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.”
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