The rise of fintechs in the Middle East

Efma feature

15 March 2019

Syed Marahim Danial of Efma provides an overview of the Middle East’s fintech landscape.

Past experiences and observations demonstrate that any new technology makes one of two outcomes possible: it can balance global wealth distribution or increase social inequality.

In the global digital race, the Middle East has been increasing its pace during the last couple of years. The region is getting familiar with capabilities and resolving to take initiatives towards the digital world.

The increased need for more efficient and accessible financial solutions is supporting an increase in momentum of the fintech industry in the Middle East. There have been very big investments in fintechs from this region during the last two years. And for traditional players – banks – the advent of financial technology is transforming the delivery of financial services around the globe, and they are keen to stay apace with this change.

The United Arab Emirates is leading the Gulf’s fintech portfolio, with the major share of startups and therefore investments. The city of Dubai is becoming the regional fintech hub by taking the lead in this digital race. The Dubai Financial Services Authority (DFSA) has developed the cohort system, which permits companies to apply for an Innovation Testing License.

In the past two or three years, central banks in several countries, including Bahrain, Saudi Arabia and Kuwait, have been setting up regulatory sandboxes, in order to provide fintechs with a safer framework. Examples include Kuwait’s Ahli United, which took on rent-payment mobile app Ajar Online and international players like US-based fintech Ripple, which signed cross-border payment deals with three MENA banks: National Commercial Bank, Kuwait Finance House and National Bank of Kuwait.

In Saudi Arabia, blockchain is directing change. Saudi Customs, with its IT partner Tabadul, oversaw the integration of FASAH with TradeLens, a blockchain-enabled global shipping solution jointly developed by Maersk and IBM. Since the trading of cryptocurrencies is banned in Saudi Arabia, it is developing a blockchainbased digital currency in collaboration with the UAE. Again, this reflects the increase in crossborder transactions in Gulf countries.

Some of 2018’s major fintech bargains in the region were: an $8 million capital infusion in Dubai-based financial-comparison platform Yallacompare; a $1.5 million round by four venture capital firms and two angels for Jordanian cloud-based POS software POSRocket; and $1.3 million in Dubai-based automated investment-advisory platform Sarwa, which launched in 2018. Saudi payment provider PayTabs still holds the record for the biggest round closed by a MENA fintech, with $20 million raised in 2017. 

In Oman, a recent partnership between fintech service provider Credit Info Group and the Central Bank of Oman will see the development, roll-out and management of a credit registry system.

UAE has the most developed ecosystem with a few public and private activities backing innovation. These include the Dubai International Financial Center, which oversees a fintech fund of around $100 million and the region’s first fintech accelerator, Fintech Hive; and the Abu Dhabi Global Market, which built up its RegLab explicitly to enable new organizations to understand their regulatory issues.

Meanwhile, Bahrain is also welcoming fintechs to explore opportunities in the region. These expeditions are facilitated by the Central Bank of Bahrain. Recently, CBB has invited applications from firms wishing to test innovative financial products, services or business models across more than one jurisdiction. Labiba, a Dubaibased artificial intelligence and robotic process automation company, has announced the formation of Labiba WLL, along with its venture partner Bahrain Fintech Bay. An extension of its AI
solutions portfolio is expected through this venture.

Pakistan is also focused on the digital movement, including payments, interoperability, consumer/ retail banking, regtech, insurtech, mobile wallets, loyalty programs, lending, and savings. State Bank of Pakistan and Karandaaz signed an agreement in 2018 under which Karandaaz will support SBP’s efforts to create an enabling environment based on international best practices for digital banks. Karandaaz will provide technical assistance to SBP for formulating a legal and regulatory framework, including licensing criteria, for digital banks in Pakistan.

The financial world is changing dramatically and collaboration between industries is becoming more relevant to anyone concerned with the change. Impactful decisions are required to increase pace in this time. Every change requires two phases: the complete shift in the paradigms and the appropriate positioning of the new things introduced during this journey. The Middle East is in the first phase, in which new things are being adopted by the financial institutions. This is the time of experiencing different flavors, but in the next few years, we will see a completely different picture.

If you want to know more about retail banking in the Middle East, please download the 2019 Efma Middle East review

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Keywords : Digital/Mobile channels , Fintech

Geography : Saudi Arabia , Pakistan