The UAE has taken a lead in regional ‘fintech’ investments and banking technology adoption in the Gulf Cooperation Council and the wider Middle East and North Africa (MENA) region, according to a recent study by the Institute of International Finance (IIF).
“Fintech can deepen and enhance the efficiencies of financial systems, broaden access to financial services, support economic development and promote inclusive growth in developing and emerging economies,” said Boban Markovic, IIF research analyst at the Institute of International Finance (IIF).
“The UAE has the most developed fintech ecosystem in the region, mainly due to the government’s initiative to provide an enabling regulatory environment and financial support for fintech initiatives,” said Garbis Iradian, IIF’s MENA chief economist.
The IIF said uptake of fintech services and overall fintech investment into the MENA region had been low compared to other regions. Excluding a single large deal last year, fintech investments at all stages in MENA amounted to only US$120 million since 2010, compared to US$300 million in sub-Saharan Africa, US$1.7 billion in Latin America and US$7.5 billion in emerging Asian economies excluding China.
This is changing. In 2016, the region counted 145 fintech start-ups, compared to 46 in 2012. Given that most of the region’s fintech start-ups are in their early stages, scaling up and rapid expansion are expected in years to come. It is estimated that the number of regional fintech players will more than double between 2016 and 2020, to over 250.
In 2016 the Abu Dhabi Global Market (ADGM), the financial free zone in the heart of Abu Dhabi, launched its fintech ‘RegLab’, a tailored regulatory regime. Participants are allowed to develop and test their business models for periods of up to two years, while also having access to local and global industry experts.
Soon after the Dubai International Financial Centre (DIFC) launched the ‘FinTech Hive’, an accelerator programme to allow fintech start-ups to experiment with their platforms while having access to senior industry leaders to advise and collaborate on their projects. DIFC has further endorsed a broad spectrum of companies within fintech – InsurTech (insurance technology), RegTech (regulatory technology) and Islamic FinTech.
More recently, the Securities and Commodities Authority (SCA) signed an agreement to develop a fintech accelerator programme in onshore UAE. The SCA, along with the Central Bank, are the two on-shore regulators for all banking and financial activities and work in tandem to provide oversight for the financial industry. The SCA’s goal is to develop new regulation for fintech entities as well as to provide a platform for start-ups to develop their ideas and obtain support in a closed environment.
The availability of these incubator and accelerator programmes has helped put the UAE’s fintech industry on the map and offers start-ups a chance to trial projects with partners and with large financial institutions. This is also giving regulators the opportunity to examine the emerging financial technology industry and look at the needs of the region’s evolving financial services sector.
Although there have been concerns over data security and customer privacy, the UAE is gradually developing a fintech-friendly sector. As the majority of the region’s fintech start-ups are only in the early stages of operations, we expect to see further industry growth in the coming years with even Blockchain and Big Data solutions becoming available for the customer.