The UAE has been witnessing a flurry of activity in the financial technology or fintech sector ever since the MENA countries started to put in place regulatory measures to ensure the smooth growth of the industry four years ago.
If the industry has gained a foothold in the UAE, it is because of an ecosystem that is conducive to new financial alternatives, and support from the government in the form various initiatives, among others.
In its report entitled The Rise of Fintech in the Middle East, the US-based nonpartisan nonprofit think tank Milken Institute said Bahrain and the UAE have emerged as leaders in the region for developing ecosystems supportive of fintech development.
The fintech sector in the Middle East has been growing at a Compounded Annual Growth Rate or CAGR of 30 percent.
The institute predicts that, by 2022, 465 fintech companies in the region will raise over $2 billion in venture-capital funding, compared to the nearly $80 million that the 30 fintech firms raised in 2017.
According to the London-based Findexable’s global 2021 fintech ranking report Bridging the Gap, the UAE has been ranked second in the Middle East, after Israel.
Saudi Arabia held the seventh place in the MENA region, followed by Tunisia (10), Egypt (12), Lebanon (13) and Jordan (14).
As for the cities, Tel Aviv occupied the first place, followed by Dubai (2), Cairo (3), Riyadh (4), Tunis (5), Abu Dhabi (6), Jeddah (7), Manama (8), Casablanca (9), Tehran (10), Amman (11), Beirut City (12), and finally Kuwait (13).
Close to 47 percent of the fintech deals in 2019 were in the UAE and nearly half of the fintech companies in the MENA region have been based in the Gulf country.
Globally, the UAE is ranked 28th in 2021, climbing up six places from 2020.
In last year’s report, Findexable said 60 percent of the global GDP would be digitized by 2022, which would create enormous possibilities for fintech.
The report further said half of the top 100 leading fintech cities are in emerging markets such as the Middle-Eastern countries.
With the outbreak of Covid-19 last year, the UAE and Saudi Arabia have vowed to become digital economies and are leading the fintech revolution in the region now.
With 33.7 million population, compared with UAE’s 9.6 million, and improved laws, Saudi Arabia is seeing its fintech industry developing very fast.
Online payments take the lead
Online sales in the UAE and Saudi Arabia were $7.5 billion before COVID-19 surfaced in the region and it went up to $11 billion by end of March 2020.
A recent survey of over 1,000 respondents in the UAE, Saudi Arabia and Egypt by PricewaterhouseCoopers had 53 percent of the participants saying say had used smartphone payments for online deliveries during the pandemic.
More than 90 percent said they would continue using smartphone payments even after the crisis had subsided.
Attracting global firms
Lured by the support from the GCC governments, Amazon launched the first Amazon Web Services (AWS) center in Bahrain in 2019. Three more centers are expected to be set up in the UAE in the first half of 2022.
The addition of the three centers will aim to enable local customers with data residency requirements to store their data in the UAE.
Amazon Payment Services, a payment processing service in the MENA region, has launched the Amazon Fintech Lab in the DIFC Innovation Hub.
The initiative is the latest in its efforts to support fintech in the region by providing a forum for discussions on digital payments and the future of the fintech industry.
Islamic fintech
The fintech revolution has also taken the member nations of the Organization of Islamic Countries by storm, and the UAE and Saudi Arabia are leading other countries in terms of transaction volumes and ecosystem.
According to the Global Islamic Fintech Report 2021, the volume of Islamic fintech transactions in the OIC countries was $49 billion in 2020. These transactions are projected to grow at a CAGR of 21 percent to $128 billion by 2025.
Leading in the largest volume of transactions were Saudi Arabia, the UAE, Malaysia, and Indonesia.
Malaysia, Saudi Arabia, the UAE, Indonesia, and the UK were the top five countries with the strongest ecosystems, while Kuwait, Pakistan, Qatar, Bahrain, and Jordan were considered as “fast-maturing ecosystems.”
The report also conducted a global survey of 100 respondents in the Islamic fintech industry and found that 56 percent of the firms were expecting to raise an equity funding round in 2021 with an average round size of $5 million.
Investing in fintech
Realizing the importance of evolving fintech innovations, majority of the banks in the GCC region have been investing in the ecosystem to meet the customer demands of increasing digital solutions.
With regulations firm in place in the GCC countries, banks in the region have been giving third-party companies access to the accounts of their customers through Application Programming Interfaces (APIs).
This has made life easier for the accountholders to conduct daily transactions through either their computers or by mobile-banking fintech apps, without even visiting banks.
However, the banks have been asking customers to keep details like account numbers and passwords confidential, lest they lose money to scams or fraud.