many as 105 fintech startups were launched in 2016 and at least $50 million of funding is expected to them by the end of 2017-18, up from $18 million in 2016-17, according to a report by Wamda Research Lab and Payfort. The figure constitutes a minuscule share of 0.1 percent of a burgeoning industry valued at $867 billion in 2016.
“Every digital device has the potential to connect more people to formal financial infrastructure by becoming a commerce device. Breakthroughs in technology and innovation are focused on developing a more inclusive, connected payments landscape,” says Timothy Murphy, Mastercard’s chief franchise officer.
Abdulaziz Fahad Al Jouf, founder PayTabs, a Saudi-based payment processing startup, says fintech is growing at a breakneck speed year on year and fast becoming the Middle East’s new oil.
The financial service industry is witnessing an upheaval with fintech startups gaining stronghold and challenging the traditional business models of established players like banks, stock exchanges and money transfer businesses.
However, with governments moving way from oil toward creating a knowledge-based digital economy, fintech is making inroads into the region at the pace comparable to the West and emerging as one of the world’s most innovative markets. Players such as peer-to-peer lending platform Beehive, challenger bank NOW Money, payments processor PayFort are disrupting the financial services industry with particular focus on consumer-centric payments. Most of them operate through blockchain, a secure platform that ensures privacy, gives data access to select entities in a network and removes the risk of cyber thefts.
“As technology is evolving, customers don’t want to visit bank branches, they expect to conduct their financial transactions on their computer or mobile. And processes are constantly evolving to capture that feedback and the expectations of customers,” says Mohsin Aikal, Head (consumer finance), Noor Bank.
Dubai; the main accelerator
The rate of fintech growth in Dubai continues to garner worldwide attention, largely due to the ‘Dubai Blockchain Strategy’, launched by the Smart Dubai office and the Dubai Future Foundation in 2016. With Dubai moving to become the first blockchain-powered government by 2020, both local and international fintech companies are increasingly viewing the emirate as the testbed for their latest solutions. The Dubai Land Department was the world’s first government entity to conduct all transactions through blockchain technology. Accelerator programs like DIFC’s FinTech Hive, which is focused on addressing the evolving needs of the region’s financial services industry, are helping to attract innovative startups from across the globe.
“We continue to work closely with the government to ensure that Dubai remains the location of choice for tech investment into the region. However, our recent efforts within the fintech start-up community have highlighted the need for an even more robust ecosystem and specific infrastructure to be put in place to ease the incorporation process for these new businesses. Promisingly, the Dubai Government recognizes this and is eager to collaborate with emerging sectors, such as fintech, to put in place the necessary frameworks that will help cement the emirate’s position as an epicentre for future industries and the Fourth Industrial Revolution,” said John Martin St.Valery, Founder and CEO, Links Group.
McKinsey Middle East Digitisation Index forecasts the UAE, Qatar, and Bahrain to be among the top countries in the world with 100 percent smartphone penetration with 160 million digital users by 2025 who could contribute up to 3.8 percent annually in GDP — amounting to approximately $95 billion. To create an economy out of this digital-savvy population, the Middle East nations are going digital, putting a huge emphasis on fintech. They are creating an ecosystem for technology companies to be on a firm footing and reap benefits of the Fourth Industrial Revolution.
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“We are witnessing a startup revolution taking place in the Middle East, especially in the GCC. In the UAE, entrepreneurship and startups will play a crucial role in creating new jobs and help absorb a large chunk from among the 100 million new jobless people in the Arab world,” says Dawood Alshezawi, President, AIM Startup, an initiative of the UAE Ministry of Economy to connect promising startups with investors and business partners.
Undoubtedly, the driver of this phenomenal growth is a burgeoning tech-savvy young population, which is not reluctant to see their gadgets turn into commercial touch points. According to the Ericsson Mobility Report, 70 percent of people across the world will be smartphone users by 2020, and Asia, Africa and the Middle East will account for 80 percent of them. This provides a perfect launch pad for new cost-effective fintech solutions and the growth of the sector.