FinTech Revolution in the Gulf Countries Analysis
The booming financial technology sector (FinTech) is poised to transform the global financial services industry. We are witnessing a paradigm shift in the way people make business and conduct trade across the world. In this FinTech revolution, there is a growing emphasis on technology adoption driven by major innovations in payment systems, banking, insurance, asset management, etc.
FinTech is an innovative and revolutionary business concept that provides clients with a popular alternative for classic banking services. There is a growing trend towards digitalization in the financial sector, technology enhancement, and increased use of mobile applications. The current growth rate in the global FinTech market confirms this shift.
Mobile Payment Systems in the Gulf
In the Gulf region, FinTech systems include mobile payment systems introduced in 2012 that now cover more than 75% of the residents. These technologies significantly improve traditional banking procedures and help provide more value-added services for customers. Thus, they enhance clients’ trust towards banks by enabling them 24/7 access to account data and money transfers.
Trends of Mobile Payments in Gulf
One of the major benefits of mobile payment systems is the security they offer to customers amidst growing cases of fraudulent activities. Moreover, FinTech solutions are used by banks to link their financial services with other leading industries such as telecommunications, travel and transportation, retail, media, and technology, helping the process flow smoother. These expanding innovations have led to many start-up firms and FinTech companies in the Gulf region.
In fact, recent data from market research firm Aite Group highlights that 31% of consumers in the Middle East are anticipated to use mobile payment systems by 2017. This is a significant increase from only 9% in 2015 with the majority of these users being millennials aged 20-34. This is a positive reflection of the growing trend towards mobile payments in the region.
The Saudi Arabia Monetary Authority has attempted to normalize mobile payment systems by allowing banks to send information regarding electronic transactions directly to customers’ smartphones. Moreover, regulations on online financial transactions were removed in 2015, and financial institutions were allowed to operate as FinTech companies. This has led to the emergence of many firms that offer mobile payment services, online trading platforms, peer-to-peer lending, and crowdfunding in the region.
FinTech and Payment Services
In this FinTech revolution, there is a growing emphasis on technology adoption, driven by major innovations in payment systems, banking, insurance, and asset management. This has led to the emergence of many startups that offer mobile payment services, online trading platforms, peer-to-peer lending, and crowdfunding in the region.
Aite Group predicts financial technology adoption will grow over 10 times by 2020. The growing trend towards FinTech in the Gulf region is also evident from investments made in start-ups and FinTech companies. In the first quarter of 2015, financial technology firms in the Middle East and Africa (MEA) attracted more than $117 million in investments. This is nearly double compared to the $60 million recorded during the same period last year.
Mobile Payments and Fintech Investment
Mobile payment systems are one of the main drivers that will help stimulate FinTech investments in the region. The governments of several countries are taking steps to support the growth of this sector through measures such as easing regulatory requirements, promoting digital literacy, and improving the level of skills among workers.
These countries aim at transforming their economies and societies by encouraging digital solutions to address major challenges that hinder growth. Some examples of such countries in the Gulf region include Saudi Arabia, Kuwait, and Qatar–having announced plans for digital transformation programs over the next 10 years. The UAE has also launched the Dubai Future Accelerators in collaboration with MIT Media Lab to support innovative FinTech start-ups over a period of 12 months by providing them with office space, mentorship, and seed funding.
Another example is Bahrain, which recently launched a $2 million FinTech Fund to support the growth of innovative solutions in financial technology. Besides, home to leading FinTech start-ups, the UAE has also pioneered several initiatives such as Dubai’s Smart City initiative and the Emirates NBD Innovation Lab launch. Moreover, in recent months, Bahrain has announced plans for a national e-wallet to be used for payments and other government transactions. The country is also moving forward with plans to launch a FinTech law that will regulate the industry according to international standards.
Challenges of Fintech Revolution
While this FinTech revolution is taking place in the Gulf region, one of the major challenges that will hinder further growth is low levels of financial literacy among consumers and businesses. In fact, according to a study conducted by MasterCard on consumer behavior in MEA during 2015, only about25% of respondents knew how much they could spend on online shopping!
Another challenge is the lack of a payment infrastructure that will allow consumers to use their mobile devices to make payments and settle bills.
Finally, regulatory challenges such as the need to adopt international standards in developing a legal framework, are slowing down further growth.
Dubai School of Government: DSoG is an independent policy institute based in Dubai that focuses on the new dimensions of governance. It is researching the FinTech Revolution in the Middle East and Africa (MEA), partnering with the Harvard Kennedy School.
This research aims at analyzing how FinTech will reshape financial services in MEAs and what impact it will have on public sector institutions. The research findings will be published as ‘The FinTech Revolution: How Financial Technology is shaping our future.’
With this study, DSoG is answering a pressing policy need by highlighting the challenges and opportunities of FinTech development in MEA. It also provides practitioners with actionable insights on leveraging this new technology for economic growth and social development.
If the Gulf countries are focusing on FinTech to realize their economic potential, then they should also work towards promoting digital literacy and improving the financial skills of consumers. In addition, the Gulf nations should also work towards developing a FinTech infrastructure that will allow consumers to make payments and settle bills using their mobile devices.
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