In recent years, Fintech has contributed significantly to increasing access to digital financial services. As a result, businesses can now offer financial services through various forms of technology, thus enabling them to grow and expand.
An Economist Impact survey of 300 C-suite executives from the banking industry titled Threat Assessment 2022: Digital Competition in Global Finance, commissioned by WS02, discovered that 47 percent of bank managers provide customer service via digital channels. Furthermore, over the next two years, 77 percent of these executives expect their organizations to serve customers primarily through digital channels.
“All signs in the Economist Impact report point to established financial institutions rising to the digital challenge,” said Eric Newcomer, chief technology officer at WSO2. “A majority of respondents said they have the necessary tools, are culturally ready and have the talent needed to create new digital products and services, which to me represents a significant change in industry dynamics.”
On the brink of rapid expansion
The Middle East has seen an influx of fintech startups, new funding and increased support for existing and new businesses. According to Statista, the number of fintech companies is expected to reach 465 in the region this year from 30 in 2017. In terms of investments, Wamda reported that startups in the Middle East and North Africa region raised $176 million in May this year across 42 deals, up 62.7 percent year-on-year, with Egypt collecting $81 million, up 135 percent year-on-year. Furthermore, Saudi Arabia raised $46 million across nine deals due to HyperPay’s $36.7 million round led by Mastercard, closely followed by UAE-based startups with $45 million raised across eight deals.
Going digital
In the UAE, the government has taken various measures to encourage the growth of fintech. The country is a leader in the MENA region, reaching a record high of $2.5 billion this year. In May 2021, the UAE launched the DIFC Innovation Hub, the region’s first ecosystem dedicated to bringing fintech and innovation communities together. The hub is expected to play a key role in driving collaboration between early stage and growth startups, tech unicorns and large tech firms. The name not only connects startups with commercial partners, it also actively delivers financial initiatives to provide funding.
In September 2021, the hub announced that it had reached full capacity with tenants including early- to growth-stage startups such as Yap, Beehive, Tabby, Xpence, Stake, Rain and Bayzat as well as the Thunderbird School of Global Management, part of Arizona State University. DIFC also announced a quadrupling of the hub over the next two years to accommodate up to 1,000 businesses.
“Fintechs have a unique opportunity to provide a superior customer experience while offering dynamic consumer protection. The UAE ecosystem is one of the fastest growing blockchain ecosystems in the world, with fintech in the region yet to adopt this new approach,” comments Saqr Mashhor Ereiqat, co-founder of Crypto Oasis.
“The fintech industry is booming and is increasingly being adopted by the more traditional financial institutions and sectors,” says Madalina Rotaru, CEO of Capex.com. “Fintech saw a huge boost from the rise of cryptocurrencies, Defi, and the technologies surrounding the metaverse, as well as from the digital shift created by global coronavirus shutdowns. In addition, the volatile market conditions have also been the basis for the democratization of automated trading solutions that provide individual and professional traders a head start and a safer trading environment.”
Meanwhile, Fintech Saudi estimates that the number of fintech companies active in Saudi Arabia grew by 37 percent in 2021, while investments reached $347 billion. Last month. The Financial Sector Development Program (FSDP) launched the Fintech Strategy Implementation Plan, which aimed to position the Kingdom among the leading countries in fintech, with Riyadh as a global Fintech hub. The strategy also aims to strengthen the financial authority of individuals and local communities.
The new players
It is not just the banks and the authorities, but a handful of startups that are also making serious moves in this sector. Earlier this year, Tabby, a buy-now, pay-later platform, raised its Series B capital raising by $54 million. The platform has over 1,100,000 active shoppers in Saudi Arabia and the UAE and partners with over 3,000 brands. Online retailers using its payment solution have seen a drop of more than 10 percentage points in the use of cash on delivery by customers, it said in a statement.
Meanwhile, fintech firm PayBy has integrated its payment solutions with Asfartrip, an online travel and tourism platform. Customers booking travel, flights or hotels on Asfartrip can now check out securely using PayBy payment options. The fintech company also announced that the Asfartrip website had been integrated into the native app, allowing customers to access travel and accommodation booking services as well as cashless travel.
Furthermore, FOO, a provider of B2B fintech solutions in the MENA region, has expanded its operations to Saudi Arabia to support digital transformation efforts sweeping across the nation. FOO works with banks, fintech companies and retailers across the region to offer digital products that improve business models and customer experience. Another startup in this sector, FlexxPay, announced its expansion into Egypt by opening a new office in Cairo. The company estimates that around 20 million people across Egypt could benefit from early salary access.
Insurtech is another fast-growing segment that has seen many startups gain significant traction. For example, Turtlemint, an Indian insurance company, opened its first office in Dubai last month. The expansion is being carried out to scale the digital insurance platform for businesses. With the global insurance market predicted to grow at a CAGR of 6 percent per annum, reaching nearly $6.4 billion by 2025, Dhirendra Mahyavanshi, co-founder of Turtlemint believes that insurance companies will both enable and benefit from this growth in the insurance sector. “The opportunity for insurers to grow and add value to the insurance ecosystem remains enormous. By partnering with insurtechs, insurers will be able to improve claims processing, streamline the underwriting process, improve customer engagement and create customized insurance products that can meet consumers’ nuanced needs.
Regulatory risks
As each GCC nation has its regulatory requirements, fintech firms must balance their growth plans with operating rules. To grow sustainably, they must take on the right amount of regulatory risk while balancing expansion with compliance. Fintech companies must have technology that can be deployed seamlessly in all countries. By ensuring that identity verification steps are secure, compliant and seamless, robust onboarding processes reduce the risk of fraud for businesses and prevent money laundering.
“Laws on data retention and privacy are fundamental for all businesses to follow. For fintechs, it is critical to secure the right type of licensing for specific activities, which may include proof of business maturity, auditing and achieving milestones/goals, before upgrading to more comprehensive licensing and advanced activities. Government regulations must keep pace with them to stimulate ecosystem growth, says Oliver Obitayo, CEO of IDnow Middle East. “Fintechs often chart new business models that transcend the legacy of doing business. Their areas of regulatory focus should include data protection, open banking and finance, dynamic consumer protection, digital currency and ESG,” Erieqat believes.
Proceeding
The way customers choose to manage their finances has changed dramatically. There has been a massive increase in digital payments, a decrease in branch openings and an increase in fintech use. Investments in new innovation hubs are also increasing rapidly. As we move forward, the future of fintech looks bright and looks set to spread. Looking to the future, Mahyavanshi says, “I think there will be more focus on creating small bite-sized products that meet the specific needs or context of customers. Furthermore, I also believe that there will be more focus on value addition by utilizing artificial intelligence, machine learning and data analysis. And most importantly, we will see more regulatory support for innovation in the sector.”
Read: Alinma Bank, Foodics sign strategic fintech partnership to empower SMEs in Saudi
