Fintech in the Middle East: a powerhouse in waiting?

Could tech-powered finance solutions become as great a force in the Middle East as oil? It may take a few years yet, but thanks to a combination of macro, micro and regulatory factors, there are encouraging signs that new fintech firms will flourish in the region over the medium to long term – and that those already underway will go from strength to strength.

In the broadest sense, Middle Eastern economies have begun to realise that their dependency on oil has put them in a precarious position, amid an ongoing slump in the commodity’s price. In April, for example, the monarchy of Saudi Arabia published Vision 2030: a wide-ranging and ambitious plan to rebalance the kingdom away from what Deputy Crown Prince Mohammed bin Salman described as an “oil addiction” that has “hampered the development of many different sectors in recent years”.

Vision 2030 stressed that the key to diversifying the Saudi economy was innovation – and that required dramatic efforts to establish a local startup culture that, at present, doesn’t exist on a level comparable to that of most Western countries. The paper announced that a new SME authority would support entrepreneurship, microfinance and investment in new industries, and facilitate access to the “vast marketing opportunities” that are available through social media and other digital platforms. A true shift of emphasis, then, for a location so steeped in oil – and a clear signal that huge opportunities await fintech players as the Saudi vision takes shape.

Urge to merge

On a similar note, Abu Dhabi has also taken significant steps to wean itself off oil and plug itself into technological development. So far this year, the government has unveiled two megamergers designed specifically to open up the Emirate’s economic landscape to fresh ideas. On 29 June, it announced that the finance firms Mubadala Development Company and the International Petroleum Investment Company (IPIC) would combine to form an entity with assets of around $135 billion. According to Crown Prince Sheikh Mohammed bin Zayed, the new institution would “realise synergies” in multiple sectors, including technology and finance, and “contribute significantly to the diversification of the economy” – with long-term employment and the development of human capital high on the government’s agenda.

Just days later, that same government came up with a second, blockbuster tie-up, revealing that the National Bank of Abu Dhabi (NBAD) would join forces with First Gulf Bank (FGB) to form a new lender – which will retain the NBAD name – with market capitalisation of $29 billion and total assets of $175 billion. NBAD chief Nasser Ahmed Alsowaidi, who will serve as vice-chair of the new organisation, said that the UAE as a whole would “benefit from a strong financial partner with the capacity to meet new challenges, drive domestic growth and support the country’s ever-greater connections to the global economy”.

Each merger has the scope to stimulate a teeming mass of grassroots innovators with their sights set on the fintech market – and in recent months, Abu Dhabi has put in some impressive joined-up thinking on that front. In May, its Financial Services Regulatory Authority (FSRA) unveiled plans to create a safe environment in which new fintech firms could test out novel concepts on carefully restricted slices of the market prior to full approval and launch. Known as the Regulatory Laboratory, or ‘RegLab’, that test bed has been directly inspired by the Regulatory Sandbox initiative set up for the same purpose at UK watchdog the Financial Conduct Authority (FCA). This demonstrates that Middle Eastern governments are increasingly taking note of the state-backed support tools that are emerging in countries where fintech is more deeply entrenched – no doubt with the hope of emulating their success.

FSRA officials want RegLab to be a cornerstone of “stable and sustainable development” in Abu Dhabi’s financial sector, showing that they have taken both sides of the innovation journey into account: risk, as well as reward. “Our challenge,” the regulator said, “is to address the risks of testing novel solutions on consumers in a manner that does not undermine the stability of our financial system.” To that end, RegLab will develop a customised testing model for each product that comes through its doors, avoiding a one-size-fits-all procedure in favour of welcoming the full breadth of innovative approaches that market entrants will bring to the table.

Sense of strategy

RegLab has already picked up two, high-profile strategic partners, with the FSRA revealing that local startup accelerator Flat6Labs and the Abu Dhabi branch of New York University (NYUAD) will be its primary collaborators on the project. While Flat6Labs will nurture an ecosystem of fintech development in the Emirate, thereby providing RegLab with a food chain of innovations to test, NYUAD will devise a programme of skills and technical training for FSRA stakeholders to enhance their knowledge of fintech technologies. In exchange, the FSRA will work with IDEA Lab – NYUAD’s regional community of entrepreneurs – to advise budding fintech moguls on how best to achieve regulatory approval in the UAE and gain firm, commercial footholds there.

Also in the UAE, in June, leading bank group Emirates NBD launched a three-year, AED500 million, digital and multichannel overhaul of its products and services “to facilitate a ‘smart’ transformation in banking”. The group’s move proves that innovation in financial technology is not just the preserve of new entrants – who will surely be watching the bank’s progress with keen interest to see how its project plays out.

Talent for tech

By any assessment, fintech’s time in the region has come. Political enablers are slotting into place, and entrepreneurs are gearing up for a time of change ahead. But how does fintech in the Middle East compare with the sector’s performance in, say, the UK? For some insights, Carter Murray spoke to Lawrence Wintermeyer, CEO of global fintech trade association Innovate Finance.

“Fintech is booming globally, and there are great things happening in the Middle East,” he said. “But London is still at the heart of it all. Let’s look at the talent: in London, we have more than 66,000 engineers, scientists, mathematicians and designers dedicated to financial services and technology, slightly outpacing New York. Diversity is also abundant, with more than 250 languages spoken in London. That makes it an attractive hub for investment capital and tech players looking to enter the European market.”

He added: “In London-based fintech, women are playing an increasingly larger role, with 8% of our member firms in the city having female founders or business heads, compared with 5% in Europe’s top 50 firms. Investors are increasingly looking for female talent, as women often see opportunities and risk in different ways from men.”

Still some way to go for the Middle East sector, then. But given the regulatory, technical and commercial influences that have already spilled over from the West, it is only a matter of time before boosting talent in the region becomes a major priority.

Key takeaways
• Saudi Arabia is determined to steer economy towards technological innovation
• Banking megamergers have set the stage for significant investment in innovative firms
• Abu Dhabi regulator the FSRA has launched a service to groom fintech products for regulatory approval
• Fintech is booming globally. The UK remains a leader in terms of talent and diversity, but the Middle East’s time of great fintech advancement appears to have arrived