The Future of Finance: Digital transformation, innovation and the FinTech ecosystem in the GCC

In recent years, the governments of the Gulf Cooperation Council (GCC) have moved to reduce their reliance on hydrocarbons, designing ambitious strategic plans to develop into innovation-led economies within a 15- to 30-year horizon. One aspect of these policies has been to promote technology-backed and data-driven industries, particularly in the financial services sector.

Early results of this success can be seen in the resilience of The Dubai International Financial Center (DIFC) – the region’s flagship offshore business hub – to the economic slowdown during the pandemic. DIFC saw a 20% increase in the number of firms operating there during 2020, with fintech among the leading growth sectors. In the past financial year, the number of fintech businesses registered with the DIFC more than doubled to over 300 – roughly 10% of all businesses registered at the centre and around a third of all financial businesses.

The success of the region’s fintech sector has been the result of careful strategic planning on the part of GCC governments, many of which are offering financial, regulatory and other incentives to the world’s fintech community. In particular, the GCC is now home to a dense concentration of market-leading fintech accelerators offering financial and regulatory support along with unparalleled networking opportunities and a range of other benefits. These accelerators are already among the most sophisticated and vibrant spaces for fintech innovation on Earth, and all the signs point to even stronger support for the fintech industry from the GCC’s regulatory and governmental authorities in the coming years.

While the GCC was a relatively late arrival to the fintech scene, the region has become one of the fastest growing markets for fintech innovation in the world. The Dubai International Financial Centre (DIFC) anticipates that Middle Eastern-based fintech companies will raise nearly US$3bn in venture capital funding by 2022, just under a third of a projected global market funding of US$10bn. While much remains to be done for the region to become the epicentre of the global fintech industry, a closer look at the regional ecosystem reveals a considerable growth potential.

BSA Ahmad Bin Hezeem & Associates recently launched a new Market Watch report in partnership with the Legal 500, focusing on ‘The Future of Finance: Digital transformation, innovation, and the FinTech ecosystem in the GCC’ that looks at key trends in the FinTech market including the evolving regulatory landscape, the relationship between banks & new age Fintechs, App-Led societies, funding and growing the eco-system and Accelerators across the GCC.

This report looks at the major changes within the fintech sector and provides key takeaways for business owners, including:

App-led societies: In regions with a large and diverse expatriate population, such as the GCC, or countries with low adult literacy rates, biometrics and accessing services via phone is key. In many GCC nations, government services are also provided through apps and technology. This is a prime market for the FinTech space, where the target audience is already well versed in using tech for everyday chores, and certainly are ahead of their European and American counterparts.

Harmony with banks: Major financial institutions have shifted their stance to embrace FinTech. Aside from developing their own solutions or investing or acquiring start-ups, they are also collaborating with fintechs, who have also realised a harmonious relationship is beneficial for both parties. Removing this potential barrier is creating a boom in the FinTech space.

Fintech is not exclusive to start-ups: Traditional finance power houses are embracing the tech movement, forming entire departments dedicated to digital transactions, creating digital platform-led units for L&D or promoting transaction monitoring technologies. Fintech is no longer new, it has survived the test of time, proving its integrity and necessity in the market.

Innovation in regulation: Commitment to fintech innovation can be seen through the adaption of traditional regulatory frameworks. A great example of this in the GCC is the proliferation of regulatory sandboxes: experimental spaces where both incumbents and challengers can test their products and services on the fringes of, or outside, the existing regulatory framework. These ‘special allowances’ give business innovators a space to work freely without fear of breaking any rules. Regulators understand that if you want to be pioneers, you must be flexible.

Proactive regulatory support: Regulators in the GCC have passed several forward-thinking legislations to address the growing needs, products & services offered by fintech providers. In the UAE, the Central Bank issued an update to the stored value framework, and also has plans to introduce payment service provider legislation in the coming months. In Saudi Arabia, the Saudi Arabian Monetary Agency issued the Payment Service Provider Regulations in 2020, as well as its Open Banking Policy in 2021. Egypt also passed in new legislation in 2020 allowing the Central Bank to issue licenses to fintech entities. All positive steps towards a thriving fintech sector!

Say Hello to Generation Z: Being Digital is already a part of everyday life, from picking up emails on the go, to accessing the internet on your daily commute. The younger generation of consumers are more worried about losing their phone, than their wallet, and the concept of an ‘e-wallet’ appeals to a generation who value services which are quick and easy, but which also allow them direct ownership. There is a huge, untapped market who don’t need to be taught the basics.

The Research

This report is based on research conducted by The Legal 500 who conducted a series of interviews with key industry players in the Middle East and supplemented by secondary market research. Contributors to the report are listed at the back of the report as well as throughout. BSA contributed their knowledge and expertise through a series of discussions, articles and briefings.