A burgeoning growth in the sharing economy and increased consumer preference for ‘access’ over ‘ownership’ are the key trends currently shaping marketplaces. The global sharing economy was valued at $15 billion in 2014 and is on track to reach $335 billion by 2025.
Excess capacities in automotive, consumer goods, hospitality and entertainment sectors have made the sharing economy possible, mitigating the costs associated with ownership of underutilised real assets. Uber and Air BnB have created market places without owning real assets. On the consumer side, the demographic profile of those who are most excited about the sharing economy, namely 18 to 24 year olds, households with an income between $50,000 to $75,000 and those with children under the age 18, makes the case for its growth even stronger.
Consumer preference for access rather than ownership presents opportunities firstly for asset owners, including small and medium enterprises to utilise their assets more productively; and secondly for digital platforms to create a marketplace.
The rise of the digital economy has catapulted the Middle East and North Africa (Mena) region into a position of significant market opportunity that, once tapped, will set the regional economy on an entirely new trajectory. With a collective GDP of around $3.5 trillion, the Arab world is very much in the global reckoning, ranking among the top 10 largest economies.
More than a third of the region’s total population is between the ages of 15-24, the largest age group in Mena, with the UAE and Saudi Arabia among the top few countries globally in smartphone penetration rates.
Whilst these demographics provide strong tailwinds for growth of technological adoption in the marketplace, investment in the Mena region lags behind global investments in the fintech sector.
Regulation is seen as one of the most important factors that can either catalyse or stall innovation adoption. Less than 0.1 per cent of the global Fintech investment originates from the Middle East. According to Magnitt, a networking business for Middle Eastern start-ups, there are 54 new fintech companies in the Middle East and North Africa region, and 20 in the UAE alone.
The fintech ecosystem in the Middle East overall, and Bahrain specifically, is less developed than in other regions. There are fewer facilitators to support entrepreneurs and investors, although this is changing.
Regulators in Abu Dhabi have taken the lead in the region by developing a “sandbox” to help fintech start-ups test their products. The sandbox, which is modelled on similar initiatives by regulators in Singapore and the UK, allows companies to launch under restrictions and regulations which are less onerous. Recently, Abu Dhabi Global Market has launched a Fintech incubator, RegLab, the first of its kind in the Middle East. RegLab is intended to provide a tailored framework that provides a safe environment within controlled boundaries, for businesses to test, develop and provide innovative Fintech products and services without immediately being subject to all regulatory requirements.
The Central Bank of Bahrain has also recently announced that it is considering introducing regulations on Fintech and the intention would be to invite technology companies to set up offices in the Kingdom and serve the entire Gulf Cooperation Council (GCC) region.
That said, there are challenges which fintech start-ups need to navigate, including aspects relating to knowing customer requirements and the lack of credit scoring or public data on companies; which are key requirements for peer-to-peer lending businesses.
The fragmentation of the Middle Eastern markets also poses a challenge for fintech ventures. Whilst start-ups in US and Europe have a whole continent to expand into, the Gulf doesn’t have the same ease of doing business across borders.
Despite these challenges, interest in technology start-ups across the region is skyrocketing, with half a dozen start-ups in Mena valued at more than $100 million each and more than $750 million invested in tech start-ups between 2013 and 2015.
With new launches by Fintech such as digital payments, crowdfunding, robo-advisory and blockchain, incumbent banks need to brace themselves for swift Fintech adoption in order to remain at the forefront. End consumers certainly would view these developments as positive owing to the convenience and cost efficiency offered by Fintech innovations, so long as the security and privacy issues are adequately addressed.
— Narayanan Ganapathy, member of CFA Society Bahrain.