If countries in the Middle East and North Africa can balance regulation and innovation, the region may be able to move its economy past oil.
In the Middle East and North Africa (MENA), a vast proportion of the population is excluded from the traditional banking and finance sector. This means many people do not have access to financial services such as credit, payments, insurance and pensions. As many as 86 percent of adults in the region do not have their own bank accounts.
Enhanced financial inclusion is required for greater economic diversity and growth across the region – and this is a key area of focus for many of MENA’s policymakers. At the same time, financial technology (FinTech) is emerging as a new and innovative way to bridge this divide.
Affordability, accessibility and relevance
In the age of increased internet connectivity and smartphone penetration, FinTech can extend much-needed financial services, like electronic payments, micro-insurance and remittances, to people traditional banks have struggled to reach. FinTech can also unlock new funding avenues for small and growing businesses, which often battle to access finance – and meet stringent reporting and compliance requirements – in a risk-averse banking sector.
In these ways and more, FinTech can provide the region with financial services that are more affordable, accessible and relevant.
State of the FinTech sector in MENA
FinTech is an emerging field of innovation and entrepreneurship in MENA, where the number of FinTech start-ups in the region more than doubled between 2013 and 2015 – increasing from 46 to 105. Growth is expected to accelerate over the next few years, with some studies predicting that there will be 250 FinTech organizations in MENA by 2020.
Local FinTech ventures have also been attracting investors’ attention. They have dedicated USD$100 million to MENA’s FinTech start-ups over the past decade. In 2017 alone, another USD$50 million is expected to flow into the local FinTech ecosystem, fueling further transformation in the financial services industry.
Most of the region’s FinTech activity is concentrated in the UAE, Lebanon, Jordan and Egypt – four nations that together host 73 percent of MENA’s FinTech start-ups. The UAE is home to the largest FinTech sector, comprising 29 percent of MENA’s finance-focused technology businesses.
Innovation v. regulation: Who is winning the FinTech game?
MENA’s policymakers do seem to have FinTech on their radar, as is evidenced by a series of new regulatory measures that have been introduced in the region:
- In the UAE, the Dubai International Financial Centre (DIFC) acts as a financial free zone that connects MENA markets with those in Europe, Asia and America. The Centre’s financial technology accelerator – the FinTech Hive at DIFC – launched earlier this year and aims to leverage these networks to create a more enabling environment for the development of technology solutions to take the Middle East, Africa and South Asia (MEASA) region’s financial services industry forward. And the DIFC’s independent regulatory body, the Dubai Financial Services Authority (DFSA), is currently rolling out a supervisory environment that promotes the advancement of FinTech in Dubai.
- The Economic Development Bank (EDB) in Bahrain has created a regulatory sandbox that enables FinTech firms and digitally-focused financial institutions globally to test their ideas and solutions within a virtual supervisory framework that nurtures innovation.
- The Central Bank of Egypt (CBE) collaborated with other Egyptian governmental institutions to roll out new mobile payment legislations in late 2016. This initiative aims to foster the growth of mobile payment services in Egypt to enhance financial inclusion.
While these regulatory reforms are encouraging, there is still work to be done across the region to create a supportive and enabling ecosystem for innovation and entrepreneurship in the banking and financial services sector.
The quest for FinTech innovation continues to pick up speed in the region and competition between global cities to attract the best and brightest talent, and become the world’s hub for innovation, is fierce.
In this environment, the region’s financial institutions and their business partners are compelled to transform and keep pace with the rapidly evolving FinTech economy. In the age of information and disruptive technologies, access to trusted data remains key to bridging the gap between traditional approaches to banking and the agile, tech-powered start-up model.
Thomson Reuters has been focusing research and development efforts on initiatives that support the exploration and adoption of new FinTech solutions.
- Thomson Reuters BlockOne ID™: A blockchain identification and rights management wallet capability that facilitates experimentation with Ethereum.
- Thomson Reuters BlockOne IQ™: An Oracle framework that facilitates the deployment of blockchain in financial markets by enabling customers to pull market data into trading systems that run on Ethereum and Corda. BlockOne IQ bridges the divide between blockchain and the technologies that underpin other applications – by providing
Thomson Reuters also continues to engage directly with customers, industry consortiums and bodies; as well as support events such as hackathons to accelerate the development and adoption of FinTech in the MENA region and beyond.