Markaz: Fintech should enable financial sector to develop our societies towards inclusion of all se

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Markaz: Fintech should enable financial sector to develop our societies towards inclusion of all segments to achieve sustainable development goals 08 - Jul - 2019

  • The partnership between Britain and the Arab countries post brexit should aspire to raise the rankings of the Arab countries in the global competitive indicators
  • Innovation in Arab countries is still at its early stages
  • The financial sector is one of the most regulated and cannot improve without innovation
  • Fintech in the Arab countries is about transformation, with traditional institutions maintaining the lead
  • Technological opportunities in the asset management industry seem to be in the aggregation of clients, realizing efficiencies, and P2P
  • Social lending and peer-to-peer lenders is another area of a promising future in the Arab countries
  • The traditional standards of solvency in the financial sector allowed many online platforms to act as intermediaries offering capital services to the customers
Mr. Manaf A. Alhajeri, CEO of Kuwait Financial Centre “Markaz, moderated the Sixth Session on Banking and finance: Fintech and Blockchain at “Arab British Economic Summit 2019”, which was sponsored by Markaz and held in London on Wednesday, July 3rd, 2019 with the participation of Kuwait Chamber of Commerce & Industry. The session welcomed expert speakers from the financial sector who discussed Fintech and its impact on the financial industry, and the potential opportunities for investment in the UK and Arab countries in the Fintech industry. The summit was attended by a number of business leaders, governmental entities, chambers of commerce and economic figures from both the Arab and British sides.

The speakers discussed whether we would see a trend where conventional currencies are overtaken by crypto currencies in the Arab countries, at least in the next 5 years. The discussions clarified that although the financial sector will be a key buyer of the technology, innovation in the region is still at its early stages.

Post Brexit, and with the challenges faced by the governments of the Arab countries due to the fluctuations of the oil prices, the partnership between UK, with its expertise in the innovation field, and the Arab countries, with their huge needs, should aspire to raise the rankings of the Arab countries in the global competitive indicators.

To the Kuwait’s banking sector and largely the asset management sector, that are well established and firmly entrenched in their economy, fintech is about transformation, with traditional institutions maintaining the lead. The financial sector, one of the most regulated sectors, is unlikely to be the natural place for innovation and R&D Fintech, cryptocurrencies, and their underlying blockchain technologies that are about innovation and that is more likely to be found in the more talent rich and education mature environments. But luckily, all fintech players are cross border. Fintech should enable the financial sector to develop our societies towards inclusion and partnership with all segments to achieve the international sustainable development goals and increase competency, which is what the financial sector is about, allowing people or businesses to have access to useful and affordable financial services or products.

The discussions stated that in the emerging new banking scenarios, incumbents and fintech firms may operate as joint ventures or collaborating partners, leading up to a situation of clients using many financial service providers; instead of staying fully loyal to one financial partner. Therefore, a wise policy maker knows how to create the conditions, secure the talent resources, and develop a risk tolerance to cope with fintech transformations.

In many respects, that is what the Arab countries’ governments and central banks are doing; they are building capacity building programs and creating conditions to cope with the change. Kuwait has made many improvements over the last two years to improve the country’s overall investment climate and international appeal. Growth in the financial market would help in developing fintech sectors in investment banking, underwriting, auditing, taxation and accounting services, which would go well with the Kuwait’s long-term objective of diversification.

The session speakers affirmed that the financial sector has emerged as a priority sector in all Arab countries vision plans, there is no doubt about that, but it cannot advance without innovation. Innovation too is a race, there are leaders and followers. Therefore, a timely and effective deployment of the UK technologies in the Arab countries, if the knowledge favorable appreciation of such technologies is not in place, is unlikely to happen. More government-to-government programs in fintech innovation with centers of excellence are required to deal with challenging areas in the global rankings of the Arab countries when it comes to innovation and the knowledge economy.

With all the hype on fintech, success in fintech has been variable so far. In the banking sector in the GCC, fintech has been largely about payments, and in the asset management industry, the opportunity seems to be in the aggregation of clients, realizing efficiencies, and P2P. 

Full online robo-advisors have been successful in the USA, mainly due to the Local 401k pension plan specificity, but other fully automated robo services as in other countries have not gained traction, and are more or less all losing money. People are hesitant when it comes to taking investment decisions alone in front of a mobile screen, unless they are individual traders, having their own securities account. Some people are afraid of auto-rebalancing and everything, which could become out of control. Therefore, Digital tools are a good way to educate, help clients to compare different options, people like to trust humans who they meet, who are managing their money and who they could see through recorded videos for instance.

Financial services are intermediation between entrepreneurs and depositors/investors. Social lending and peer-to-peer lenders operate websites that enables borrowers to secure money straight from lenders and is considered another area of a promising future in the Arab countries. Since the global financial crisis, the traditional standards of solvency in the financial sector allowed many online platforms to act as intermediaries offering capital services to the customers. For example, the new model of P2P lending matches lenders with credit-worthy borrowers, using information beyond the credit scores used by banks (e.g. social data). In government contracts for example, payments by Arab government entities are made on average in up to 270 days from the date of presenting the invoices, or sometimes longer. As a result, vendors who conduct significant part of their business with Arab government entities are over inflated with government receivables and highly leveraged with bank debt to finance these receivables.
 
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Photos Captions:
  • Mr. Manaf A. Alhajeri, CEO, Kuwait Financial Centre “Markaz” moderating the sixth session in the Arab British Economic Summit 2019
  • Audience of the Arab British Economic Summit 2019