Dubai set to become the fintech leader in the Middle East

Traditional banking as we know it has come to an end. By embracing technology and innovation, financial startups - often run from small offices with just a handful of staff - have been able to create simple, cheaper ways for people across the globe to complete just about every type of financial transaction known to man.

London is regarded as the fintech capital of the world with the Global Financial Centres Index (FGCI) ranking the city as the top financial centre.

Experts put this down to the rise of tech startups in the wake of the financial crisis that saw thousands of people from the banking sector out of work. These startups had the benefit of working in close proximity to existing financial institutions (as opposed to tech innovators in San Francisco who didn't), building on each other's innovations and filling gaps in the market as they arose.

It's this similar environment - high investment, a strong judicial system and low barriers to business with a strong investment in entrepreneurship - that has positioned Dubai in the UAE as the highest ranking financial centre in the Middle East on the GFCI.

Banking Editor for, Babu das Augustine, says a number of banks in the Gulf Cooperation Council region are allocating resources to adapt their business models to the fintech revolution, and are investing in digitisation strategies, technology adoption and integration of financial technologies.

Quoting Ronit Ghose, Global Sector Head for Banks at Citigroup Inc, Research Division, the thinking is that unless banks start to innovate before fintech companies get distribution, the latter will gain their marketshare.

What exactly is fintech?

Short for financial technology, it refers to the innovative use of technology in the design and delivery of financial services and products.

It covers all aspects of these services, including lending, advice, equity financing, investment management, banking and payments, real-time, low-cost cross-border payments, pre-approved credit and foreign exchange rates.

It enables individuals and business owners to make transfers and payments, invest their money, manage insurance, take out credit, buy virtual currency, apply for business loans, trade and purchase goods, etc. without standing in bank queues or filling out multiple forms.

Fintech has also enabled banks to partner with major service providers such as utilities, telecom, transportation, card schemes, retailers and even healthcare and education, to transform how we access and pay for services, from the every-day to the highly sophisticated.

This infographic summarizes the number of companies in each fintech category to show which are seeing the most innovation. Source: Venturescanner 2015.

FinTech innovation

The payments business model has experienced massive disruption, according to Ronit Ghose, because regulations are relatively lower and it’s the least capital intensive and most tech intensive.

Riyad Bank, for one, recently launched the first contactless payment method in Saudi Arabia where large mobile phone penetration suggests there will be big uptake in the retail sector, especially among young, fashion-conscious consumers.

Another bank becoming-a-disrupter in the region is the National Bank of Fujairah (NBF) that relaunched its online presence with multiple digital channels available to its customers, such as internet banking services, a careers portal, a banking directory and the NBF Islamic banking website. In 2016 NBF won four awards at the Banker Middle East Product Awards for product innovation and service excellence in the local banking sector.

Why embrace fintech?

The ultimate goal of fintech is to simplify personal banking for consumers on the one hand, and to make it easier for other industries to collaborate with financial institutions.

According to Accenture’s analysis of CB Insights data (CB Insights is a company that builds software that predicts what the next technology trend will be), there are two different types of fintech companies: the competitive, which can be defined as direct challengers to the existing financial services institutions, and the collaborative, which offer solutions to enhance the position of existing market players.

Venture Scanner tracks 1,379 fintech companies across 16 categories, with a combined funding amount of $33 Billion. The 15 visuals below summarise the March 2016 state of Financial

FinTech companies

How banks can develop fintech services

BCG's May 2016 report: Banking on Digital Simplicity notes that banks that develop digital and data capabilities to radically simplify their businesses, while dramatically improving customer experience through greater efficiency, quality, and speed, can achieve 50% more revenue per customer than peers.

Four goals that will allow banks to rise above the median: (Source: BCG survey of 660 companies across sectors in 14 countries, including UAE, Saudi Arabia, France, UK and US)

  • Understand, strengthen, and deepen customer relationships.
  • Reimagine customer journeys from front to back using digital technologies.
  • Create agile, simple, and highly collaborative organizations.
  • Enhance digital capabilities.

They found that banks in the Middle East that have advanced digital platforms were gaining share with services such as real-time, low-cost cross-border payments, pre-approved credit and superior foreign exchange rates. This has allowed them to generate 3-6 percent more in annual cross-selling revenues than their peers.

Echoing the success on which London's fintech revolution is based, Ghose says digital banking works best in societies where there is already a very high level of digitisation.

This positions the UAE, that is highly urbanised with elevated high-tech penetration and a high proportion of transient population, in an excellent position to develop, grow and disrupt the financial and banking world as we know it.

David Martinez de Lecea, a principal at global strategy firm Roland Berger, told that UAE banks can become first-followers and quickly revolutionise the way financial services are provided as long as all parties, such as banks, regulators, technology providers and customers align.

He says the Financial Services Regulatory Authority of Abu Dhabi Global Market with its RegLab initiative is accelerating the fintech trend in the region by easing entry for new players, allowing more UAE banks to ‘wake up to fintech’.