UAE remittance fintechs must follow same rules to send money: Al Ansari's Deputy CEO

Dubai: UAE fintechs offering remittance services have certain ‘unfair’ advantages that allows them to ‘provide everything for free’ when using their digital platforms.

That needs to change, according to a senior member of FERG (Foreign Exchange Remittance Group).

“These fintechs based in UAE’s financial free zones operate with certain advantages such as lower operating expenses compared to currency exchange businesses or banks offering remittances,” said Mohammad Bitar, Deputy CEO at Al Ansari Financial Services.

“This is because the fintechs have a much lower minimum capital requirement despite being in the same business of being remittance providers.

"If they want to offer free of charge service, that's up to them. But they should obey the same rules on minimum capital and risks that legacy remittance businesses in UAE do."

The issue of remittances - and how much UAE's service providers should charge or do it for free - has been such a burning issue in recent years.

“The free zone fintechs are by rule not allowed to have any exposure in the mainland. Nor are they supposed to engaged in AED based activity.

“What we - as Al Ansari Financial Services and FERG - are asking for is a review of all such operations by fintechs doing remittances. Ideally, they too should be under the oversight of the UAE Central Bank, just as banks and traditional remittance houses are.”

Bitar’s comments come as the stakes have gotten bigger – and much more competitive – in the UAE’s outward remittance market, accounting for well over $40 billion a year. Now, estimates of how much digital remittances make up within it tend to vary, but sources suggest it would be in the region of $20 billion and with the fastest growth rate.

In the last 3 years, UAE’s remittance-focused fintechs have taken out sizable chunks of market share from legacy FX houses and banks in this space. It’s in this context that Bitar’s pointed mention of them having ‘certain advantages’ should be seen.

“Anyone offering remittance services should have the same capital requirements,” said Bitar. “It doesn’t matter whether these are fintechs of currency exchange houses offering hybrid options such as physical outlets or online channels.

“We find that fintechs are matching our strategy on up to 98% of the time, but they don’t need to follow the same risk parameters or retain a certain minimum capital. That, according to us, should change. As FERG, we have brought these matters to the attention of the concerned authorities, such as the free zone operators and the Central Bank.”

By offering remittances for free or at much lower fees, fintechs are guning for something bigger, according to FX exchange industry sources. Bitar concurs.

"The fintechs are aiming to be 'super-apps', where beyond remittances, they could offer more," he added. "Some might want to get into salary payment services, others would target micro-finance opportunities, or cross-sell any other service.

"But they get to a sizable client base through remittances - and offering these for free."

In recent years, the UAE Central Bank has closely tracked the fintech sector, most notably when they introduced strict rules on the formation and operation of 'buy now pay later' consumer financing platforms. It meant these businesses had to show a fairly sizable capital as being in place, and there were also guidelines on how they can engage with customers.

Something similar for remittance fintechs would work well, sources say.