Changing the Financial Landscape

  • 20-12-2018

Let’s admit it — finance used to be a chore. It was difficult to understand how banks worked, or even to reach them in the first place, and it was tedious to manage all your money all the time. Thank goodness the advent of Financial Technology — more commonly known as FinTech — has brought with it great innovation, and consequently great relief. Around the world, countries are turning towards the promise of investing in FinTech centres.

London: an established financial centre

London’s financial centre continues to hold the same position it did despite critics insisting that Brexit will cripple the country. Over time, people are growing optimistic about the UK’s prospects. There is increasing confidence that Brexit may even contribute to London’s position as a global FinTech hub, as the liberalisation of free trade gives the UK the opportunity to explore options more suited to its economy outside of the single market. Removing barriers to free trade while continuing to sell to the EU across small tariffs — the way the rest of the world conducts business — could bring about lower prices and increased competition.

The centuries-old financial sector has always held considerable sway both domestically and internationally, and in recent times, it has shown that same strength in FinTech. The busy centre accommodates all the links that connect electronic trading, which currently accounts for over half of the daily $5.3trn currency market worldwide.

London offers a large market that is eager to see how technology can enhance the often bland financial sector. The city is a welcome respite from a world that does not trust FinTech, and many software developers reside in the area because of the thriving job market the relaxed atmosphere brings. It’s not just the place to find the best and brightest of the tech industry, it’s also the place to go to be one of the best and brightest in the tech industry yourself, as it enjoys a vast network of prestigious educational institutions and is supported by talent migration from the EU and beyond.

This is how London is a key player in both digital progress and the propagation of such progress.

ME: on the rise, led by UAE

The Middle East’s entry into the FinTech race is sure to spice things up; Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM), UAE’s two main financial hubs, have just recently launched sandbox programmes dedicated to the acceleration of improvement from FinTech startups, and there are more to come this 2018. These arrangements were implemented to work both ways: to give startups an opportunity to learn about how business is conducted from some of the UAE’s largest and most experienced companies; and to give traditional banks and financial services the chance to understand the full scale of the impact of these technologies — thereby giving them a better idea regarding where they should invest in.

For example, the UAE Exchange’s involvement in both DIFC’s and ADGM’s fintech programmes is strategic, because it will lose out from the growth of younger FinTech alternatives unless it can pick up new lessons from the startups it mentors and adapt accordingly.

In addition to providing an environment where both large business and startups can work side by side, the UAE hopes that it will be able to reach out to start-ups that focus on challenges specific to the Middle East, Africa, and South Asia (Menasa), with emphasis on the region’s large unbanked populations.

Outside the Emirates, Bahrain is also working to attract FinTech startups to its shores with regulations for the creation of its own sandbox programme. Saudi Arabia has also expressed interest, declaring that FinTech will be an integral part of its Vision 2030 plan in its efforts to reduce dependence on oil revenues.

The Middle East region is slowly gaining FinTech momentum; from merely forty-six start-ups in 2013, the count has more than doubled to 105 to date. They’ve started in twelve countries across the region, but so far UAE holds the largest source market.

The UAE’s growth in FinTech is predicted to continue, with Amazon’s high-profile acquisition of the local online retailer Souq.com, a US$150 million investment in the Careem service, and the announcement of a one-hundred-million-dollar fund for DIFC’s FinTech efforts.

There are bound to be benefits brought about with mobile wallets like Apple Pay and the Google Wallet digitizing the payment system, especially with the country’s significant expatriate population and the need to process transactions and remittances speedily. 

Financial technology also answers the urgency to channel money into their domestic economies to offset the large outflow that regularly takes place because of expat remittances. Wealth management services and robo-advisers are being developed in response to this.

There is growing interest in the FinTech sector — but not all who decide to cross over will make it. 

Payfort, an online payment service provider in the Arab world, and Wamda, an entrepreneurship platform in the Middle East and North Africa (MENA) have found that one in four of the region’s start-ups will fail. Setting up a start-up in FinTech still seems daunting for many of the UAE’s young professionals, most of which come from financial consulting and information technology backgrounds. There is much they will face in their FinTech journey, from regulatory burdens outside of the ADGM and DIFC imposed on financial services companies to the more familiar start-up challenges of hiring and retaining talented employees.

The interest in this sector grows and even more professionals will choose to try their luck in the future — and the UAE government, in collaboration with ADGM and DIFC legislation, will surely find ways to facilitate the creation of FinTech startups. These regulations may even become a basis for other emerging financial centres, the way the DIFC Court’s judicial system has become.

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