IN the financial industry, fintech — financial technology — was the buzzword of 2016, and it looks like it will be the flavor of the year in 2017 too.
Fintech is the application of technology to the trillions of financial transactions that whizz round the world every day, from a simple check on your bank balance via a smartphone, to the settlement of multibillion- dollar trades in the foreign exchange and derivatives markets via gigantic matrices like blockchain.
Bankers love it for several reasons: At its best, it will allow them to serve consumers much better and accelerate the rundown of expensive assets like banking branches.
At the macro-end, with technologies like blockchain, it could help prevent another financial crisis. I also suspect the “suits” like to be associated with something young and hipster-like new apps, “ecosystems” and “accelerators.”
Whatever the motives, banks are throwing billions at fintech. Global investment in it is conservatively estimated to have reached $18.8 billion last year and is set to grow by more than 20 percent this year. Mideast ripe for a fintech revolution.
China is leading the way in terms of investment, but it has a lot of catching up to do. The main global centers for fintech are California, New York, London, Singapore and Hong Kong. The gap in that world fintech coverage is obvious. At the moment, there is no recognized “hub” for the fintech industry in the Middle East.
This is surprising, as the region seems ripe for a fintech revolution. In the Gulf, there is a lot of capital washing about; in the oil-importing countries there are big consumer populations with a comparatively low level of banking penetration. At the same time, the region has some of the highest rates of mobile and Internet penetration in the world.
In the Gulf Cooperation Council (GCC), virtually every ambitious financial center has started banging the fintech drum. Qatar and Bahrain have organized seminars and forums on the fintech revolution, pledging to invest in facilities in their respective financial centers.
Saudi Arabia has promised to put fintech at the heart of the King Abdullah Financial District rising in Riyadh, and probably has the most financial firepower to invest in it. Some informed speculation is that a big chunk of the $100 billion Vision Fund launched by SoftBank with big backing from Saudi Arabia has been reserved for investment in the next generation of financial technology. Fintech free zone hubs But undoubtedly the most headline-grabbing activity in the fintech space has come in the United Arab Emirates (UAE). Just this week the Dubai International Financial Center, with great fanfare, launched FinTech Hive, billed as “the region’s first fintech accelerator,” with the backing of the big consulting firm Accenture.
Back in early 2016, Abu Dhabi Global Market (ADGM), the new financial free zone in the UAE capital, declared its intention to be the fintech capital of the Gulf region, and has put in place a special regulatory regime to allow it to become the Gulf’s “incubator” for fintech business. Though the goal is pretty much the same, the approach of the two centers is slightly different. DIFC is allocating a dedicated space for fintech — the “hive” — in its growing center, which is aiming to triple in size by 2024. There will be no special regulatory regime for fintech firms, as existing regulations will be applied flexibly according to the circumstances of the individual fintech enterprise.
The rule for DIFC seems to be: If a fintech startup is developing an app, it does not need to be regulated; once it offers a financial service, it will have to get a license from the Dubai Financial Services Authority.
In the ADGM, the technique is subtly different. Its regulator, the Financial Services Regulatory Authority, has drawn up specific rules for fintech companies in its “regulatory laboratory.” New firms can take advantage of these for a set period while they grow, but must eventually opt for full ADGM membership or leave its auspices.
It will be interesting to see which approach is the more successful over the next few years in terms of attracting fintech business. But the more fundamental question is whether there is a sufficient market in fintech in the region to justify all this activity.
The UAE has shown that it believes two is better than one in many instances — airlines, airports, maritime ports, and financial centers — and the word from officials in DIFC and ADGM is that there is no serious rivalry between them. They think they can grow the market to make the UAE the fintech “cluster” for the region.
That is a neat idea, but I have a feeling competition for fintech business will hot up significantly as the two centers get into top gear. For the fintech entrepreneurs, it can only be good news to have two hubs offering you a home. • Frank Kane is an award-winning business journalist based in Dubai. He can be reached on Twitter @frankkanedubai
—Courtesy: Arab News