The Middle East is in different stages of advancement of the Fintech industries across the region.
S&P Global pinpoints remittances, banking penetration, the security of transactions, and compliance as areas most likely to benefit from Fintech in the region.
Several economic sectors will experience changes in their modus operandi brought about by fintech’s ability to evolve as the need arises.
Views from OneSpan
Charbel Diab, Managing Director, MEA, at OneSpan wrote that the financial sector experienced the most disruption during COVID-19, with an accelerated innovation roadmap that saw manual processes including account opening, lending applications and more become digitized.
1- Intelligent authentication to become the norm
Cybercrime has become prolific in the financial sector across the MEA region as rapid digital transformation has given malicious actors the opportunity to exploit holes in security. SIM swapping has been a huge issue, with hackers able to obtain duplicate SIM cards to receive a One Time Password (OTP) via SMS on their phones. The UAE Central Bank is now encouraging everyone to focus on stronger customer authentication using Multi-Factor Authentication (MFA) and technology such as biometrics.
2- The focus on Open Banking will grow rapidly
Saudi Arabia has already launched a regulatory sandbox that allows international and regional financial institutions to provide innovative new solutions to customers and the Saudi Central Bank clarified that services and products including e-wallet services, P2P transfers, purchases through QR codes, and direct international transfers through fintech companies are being tested.
3- Synthetic identity fraud will increase
In the coming year, synthetic identity fraud will surge, as bad actors continue to use stolen identities to open fake bank accounts.
Currently, the majority of banks still only analyze transactional and biometrics data, rather than tracking all user actions, from session login to logout to connect all related events that could highlight hidden fraudulent activity.
4- Banks will start to accept Bitcoin and Altcoins
COVID-19 brought on a fear of handling cash and a rise in credit card fraud, and together with the move toward a cashless society, banks will begin to accept other forms of currency like Bitcoin and other cryptocurrencies.
In Clifford Chance’s Fintech in the Middle East – Developments across MENA, it noted that there had been a rapid change in the regulatory environment. The central banks of Egypt, Bahrain, UAE, and Jordan have adopted specific initiatives to regulate digital payment services.
Lebanon, the Dubai International Financial Centre (DIFC), Bahrain, and Abu Dhabi Global Market (ADGM) have introduced crowdfunding regulations. Meanwhile, the UAE securities regulator allowed the licensing of ICOs.
Fintech in GCC, and MENA
The UAE is, without doubt, the furthest along in their Fintech journey and the most globally competitive country in MENA.
The UAE is the leader in fintech innovation, comprising some 24% of the fintechs in the region. Both Morocco and Egypt follow, with 12% and Tunisia with 10% of fintech, according to Finextra.
The UAE accounted for 47% of all financial tech deals and 69% of total funding and is home to the majority of the MENA region’s fintech start-ups. It is estimated that by 2022, about 465 fintech firms in the UAE will generate about $2 billion in investment capital funding.
Saudi Arabia’s venture capital funds are increasingly looking to tap into Fintech, digital commerce, and healthcare segments this year.
VC activity has increased considerably in the MENA region including Saudi during the past few years, with local startups recording a 55% year-over-year growth in funds raised in 2020, according to a report from Arab News.
UAE based investment advisory firm Sarwa has acquired an experimental Fintech permit to offer services in Saudi.
Also in December 2020, it was reported that the country has seen an “explosion” of Fintech firms because of support from the nation’s authorities.
Riyadh and Bahrain were named as the top regional Fintech ecosystems to watch closely last year.
Bahrain is the GCC’s longest established financial center, according to the Milken Institute, with nearly 400 licensed financial institutions. It says that unlike the UAE, Bahrain has taken a country-wide approach to Fintech development and promotion.
For Qatar, KPMG says the expected introduction of key Fintech regulations will “further facilitate the build-up” of the digital banking ecosystem. It is referring to the Qatar Central Bank’s establishment of the Fintech section, Fintech Regulatory Sandbox, and the launch of the Qatar Fintech Hub (QFTH).
Most of the ventures in the region are moved to improve the fintech sector. Emphasis is put on startups that focus on payment, online lending, remittances, InsurTech, RegTech, crowdfunding, digital banking, blockchain, and crypto.
However, a majority of the funding focuses more on the payment sector with about 85% of the fintech companies in the MENA region operating in transfers, payments, and remittances.