Emerging Fintech: How Sarwa means wealth in the Middle East
In this edition of Emerging Fintech series, we explore how one startup redefined what saving and investing means for a Middle East resident historically faced with a lack of affordable options. Sarwa took advantage of the improving entrepreneurship landscape in Dubai to set up shop and launch fast, becoming the preeminent investing platform for young professionals. We speak to the co-founder and CEO of Sarwa, Mark Chahwan, about his vision that motivated him to take the leap and move from Canada to Dubai.
More savings, less options
The Middle East has a huge population of young professionals from all over the world taking advantage of no-income tax salaries, great job opportunities, and comfortable lifestyles. While investment banking analysts in Dubai and NYC would earn the same compensation (UAE currency is pegged to the US$), the roughly 50% tax differential makes a huge difference in the Dubai analyst’s ability to save money. This is even after accounting for the limitless brunches and nights out that Dubai is famous for. As a proxy, according to a BCG report, assets under management in the Middle East and Africa have grown by 12% over 2019–20 to $1.4 tn, up from 4% over 2009–19 period and above growth rates in Europe and LATAM.
While opportunities to save in Dubai might be ample, for those fortunate enough to work in high-paying jobs that is, the options to save have been rather limited. One might go the traditional invest-in-real-estate route that the region is famous for, but this obviously entails sizable upfront capital. Many people also choose to invest into US instruments via platforms such as Interactive Brokers but that involves paying wire transfer fees to move funds to the US. A lot of expats would also remit their savings back to their home countries to invest in (sometimes) higher yielding instruments. Overall, savings options in the region have been rather limited and require upfront investment and detailed knowledge of financial markets. While there are savings options for the high net–worth segment, the mass affluent space is underserved. There is a clear gap in the savings space for millions of people in the region, and thankfully a team of entrepreneurs took notice.
Robots to save the day
Sarwa (wealth in Arabic) was founded by Mark Chahwan, Jad Sayegh, and Nadine Mezher in 2017. As a consultant at Accenture in Canada, Mark saw the emergence of robo-advising in North America firsthand. At the same time, through his friends living in Dubai he became aware of the lack of savings options. As Mark told The National: “Many professionals move to Dubai specifically to better themselves and have better career opportunities but when it came to follow up, there was no idea what to do with it, no education.” By using passive algorithmic portfolio allocation across securities globally, robo-advisory offers a clear cost advantage vs traditional vehicles. Not to mention the consistent evidence that passive strategies outperform most active strategies over the long term. There was an obvious opportunity, and thankfully the right environment to tackle it: in 2017, Dubai launched FinTech Hive accelerator to develop fintech startups in the region, and Mark and the team applied to the program. With the UAE increasingly focusing on building a startup ecosystem in the region, Sarwa benefited from streamlined processes and opportunities to get licensed and hit the ground running. The pitch was simple: in the environment where UAE investment plans charged upwards to a 5% fee, Sarwa came in with a low-cost robo-advisory platform with fees starting at below 1%. This also includes personalized financial guidance from licensed advisors. More importantly, minimum required balance was set at $5 vs tens of thousands of dollars required by traditional investment vehicles.
Sarwa took off through the word-of-mouth among the young professionals community in Dubai. People appreciated the ease of set up, convenience, and low fees, as well as several investment options: Sarwa offers conventional (consisting of Vanguard and Blackrock ETFs), sharia-compliant, socially-responsible, and crypto portfolios. The big break came, of course, in 2020, when COVID lockdowns drove a surge in retail investors. The business grew by more than five times during the period. Having attracted additional funding from regional investors with its Series B round in August 2021, Sarwa established itself as the viable alternative to more complicated and expensive savings options for people in the region.
Sarwa has had a two-fold impact in the Middle East. On one hand, it dramatically reduced entry barriers for people looking to save. While the US has Betterment since 2008, providing an easy-to-use, low-cost investment platform, people in the Middle East faced either complicated or expensive savings options. With Sarwa, one no longer needed to remit money outside of the UAE to start earning decent interest on it. On the other hand, Sarwa’s story is a great showcase for the startup infrastructure in the region, as it was the FinTech Hive accelerator that really convinced the founders to leave their jobs and move to Dubai. As Mudassir Sheikha, CEO of Careem, told Wharton Fintech: “We’re seeing a reverse brain drain with a lot of people originally from our region that have built their careers in other global tech hubs returning to start companies and make an impact in their home countries.”
From saving to investing
A lot of ventures operating in the region always have Saudi Arabia, one of the region’s biggest, underpenetrated, and fastest growing markets, in mind. Sarwa is no exception and in early 2021 it obtained a license to operate in the Kingdom as well. Moreover, Sarwa decided to tackle another important pain-point for young professionals: lack of options to trade. Sarwa Trade offers commission-free access to trade thousands of US stocks and ETFs. Whereas one would have to incur expenses simply transferring money from their bank to their trading account, Sarwa trade offers zero-cost setup.
Meanwhile, the startup landscape is rapidly changing in the region, with the pace of growth radically different from 2017. There are now alternatives to Sarwa’s value proposition, with Dubai-based Baraka launching last year its own commission-free trading platform, spearheaded by an effective marketing campaign. With the competition in the space heating up, differentiation and growth may prove less straightforward. We spoke briefly to Mark Chahwan, co-founder and CEO of Sarwa, about his journey so far and the vision for Sarwa going forward.
Deniz Gasimli: Sarwa was launched in 2017, with you having previously worked as a consultant in Canada. What attracted you to the region, and what about the opportunity in Dubai convinced you to take the leap and co-found an investment platform?
Mark Chahwan: People in the region didn’t have accessible investment options and advice. They were dealing with very high account minimums and high fees. Being from the region, my co-founders and I wanted to solve such a massive problem. What really sealed the opportunity was the launch of the first fintech accelerator in the DIFC.
DG: Building a robo-advisory platform that offers quick onboarding, ease-of-use, and beats traditional investments platforms in terms of returns is a complicated business model. How did you go about setting up Sarwa and ensuring that it outperforms competitors?
MC: Being the first mover and the pioneer in the investing landscape has been very helpful. It was very challenging as we were the guinea pig for a lot of laws and regulations that needed to be adapted. The complexity itself deterred a lot of potential competitors. We are the leader by focusing on being the best employer, providing a great customer experience, and safeguarding trust.
DG: Sarwa experienced rapid growth in 2020, as first-time investors joined the platform during the pandemic. How has growth shaped up over the past year especially as the Reddit stock frenzy brought retail investment to global attention? What is the typical profile of Sarwa investors?
MC: 2020 changed the investing landscape with the increase in the savings rate and the surge of retail investing and trading. It accelerated our growth. 60% of our customers are first time investors, and the remaining 40% are savvy investors. The majority are between 25–45 and invest for the long-term. Our main marketing channel is our referral channel and word of mouth.
DG: Sarwa launched a crypto portfolio last summer, allowing investors to take exposure to Bitcoin. How did your clients react to the opportunity to invest in Bitcoin?
MC: It was a great reception and 30% of our assets came from our Sarwa crypto portfolio when we launched it. We’re planning to add more currencies beyond Bitcoin in the near future. In terms of education, we push a lot of content to educate customers via blogs, webinars, Instagram events.
DG: What is your vision for Sarwa in the near future? What excites you the most about the Saudi Arabia opportunity? As the fintech space in the region grows, there are also new startups in the retail trading space; how do you plan to differentiate your product as more firms enter the market?
MC: Our vision and differentiation will be first in making our products and investment experience as simple, affordable, and transparent as possible. Beyond that, we are building a one-stop shop where customers can manage their money in one place instead of having spread thin across too many apps.
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