Digital Transformation and FinTech Development in MENA Region

* The article was initially published on our blog.

Summary: Armada Labs bravely steps into the endless discussion about similarities and differences between the Middle East and the rest of the world, only today digital transformation is on the table. For you to better understand the Middle Eastern stance on FinTechs and innovation, we share a few quick facts we’ve learned doing business in this region.

The false assumption is that Middle Eastern banking is someway falling behind Europe and the US in terms of digital transformation.

Although Europe and North America continue to dominate the market, FinTech activity in the Middle East is building considerable momentum. The number of FinTech startups and investments into this sector will continue to rise in the coming years, increasing from 96 in 2019 to 465 by 2022 in the Middle East, while investments will increase from $287 million in 2019 to $2.28 billion by 2022, according to Accenture analysis based on CBI Insights data.

High Density and Comprehensive Offerings

There is no considerable difference between how Western and the Middle Eastern banks approach technology innovation as both groups are moving shoulder-to-shoulder.

Today’s offerings of the Middle Eastern FinTech companies cover the same verticals as their European and American associates including bill payments, mobile, online and wallet-payment solutions; lending including crowdfunding, peer-lending, and loan comparison platforms; international money transfers; wealth management; insurance solutions and blockchain-based services. In 2017, the Middle East has hosted the World Blockchain Forum, which took place in Dubai, highlighting the growing blockchain activity in the region and helping to cement its position as a FinTech hub.

According to Bloomberg Intelligence, the UAE is home to the highest number of FinTech startups at 67 followed by 44 in Turkey, 30 each in Jordan and Lebanon — Dubai being the most dynamic hub. This fact alone points out high adaptivity and significant government support the country provides FinTechs with. And when the receptiveness to FinTech varies due to the country’s specific economic conditions like the high prevalence of family businesses mostly unfamiliar with technology initiatives, the collaborative strategies of the government proactively prompt FinTechs proliferation.

“The UAE is a default friend of everything digital”, says T K Raman, Group CFO, Finance House. “Today Dubai leads innovation in the digital government, leaving the banks, which are the core part of the UAE economy, no choice but to follow the digital road. For the last three years, the Middle East has moved a lot of applications that customers used to do manually onto the digital platforms.”

He continues describing loan validation in his own company, “A person who wants to take a credit card or personal loan only need to show their identity document. Everything else is seamlessly worked in the background — the information about creditworthiness is checked from a credit bureau, it goes to the decision engine, and then the feedback goes straight to a customer in less than 2 minutes, telling him how much credit he can get and on what terms.”

To begin with…

For you to better understand the Middle Eastern stance on digital transformation, Armada Labs share a few quick facts we’ve learned doing business in this region.

• A vast majority of Middle Eastern countries have a fairly young population, the average age is below 40, so a very tech-savvy and a very “immediate consumption” kind of attitude dictates the drive towards innovation.
• Most people in Dubai and the Middle East as a whole have access to mobile phones, while internet penetration rate is fantastic. That already paves the way for a basic customer education about innovation in digital space.
• The Middle Eastern banks follow the same branchless strategy, closing about 50% of their brick branches and shifting their focus on innovative products and services for mobile devices, and digital lifestyle banking apps.
• Bahrain becomes home to the first AWS Middle East Region, which will go live this year. The infrastructure will be bringing flexible, affordable, reliable, and secure cloud computing technologies close to end-users across the Middle East, helping organizations speed up their digital transformation initiatives and more rapidly innovate for the citizens of the region.
• Governments across the Middle Easton region are committed to equate the plainfield with large banks through favorable initiatives such as the Bahrain Fintech Bay (BFB) and the Dubai FinTech Hive, which support local and global FinTech startups and partners. Many exemptions and tax benefits are available to encourage FinTech investment.
• In terms of legislation, the Middle Eastern countries still do not accept digital signatures legally, even though the decision for credit is given electronically, but the government is constantly working on moving into the next phase of digitization that would really increase the level of digital consumption of goods and services, especially in banking. In fact, the Abu Dhabi Global Market has already developed its RegLab specifically to help new companies solve their regulatory issues.

The Next Emerging FinTech Hubs

In conclusion, the Middle Eastern region is open for nimble FinTech ecosystem, which delivers digital products and services right on demand.

One important thing about the Middle East is the fair business conditions secured to benefit both the Big Banks and FinTech startups. The region offers aspiring entrepreneurs a comprehensive package, from world-class infrastructure and lifestyle to easy business setup models, access to mentors, workshops, and events, and a dynamic regional investment community.

Considering the aforementioned economic conditions and the Middle Eastern policy towards FinTechs and digitalization, we surely can see why the region is rapidly embracing technology innovation.

The staggering flow of capital being pumped into FinTech development by venture companies and business angels combined with the fine government support, the one drastically differs from European and American FinTech markets where the government and FinTechs seem to be at loggerheads, is a great stimulus for moving forward fast and steadily.

Waiting for the Middle Eastern countries to step into a line with London, Beijing, San Francisco, and New York and become the next global FinTech hubs anytime soon.

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