A must-do list for Mideast’s fintech businesses

While still in its early days, financial technology (fintech) is already having a profound impact. Nearly half of all adults globally own at least one mobile phone, creating new opportunities to provide financial services to previously inaccessible consumers in developing countries. And a major opportunity for businesses to reach the 85 million individuals in the Middle East who remain unbanked, according to the World Bank.

The UAE is working to be a leader in this sector, as earlier this year the Dubai International Financial Centre (DIFC) announced its DIFC FinTech Hive. The Abu Dhabi Global Market and the Monetary Authority of Singapore announced a MoU to develop a bilateral framework to assist fintech industry players.

Both reflect the pace of change in the UAE, and the competition amongst the region’s leading financial centres — Dubai, Abu Dhabi and Bahrain — to position themselves as the premier hub for this new and disruptive sector.

Fintech is already disrupting the region’s banking sector through offering alternative platforms for commercial and personal lending. By addressing fundraising needs through newer products and services at lower fees and with more open lending criteria, fintech companies are now in competition with traditional banks for market share.

In a survey by consultancy EY, 36 per cent of respondents stated that up to 10 per cent of the Gulf’s banking sector business is at risk of being lost to stand-alone fintech firms in the next five years. However, banks also see opportunities for synergies, as 70 per cent of participants in the survey stated that the Gulf’s banking sector is open to integrating fintech innovations that could help enhance consumer experience and streamline their operations.

One concern about the sector is that it may prove to be too disruptive, as automation — at the heart of fintech offerings — could result in potential job losses within the financial services sector. Indeed, high-skilled industry functions such as analysis, accounting, trading and even legal functions are becoming automated, resulting in the elimination of some jobs, which may be accelerated with the rapid growth of new technologies.

However, bullish observers note that in previous industrial revolutions, while the introduction of new technologies saw some jobs become obsolete, they also created the need for new jobs. This trend could be replicated for fintech, with the introduction of new professional services that update rather than kill jobs.

Challenges remain in further developing the industry in the region. Most notably, the Middle East remains one of the most cash-driven societies in the world. In the UAE alone, an estimated $230 billion (Dh844.8 billion) in payments — comprising 75 per cent of all transactions — are still conducted by notes and coins, impacting demand for technology-driven financial services.

Regulation remains another hurdle, as authorities are only beginning to formally regulate the sector. Differences in regulations between (and even within) countries contribute to a highly fragmented regional ecosystem, impacting companies’ ability to scale and enter new markets.

Fintech companies must communicate their shared value proposition and pre-empt any concerns that may be raised by regulators, traditional financial institutions, customers and the public in general.

We outline five communications considerations:

1. Increase market education: This is essential in raising awareness of how these fintech products and services can benefit consumers, businesses and the region as a whole.

2. Explain your contribution to financial inclusiveness: With the potential to serve the large unbanked and underbanked population in the Middle East, fintech companies need to show that their purpose is beyond corporate profit and that they are key to facilitating financial inclusion and wider positive change.

3. Demonstrate alignment with government initiatives: The influx of fintech start-ups reflects the private sector’s alignment with many government initiatives such as the UAE Innovation Strategy, UAE Vision 2021, and many other national agendas to promote economic diversification.

4. Demonstrate synergies with traditional financial institutions: The fluidity of this new sector means that new players should highlight synergies and areas for collaboration, rather than solely focus on differences and disruption of existing models.

5. Address risks: Fintech players should proactively address issues like cyber security and personal data protection in order to allay the fears and concerns of consumers, investors and regulations.

As the region continues to attract ideas and innovation in this new sector, it is important for players to communicate their business, strategy and societal benefits clearly.

The writer is Partner at Brunswick’s Abu Dhabi operations.