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The Future of Banking: Fintech’s Prospects in The Middle East And Africa

How fast is fintech developing in the region and what threats does it pose banks?

Fintech in the MEA will continue to slowly expand and therefore constitute a limited threat to the region's well-established financial institutions GCC countries appear the most ready for fintech adoption in the Middle East and Africa Remittances, banking penetration, security of transactions, and compliance appear as the most likely areas to benefit from fintech

By: S&P Global

S&P Global Ratings believes financial technology (fintech) in the Middle East and Africa (MEA) will continue to slowly expand and therefore constitute a limited threat to the region's well-established financial institutions in the foreseeable future. The creation of a propitious fintech ecosystem is still a work in progress in most regional countries and cities. The most advanced are Dubai (through the Fintech Hive in the Dubai International Financial Center or DIFC) and Bahrain (through Fintech Bay). We are of the view that money transfer, payment services, and compliance with regulations are the main sectors that are bound to be disrupted by fintech in the next few years. We also believe fintech offers other opportunities for the region's banks, such as financial penetration in less developed African countries and the use of blockchain for capital market issuance of conventional and Islamic securities.

The Key Factors Of Successful Fintech Ecosystems

In our view, the key factors contributing to a successful fintech ecosystem include:

Human capital

This can take the form of a presence of a large pool of technology-savvy people with good knowledge of the financial industry or a strong education system that contributes to the creation of such a talent pool. This also requires the presence of firms and individuals tasked with providing advisory services and coaching opportunities for this workforce.


Regulators that allow fintech companies to operate in a light regulatory environment under almost real-time conditions so that they can test their ideas and ensure their viability. Their role is both defensive, protecting the consumer and overall financial system, and offensive, by helping fintech companies spread their wings in a controlled environment. Clarity of the regulatory requirements during the test phase and at the launch of fintech companies is essential. For Islamic fintech ecosystems, this also includes a dimension related to Sharia requirements and compliance.

Financial capital

During their design and launch phases, fintech companies burn cash and require access to a significant amount of financial resources. Access to funding through dedicated funds, foreign direct investments, a pool of business angels, or government funds is necessary to ensure the effective support of fintech companies.

Physical infrastructure

This ranges from the access to information and communication technologies to coworking spaces.


Demand can come from either established financial institutions or end users. It can also be created by an innovative fintech launching a new service or way of doing business that was not envisaged in the past. Demand requires a minimum of financial literacy to understand the services a fintech can offer.

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These indicators show that GCC countries appear to be the most ready for fintech adoption in MEA. In our view, the key driver is demand–the preference by clients for digital banking. Moreover, these countries enjoy the ready availability of financial capital. Their banking systems are strongly capitalized–we estimate the average risk-adjusted capital for rated banks was at close to 12% at year-end 2018. In addition, they are typically net exporters of capital, and some of their governments set aside funds to push forward the fintech agenda. For example, the DIFC in 2017 launched a $100 million fund to help establish, grow, and upscale start-up and growth stage fintech firms. Similarly, Bahrain Development Bank and the Economic Development Board of Bahrain have launched two separate funds of $100 million each to support fintech. We believe that the willingness of and actions by regulators and the markets to innovate will be key to maintaining high-quality services by efficient and robust servicers.

What Business Lines Will Be Disrupted And How?

We believe that fintech could help the financial industry in MEA in at least three ways:

– Ease, transaction speed, and reach of financial services;

– Security and traceability of transactions; and, – Improved governance.

Ease, transaction speed, and reach of financial services

This is particularly true for payment services, money transfers, and crowdfunding. GCC banks, for example, generate about one-quarter of their revenue from non-interest-dependent sources.

Remittances are the low-hanging fruit. At year-end 2017, expatriates in the GCC sent about $120 billion back home. At the same time, African countries received an estimated $86.3 billion of remittances–about 4% of their GDP at year-end 2018. The cost of sending this money is still significant, consisting of both a nominal fee and, more importantly, a significant margin on the exchange rate. It also takes time, especially if the transfer is made to another emerging market. A fintech that focuses on this niche market with the objective of increasing the speed and reducing the cost of the transaction will certainly attract clients.