Digital transformation of Middle East financial services is accelerating
Source: Instinctif for Jupiter Asset Management , Author: Posted by BI-ME staff
Posted: Wed April 24, 2019 11:44 am

UAE. The financial services industry looks ripe for disruption as rapid developments in financial technology, new regulations to improve transparency and the rise of digital savvy millennials support an irreversible global trend towards financial innovation, says Jupiter Asset Management.

In relative terms, the adoption of FinTech in the Middle East remains in its infancy compared to the US, Europe and Asia, but the region is waking up to new opportunities in the sector. Meanwhile, in 2018 a record-breaking USD 111.8 billion was invested in FinTech deals globally[1], threatening to upset traditional financial services providers who have underinvested in enhancing IT systems, software and processes.

The research paper, “Shifting sands: FinTech as a catalyst for change in the Middle East’s financial sector” provides an in-depth look at emerging trends in 2019, against the backdrop of 2018’s surge in FinTech investment.

The GCC region shows considerable promise in embracing financial innovation. Across the region, banks and financial institutions are working with FinTech firms to digitalise operations and provide new solutions to customers. In the UAE and Saudi Arabia, financial innovators have been supported by a Sandbox regulatory environment to facilitate the impact of new technologies, supporting firms in testing innovation and solutions.

Guy de Blonay, Fund Manager at Jupiter Asset Management said: “Across the Middle East, and particularly in the GCC, financial services providers are demonstrating a commitment to innovation, securing a number of partnerships with FinTech providers, adopting the latest technologies from cybersecurity tools to payment platforms, and working with regulators to increase access to new technologies. Within the sector, the role of FinTech is manifold, from increasing efficiency to supporting broader industry trends, such as consolidation in the GCC banking sector.”

The success of efforts to establish FinTech incubation programmes – such as Dubai International Financial Centre’s FinTech Hive and the Saudi Arabian Monetary Authority’s Fintech Saudi – demonstrates the GCC bloc’s readiness to provide an environment for growth of emerging technology companies. The recent London IPO of Network International has further shown the region’s capacity to provide an environment for growth of world-leading technology firms.

Payment solutions also demonstrate signs of growth. The adoption of digital payments is three times faster in emerging markets – such as the GCC – than in developed markets. So, depending on how fast the landscape grows or changes, incumbents like VISA or MasterCard have three to five years to adapt. The current invisible payment system is carried out using digital currencies that eliminate cross-border efficiencies, opening doors for new entrants across markets. Electronic payment methods such as WeChat Pay, AliPay, Apple Pay and PayPal are making their presence increasingly known.” continued de Blonay.

While a cashless society is still some way off, the gap is closing. The global eCommerce market is estimated to reach USD 4.2 trillion by 2020, an increase of 55% on 2018[2]. Less economically developed countries without legacy infrastructure have the added benefit of being able to implement new technology at faster rates. Emerging markets in the Middle East find themselves in a sweet spot, being both economically developed but with a healthy appetite to rapidly adopt new technology.

For investors, development in the FinTech sector has created compelling opportunities. While the heavy burden of negative interest rates in Europe has impaired growth, Asia has emerged as the global leader in pushing FinTech programmes.

With regional banking sectors such as the UAE’s forge closer ties to robust Asian financial institutions it is likely that a similar approach and methodology will be adopted as the local FinTech sector is nurtured.

[1]  https://assets.kpmg.com/content/dam/kpmg/xx/ pdf/2018/07/h1-2018-pulse-of-fintech.pdf
[2]  The Nilson Report: Global Electronic Payment Volumes Growth (2015-2025E) Subscription required.

Disclaimer: This article is to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it.

 

MIDDLE EAST BUSINESS COMMENT & ANALYSIS

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SAUDI ARABIA. Millennials in Saudi Arabia are more satisfied with their life today compared to global peers; Saudi youth are more ambitious about career and entrepreneurship opportunities; 94% would consider joining the gig economy.
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INTERNATIONAL. With "all things digital", a generous amount of ambiguity and experimentation is always to be expected. But one thing seems fairly certain: big data will demand more of people, not less, as our digital epoch unfolds.
date:Posted: May 17, 2019
LONDON. The UAE is the best-known example of business-friendly reform in the MENA region; Many Western countries' instinct to protect and turn inwards, combined with a wider stagnation in the quality of Governance globally is acting as a brake on Economic Openness.
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