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Middle East makes a play for fintech glory


Middle East makes a play for fintech glory

Gulf governments play catch-up as Dubai aims to be ‘blockchain capital’

© AFP/Getty Images

From building the world’s tallest hotel to hosting the world’s biggest book sale to buying the world’s biggest rock launcher, the Middle East is a region that hungers for superlatives. In the fintech world, it’s not there yet.

Despite a handful of attempts to lure fintechs to its shores, the region largely lost out on the first round of the fintech race to financial centres both east and west. Tel Aviv is the only Middle Eastern city to appear among the top 20 list of fintech centres, as ranked by Thomson Reuters, and it just scraped in at number 20, followed by Dubai at 21.

Now governments across the Gulf are pushing hard to catch up.

Officials in Dubai say the emirate wants to launch its own digital currency and become the “blockchain capital of the world”; Bahrain says “the development of the fintech ecosystem is a top priority”; and Saudi Arabia has made becoming a fintech “pioneer” a plank of Crown Prince Mohammed bin Salman’s “Vision 2030” economic reform programme.

It’s not hard to see why the Middle East is making a play for fintech. As well as appealing to the region’s love of being first, innovation in the financial industry fits well into wider efforts to diversify local economies and improve the efficiency of existing financial firms.

There’s plenty to appeal to fintechs as well — opportunities for new businesses are large in a region where tens of millions of people lack access to traditional banking services but mobile phone penetration is above 100 per cent.

But none of that's a sure recipe for regional fintech success.

Fintech start-ups who went in earlier have complained about stifling regulations across the region. But there have been some early signs of progress in recent months, encouraging new entrants to the region including California-based blockchain specialist Ripple, which is to open a Dubai office by the end of the year.

Among local firms, a robo-adviser called Sarwa this month became the first company to graduate from Dubai’s regulatory sandbox, which grants temporary licences to test innovative products. The Dubai International Finance Centre, the special economic zone that hosts the city’s multinational financial firms, launched the region’s first dedicated fintech accelerator last year, and it doubled in size for 2018’s intake earlier in the year.

Fouad Jeryes, co-founder of Jaib, which offers a “buy now pay later” service for online payments in markets dominated by cash, said the accelerator was particularly helpful because it gave fintechs “one point of access to all banks”.

Competition between emirates is also increasing the opportunities for start-ups, with neighbouring Abu Dhabi launching its own accelerator programme and sandbox after Dubai.

Regulators are even starting to welcome firms from more controversial areas like cryptocurrency. The UAE’s Securities and Commodities Authority in September approved a plan to regulate ICOs, while Bahrain’s central bank is working with several cryptoexchanges in its regulatory sandbox. The first is expected to open with a full licence next year.

Still, despite the bullishness of regulators and governments, firms are wary of getting too caught up in the hype. Dalal AlRayes, co-founder of Kuwaiti micro-savings platform Spare, said “we’re excited to see what’s happening”, but added “I wouldn’t say the sector’s matured” yet.

AlRayes contrasted the Gulf with the EU, where regulation makes it easier for firms to operate across markets and forces banks to share customer data with new providers. “The banking system is opening up to adapt and include people here, but there’s still nothing like [the EU’s Payment Services Directive 2],” she said. “You can’t just access data and connect the pieces together, we have to do more ourselves.”

Still, while the Middle East might still be lacking the scale — and piles of venture capital cash — available in fintech centres like London, locals are hopeful that the extra challenge will end up encouraging them. As Dalal added: “It just means you have to make sure you’re going to work to survive.”

Further fintech fascination

History lessons “Banks are yesterday's story.” So says Piyush Gupta, chief executive of the Development Bank of Singapore (DBS) in a revealing FT interview where he shares DBS's secrets for digital success. “I try to get everyone in the bank to ask: ‘What would [Amazon’s Jeff] Bezos do? Not ‘What would [JPMorgan Chase’s] Jamie Dimon do?’," the Indian-born CEO says of his approach. 

Blockchain gets real Spain's BBVA last week led the first syndicated loan ever to be completed on the blockchain, while the JPMorgan Chase-led Interbank Information Network has now expanded to more than 100 banks that plan to use it to move dollars across borders. Read more — much much more — about blockchain's hopes, dreams and actual uses in the FT's blockchain special report.

Testing RBS's Mettle After being found to have systemically mistreated thousands of small business clients in the aftermath of the financial crisis, Royal Bank of Scotland was always going to be more vulnerable than most to the encroachment of online small-to-medium enterprise lenders. Now, the state-owned bank has found a solution — its own online SME bank. The new venture, dubbed  “Mettle”, will offer current accounts and other services including invoicing and cash flow forecasting. 

Fintech views in the FT banking podcast

Bits and bobs

Back to banking We often hear about bankers moving to tech; bankers returning to banking after a stint in tech is a less common occurrence. David Hijirida, who did a tour at FleetBoston Financial and Washington Mutual before joining Amazon 11 years ago, has done just that. He has just been named CEO of Simple, the American digital bank backed by Spain's BBVA. 

Cautionary tale What big bank hasn't dreamt of hitching its wagon to an up and coming fintech that offers both growth potential and oodles of digital knowhow? France's BPCE seemed to hit the jackpot two years ago, with the purchase of mobile bank Fidor. But now the dream is falling apart. Bloomberg takes a deep dive on what went wrong and whether it can be fixed. 

Starling's bounty UK digital bank Starling has taken another £10m from Bahamas-based hedge fund owner Harald McPike as it plots the latest stage of its expansion. Starling already has more than 320,000 across business and individual accounts, but it wants to challenge bigger rivals like Monzo (which recently passed the 1m customer mark). 

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