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Fintech, Regtech to exponentially attract investments, attention

Is Fintech trying to take over banks, compete with them or merely help them?

Private-funding investments in GCC-based fintech startups are expected to reach $2 billion in the next decade Fintech investment increased with total global investment dollars more than doubling from $50.8 billion in 2017 to $111.8 billion in 2018 In 2019, start-ups will focus on helping incumbent financial institutions reduce costs associated with complying with increasingly stringent regulations.

Fintech alone without flexible regulatory technology, or regtech, is reckless. Financial technology is quickly taking the banking and finance industry by storm, globally and regionally. But what can we expect for 2019?

Regional Fintech fan base 

The recent decision to set up a “Sandbox” regulatory environment will have a positive impact on fintech investment and enable foreign and regional investors to invest in these companies, Argaam reported.

 According to Arab News quoting a recent study by MENA Research Partners (MRP), private-funding investments in GCC-based fintech startups are expected to reach $2 billion in the next decade, and the number of fintech companies across the MENA region is expected to double from 130 to 260 over the next two years.

Bloomberg Intelligence says the number of fintech startups and investments into this sector will continue to rise in the coming years, increasing from 96 in 2019 to 465 by 2022 in the Middle East, while investments will increase from $287 million in 2019 to $2.28 billion by 2022, quoting Accenture analysis based on CBI Insights data.

In the GCC, the BFSI industry is forecasted to spend over USD 13 Billion annually on technology, according to Naseba. Banking, financial services and insurance (BFSI) is an industry term for companies that provide a range of such financial products/services, such as universal banks.

According to Bloomberg Intelligence, the UAE is home to the highest number of fintech startups at 67 followed by 44 in Turkey, 30 each in Jordan and Lebanon.

The global Pulse of Fintech in 2018

Many of the big tech players are continuously working to expand their cloud-services offerings, including Alibaba, Google and others. Some of these companies are looking to compete directly with financial institutions, while others are developing cloud, AI and machine learning products to enable banks and other financial institutions to launch their own fintech solutions.

Fintech investment increased substantially in 2018, with total global investment dollars across M&A,  PE, and VC more than doubling from  $50.8 billion in 2017 to $111.8 billion in 2018 with 2,196 deals, according to a KPMG report.

 Deals in the second half of 2018 were topped by Blackstone’s $17 billion investment in Refinitiv, the $3.5 billion acquisition of Blackhawk Network by Silver Lake and P2 Capital Partners, the $3.4 billion buyout of VeriFone by Francisco Partners, and the $2.2 billion acquisition of iZettle by PayPal, the report added.

Global cross-border fintech M&A activity reached $53.5 billion in 2018 from $18.9 billion in 2017 and In 2018, investment in fintech companies in Asia hit $22.7 billion across 372 deals.

Regtech

RegTech is a technology that seeks to provide “nimble, configurable, easy to integrate, reliable, secure and cost-effective” regulatory solutions, according to Deloitte.

The automation of due diligence, using data that can be tailored to a firm’s risk-based approach, is at the forefront of this RegTech revolution. 

The implementation of MiFID II, Payments Service Directive (PSD2), General Data Protection Regulation (GDPR), new IFRS standards and the EU Benchmark Regulation forced many organizations to adjust their operations in 2018, according to KPMG.

“The ongoing regulatory changes helped increase interest in regtech during 2018, both from traditional corporates looking for ways to better manage their compliance obligations and from other investors,” says KPMG.

“While regtech investments primarily focused on compliance management and reduction of risk exposure, there was also increasing interest in data and predictive analytics as evidenced by the $17 billion Refinitiv deal.”

Top 8 fintech predictions for 2019, (KPMG)

2019 promises to be another big year for fintech.

Consolidation: 

In 2019 we will see increasing levels of consolidation in mature areas such as payments and lending, as well as emerging areas like blockchain.

Bigger deals: 

Deal sizes are expected to continue to grow in 2019, as investors focus on later stage fintechs with a proven track- record in an effort to reduce risk.

Global expansion: 

Challenger banks will continue to grow their service offerings and expand across international borders.

Open banking: 

Regulations around open banking will prove to be a boon for technology giants and startups alike.

Blockchain: 

There will be a dramatic increase in levels of investment in companies dedicated to building specific products and solutions based on blockchain technology.

Insurtech accelerates: 

Asia will see substantial growth in insurtech investment, in part by US and Europe-based traditional insurers looking to use Asia to test alternative insurance offerings.

Regtech rises: 

Investments in regtech will accelerate in 2019, as start-ups focus on helping incumbent financial institutions reduce costs associated with complying with increasingly stringent regulations.

Digital banking: 

Traditional banks and corporates will increasingly expand into digital banking, introducing nimble, standalone digital banks that operate independently and do not rely on their existing legacy systems.