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Fintech in GCC

Date : 19/02/2017
Author:  Murtaza Pattherwala

Fintech in GCC - Markaz.com Blog

Fintech is yet to find its feet in the GCC, despite several digital transformation drives initiated by the regional governments. In the west, the governments play the role of a facilitator in terms of policy and regulation, and in providing the right environment for innovation to flourish, leaving it to the private sector to come up with modernized solutions. However, in the GCC, with the regulations lagging behind in most sectors and private sector wary of joining in, the governments play a more central role in fostering innovation.

Despite this, Fintech has permeated across the region, in peer-to-peer lending (Beehive), crowdfunding (Eureeca, Aflamnah, and Durise), payment solutions (CashU, Payfort, Telr, PayTabs), insurance
(compareit4me, Democrance) and online/mobile banking and online trading.

PayPal MENA is now spread across the Middle East, focusing on growing e-commerce markets, such as the UAE, Qatar, and Saudi Arabia. PayFort tailored its payment system to take into consideration the lack of credit card ownership in various markets, while Telr has modelled itself as a payment gateway that is not only multi-lingual, but also multi-currency, offering online payments solutions for merchants across social media channels and other websites. Funded by Saudi Aramco’s Wa’ed program, PayTabs has also entered the payment solution race in the region, and has an e-Commerce API plugin that can easily be integrated on any website.

Fintech could potentially increase the reach of Islamic financial services, and provide more choices that suit individual needs at competitive cost

GCC’s first crowdfunding platform, UAE-based Aflamnah, allows individuals from the Middle East region to raise funds for fresh ideas in films, games, television, art, music, etc. Another UAE platform, Eureeca calls itself a crowd-investing arena, as it allows interested investors to view profiles of available projects to invest. In return, the investors will gain shares in the businesses, in which they make their investments.

Compareit4me.com launched an endto-end car insurance comparison platform that allows users to compare instant car insurance quote and buy online; a first in the MENA region. The new product has already generated more than 20,000 quotes, and sold more than 600 car insurance policies. Democrance plans to disrupt the insurance market by collaborating with insurance companies and mobile operators, to make insurance affordable and accessible to the people who need it the most. It distributes, administers and services insurance policies only through the mobile phone, which results in considerable cost savings. Finerd, an automated investment and wealth management company, is expected to unveil their much-awaited Sharia- compliant products sometime in 2016.

According to Marmore’s report on ‘Fintech in GCC’, one of the biggest potential impacts of Fintech will be on Islamic finance. Fintech could potentially increase the reach of Islamic financial services, and provide more choices that suit individual needs at competitive cost. SMEs that find it hard to obtain sharia-compliant bank funding from Islamic Financial Institutions (IFIs) could look to Fintech firms to fill that gap. Beehive is a Dubai-based sharia compliant P2P lender, and is the UAE’s first online marketplace for lenders and borrowers. It caters low cost finance to SMEs, while providing investors a direct access to alternative asset classes that can generate higher returns in an environment, where risks are shared.

The GCC has a large, youthful retail customer base that is receptive to new and disruptive financial technologies, as evidenced by the increasing penetration of e-commerce and online payment systems.
The region already has a strong foundation in the financial services sector, and a quicker adoption of Fintech would solidify its position as a financial hub.


This article is published in "Engage Q4, 2016" - click to view the publication


 

Tags:  FINTECH, GCC, technology

Ratings:
 Current rating: 5 (3 ratings)

Should GCC banks be wary of Fintech entry?

Date : 27/09/2016
Author:  Marmore MENA

Should-GCC-Banks-be-wary-of-Fintech-entry.jpg

Since the time internet revolutionized global communication, information technology (IT) has been disruptive, and has changed the business model of almost every industry known to mankind. Early adopters of technology enjoyed competitive advantage, while laggards lost customers. In the same vein, Financial Technology aka Fintech, is the next big change brought about by IT.

The western countries, especially the US, have adopted technology at a much faster pace than the rest of the world. At present, almost 80% of Fintech investment happens in the US, followed by the UK. Developed markets in the Asia Pacific have also been investing and implementing Fintech solutions in recent times. However, adoption in the GCC is still in its infancy. But with growing awareness, Fintech is slowly breaking ground in the region.

Should-GCC-banks-be-wary-of-Fintech-entry-fig1.jpg

Digital-only banking


Digital-only banking is the new wave that is expected to change the way the banking industry works. In a survey conducted by EY, almost 78% of GCC customers indicated that they would be willing to switch banks for better digital banking experience, and 64% would feel comfortable switching to a digital-first bank. Unlike traditional banking, which is more branch-centric, digital-only banks would avail them more independence in utilizing the services offered by the bank.

Should-GCC-banks-be-wary-of-Fintech-entry-fig2.jpg

The cost-per-customer-visit for traditional branch-based banking is multi-fold, compared to digital-only banking. Traditional banks spend an estimated 40-60% of the total operating costs in the maintenance of branch networks, which the digital-only banks eliminate. Fintech firms are a threat to traditional banks that offer similar services at a much higher cost. These firms have already begun cannibalizing on the traditional banks’ customer base, thereby pressurizing the margins of the latter.

Should-GCC-banks-be-wary-of-Fintech-entry-fig3.jpg

Remittance

Global remittance industry was estimated to be worth close to $650bn, at the end of 2015, and is growing at a CAGR of 3.75%. Saudi Arabia and UAE occupy the second and third spot in global remittance send volume, accounting for a combined USD 74bn, majority of which goes to India (USD 23bn), followed by Pakistan (USD 9bn) and Philippines (USD 7bn). According to the World Bank, the cost of sending money home to diaspora averages 7.7% globally.  But Fintech players are emerging in the horizon, leveraging on online and mobile platforms, and have increased the pressure on banks by charging an average fee of 0.9%; much less than the average for banks (global average). In 2015, the cost of sending remittances to the MENA region decreased 95bps from 8.37% to 7.42%.
 
Should-GCC-banks-be-wary-of-Fintech-entry-fig4.jpg

P2P Lending
Beehive, a Dubai-based sharia compliant P2P lender, is the UAE’s first online platform for lenders and borrowers. It provides low cost finance to SMEs, while providing a direct access to alternative asset classes that can potentially generate higher returns to investors. According to Beehive, people just invest 5% of their net wealth on such platforms, but witness returns of 15%-20%, on an average. This has encouraged more than 2,000 investors to register with the platform in the UAE, which has successfully completed 100 deals since inception. P2P lending could change the way lenders and borrowers interact in the future, in both the retail and commercial banking spaces, as it offers attractive returns for lenders and cost efficiency for the borrowers. Platforms such as Beehive can serve as a funding source for the Small and medium enterprises (SMEs), though they might not be able to replace banks in funding big ticket corporate credit.

Islamic Finance
According to Marmore’s report on ‘Fintech in GCC’, one of the biggest potential impacts of Fintech will be on Islamic finance. Fintech could potentially increase the reach of Islamic financial services, and provide more choices that suit individual needs at competitive cost. SMEs that find it hard to obtain sharia-compliant bank funding from Islamic Financial Institutions (IFIs) could look to Fintech firms to fill that gap. Fintech’s penetration into Islamic finance is expected to intensify competition among traditional IFIs.  Some of the Islamic finance players that have ventured into Fintech include Abu Dhabi Islamic Bank (ADIB), Dubai Islamic Bank (DIB), and National Bonds, a shariah-compliant savings and investment firm. ADIB has teamed up with IBM to build a digital studio that will work on digital innovation projects across the bank. Conventional Islamic banks seek to expand their presence in the Fintech space by adopting technology in their service offerings.

Crowdfunding
Fintech firms have created platforms for lenders and borrowers to meet, without the need for a middleman, which in many cases are traditional banks. Crowdfunding and Peer-to-Peer (P2P) lending are the new buzzwords among borrowers in recent years. In 2015, the global crowdsourcing market was expected to have grown by an estimated 112%, to reach a value of $34.4bn. The GCC region has also witnessed the emergence and the growth of the crowd funding concept, and experts opine that crowd funding would continue to grow due to dearth of venture capital and public offerings for entrepreneurs. For instance, a UAE-based platform, Eureeca, calls itself a crowd-investing arena, as it allows interested investors to view profiles of available projects to invest in. In return, the investors will gain shares in the businesses, in which they make their investments. Investors might divert more money into these crowd funding platforms for better returns and borrowers will have an alternative avenue apart from the traditional banks. Crowdfunding might impact private equity firms in GCC, as start-ups might find it as an easy alternative to raise capital.

Conclusion
Fintech firms have already made their presence felt across the globe, with innovations such as digital remittances, robo-advisory, algorithmic trading, and P2P insurance and lending platforms. Surprisingly Banking and Financial Services Industry (BFSI), the biggest and most prominent sector in the GCC, is yet prepare for the entry of Fintech in the region, as potential competition. In the coming years, the demand from consumers is expected to give rise to faster adoption of these technologies across various verticals in BFSI. Traditional banking and financial service players will have to improve their operational efficiency by cutting down on needless expenditure, adopt technology, where possible, and improve their asset quality, if they wish to compete with their digital cousins.

The article originally appeared in Wealth Monitor.

Tags:  BANKING, CROWDFUDING, DIGITAL, FINTECH, GCC, IN, ISLAMIC FINANCE, REMITTANCE

Ratings:
 Current rating: 3 (3 ratings)

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