The GCC has a strong foundation to develop a vibrant financial technologies (FinTech) sector, according to a recent study by management consultancy Strategy& (formerly Booz & Co.). Little investment has been made in FinTech to date across the region, however Strategy& predicts this will likely change.
Today financial technologies in the GCC still face obstacles to development and many financial e-services and digitized financial interactions have stalled. Despite these challenges, critical success factors for developing a healthy FinTech environment exist, such as government driven funding programs and the financial advisory services necessary for technology start-ups to sustainably grow.
To capitalize on this potential governments and financial institutions must take aligned steps to further develop the region’s FinTech sector, according to Strategy&.
Daniel Diemers, Partner with Strategy& in Dubai, said: “The role of GCC governments is more critical than it is in established markets to help better establish FinTech. GCC governments must enforce policies and a regulatory environment that will ease the development of FinTech. This will eventually attract more talent to the region, boost entrepreneurial and business activities, and most importantly improve the country’s overall competitiveness.”
There are already some success stories in the GCC, particularly in the UAE, where incubators and innovation hubs are supporting the creation and growth of local digital enterprises. The UAE Academy for example aims to stimulate enterprise in the country by increasing awareness of entrepreneurship. FinTech start-ups, government backing, and support programs are creating pockets of innovation across the UAE.
In the less-mature FinTech environments such as Saudi Arabia and Jordan, governments must be even more heavily involved to regulate, set policies and provide the necessary infrastructure so that the industry can grow sustainably. The UAE’s approach to developing a healthy and sustainable FinTech environment could potentially be considered in other GCC nations and help them to grow their own FinTech industries.
“GCC governments, particularly the UAE’s, can encourage a region-wide FinTech ecosystem by connecting a multitude of different stakeholders to support innovation. If the region can rise to this challenge, the rewards for the financial industry and the broader regional economy could be significant,” concluded Dr. Diemers.
Strategy&’s ‘Developing a FinTech ecosystem in the GCC’ study estimates that the global investment in FinTech has jumped three-fold between 2008 and 2014, reaching US$3 billion, and is expected to double again by 2018, and may even hit $8 billion. Most FinTech investment is currently in the U.S., which captures about 80 percent of this spending, however meaningful innovation is also occurring in the European Union, particularly in the U.K. Although relatively little FinTech investment has occurred in the GCC to date, that could and should change.