Being one of the least explored by FinTech startups and investors market, Middle East holds a great promise for companies looking to expand operational boundaries. Some estimates suggest that less than 0.1% of FinTech investment originates in the Middle East.
“Consequently, the region’s banks and FinTech startups are lagging behind their foreign counterparts in the development of new services and business models,” said David Martinez de Lecea, a Principal at Roland Berger.
Explaining the behavior model of regional banks, he added that “by analyzing and replicating proven ideas, UAE banks can become first-followers and very quickly revolutionize the way financial services are provided in this country. If all parties, such as banks, regulators, technology providers and customers, align, the UAE banking sector could be seriously transformed very soon.”
The hallmarks of the financial services industry in the Middle East
But when is very soon? And is the Middle East ready at all to bank on FinTech? What kind of technologies will transform banking industry in the Middle East? Those and other questions are still to be answered when it comes to the region with the distinctive hallmark of industries of national meaning different than in the rest of the world. Financial technology professionals have been expressing belief in the opportunities soon-to-be-presented in the region for entrepreneurs.
During FinTech 2020 Dubai, with a panel of other professionals, Wissam Khoury, MD, Middle East and Africa, FIS, held a discussion on the FinTech gap, suggesting that while the rest of the world is full steam ahead with new technological advancements, one could argue that the Middle East is falling behind. Omar Rana, Co-founder and director of Finalytix, one of the panelists, mentioned barriers such as the administrative burdens around setting up companies or accessing capital (whether funds or people).
Indeed, the matter of regulations is seen as one of the most important factors that can either catalyze or stall innovation adoption. Professionals are pointing out that the Middle East financial institutions are hampered to some extent by regulations. In particular, the requirement of a “wet" signature on financial undertakings, so at present credit cards, insurance and other financial products is mentioned to be restrictive for buying those services online (there is a confidence, however, that the situation will soon change).
Peter Zemsky, deputy dean and professor of strategy at Insead, commented, however, on the situation, saying, “Many regional governments are empowering banks to make these changes and allowing them to undertake some very ambitious expansive programs focused on innovation and digital transformation."
The regulatory environment, however, is not the only influential factor. Among other hallmarks of the regional FinTech ecosystem mentioned, the fear of small ecosystems in the Gulf, fear of complicated financial systems, fear of investing in new ideas, fear of lacking intellectual property protection and more are the leading influencial factors.
“When you’re working on a disruptive technology or trying to build something that hasn’t really been done in the Arab world before, this mentality makes it extremely difficult to raise the funds needed to keep a startup going. Nurturing the maturity of both founders and investors in the region will help, because we currently lack people who really understand what a startup is and how to scale quickly on both ends.
"While I’m sure that Arab ecosystems will mature with experience in time, I still believe we suffer in the region because the market itself is still lagging and it’s definitely lacking in terms of early adoption.”
FinTech companies pushing innovation in the Middle East
Regardless of the gap between FinTech innovation adoption in the Middle East and the rest of the world, there are companies in the region that have been successfully paving the way for the Middle East into the international spotlight.
Among those companies are players from various fields – crowdfunding (Beehive, Liwwa, Zoomaal), wealth management (Finerd), payments (Payfort, Fawry, PayMob, Bridg, MadfooatCom), retail financial services (compareit4me.com), insurance (Democrance) and more.
“The Middle East is different in this case. People still like to go to branches for transactions, even e-commerce is getting a lukewarm reception in the region compared to the rest of the world.
However, CIOs in the region are realizing that big investments in branch banking may not yield the expected results in the long term. Currently, banks in the Middle East are investing in online and mobile channels to complement their traditional model, but soon these new channels will become the primary mode of interaction.”