Financial Technology, or FinTech, has gained significant traction in recent years, especially as digital transformation becomes a core priority for effective business development within financial institutions. According to Accenture, the global FinTech sector has attracted more than $50 billion in investment since 2010. Indeed, many developed countries around the world are emerging as start-up hubs, thanks to the support of government entities, local venture capitals and flexible funding schemes. These combined efforts are encouraging many entrepreneurs to start their business and join the FinTech community.
Today, major players in the field understand the implications that FinTech may have on their business and are keen to invest in innovative ideas and solutions, whether it is reshaping fundraising practices through offering alternative platforms for commercial and personal lending or enhancing customer experience and day-to-day operations. Thus, Dubai International Financial Centre (DIFC), the leading financial hub in Middle East, Africa and South Asia (MEASA) region, is playing an integral role in the development of the FinTech space in the region through initiatives such as FinTech Hive.
“ESTABLISHED IN 2017, THE FIRST-OF-ITS-KIND ACCELERATOR PROGRAMME IN THE REGION LOOKS TO CONNECT CUTTING-EDGE TECHNOLOGY FIRMS FROM AROUND THE WORLD WITH KEY REGIONAL FINANCIAL INSTITUTIONS.”
Although still relatively nascent, the FinTech ecosystem in the Middle East and North Africa (MENA) is growing rapidly and will be worth $2.5 billion by 2022, according to Mena Research Partners. With a population of over 350 million, a GDP of 2.5 trillion, a young demographic and high smartphone penetration, the region holds immense, untapped opportunity and potential for entrepreneurs looking to transform and dictate the future of finance. Mobile penetration in the Middle East is currently at the rate of 80–90%, and this is forecast to hit 100% by 2020. Yet, an astounding 86% of adults do not have a bank account, according to research by Wamda and Payfort.
As such, Amplified Payment Systems Ltd., a Nigerian start-up that joined the 2018 cohort of the FinTech Hive accelerator programme in 2018 developed ‘mTransfers’ to help users send and receive money, as well as carry out other financial transactions, through social media and messaging apps on their smartphones. Co-Founder/CEO Segun Adeyemi has reflected, “We wanted to create a product that allows customers to securely carry out transactions in the environments where they already spend most of their time.”
Between 2014 and 2017, the number of FinTech ventures in MENA doubled from 46 to 105. However, start-ups in the region continue to face four main obstacles: funding, visibility, customer education and trust. Walid Daniel Dib, Co-Founder and Project Lead of the UAE-based InsurTech start-up, Addenda – currently enrolled in the FinTech Hive at DIFC programme – explains: “Many start-ups have beautiful concepts but fail to secure the trust of their clients because they forget that implementing their idea is significantly more complicated than conceptualising it. Ensuring that your interests align with those of your client is of paramount importance.” This is why almost 9 in 10 FinTech start-ups seek collaborations with corporations, and giant businesses are well positioned to integrate into the growing FinTech ecosystem.
“START-UPS IN THE REGION CONTINUE TO FACE FOUR MAIN OBSTACLES: FUNDING, VISIBILITY, CUSTOMER EDUCATION AND TRUST.”
Through various initiatives and programmes established across the country, the UAE has pledged to support the rise of the FinTech industry and benefit from the key opportunities it brings to the private sector. Together, Dubai and Abu Dhabi secured 32% of start-up deals and 59% of investment in MENA in the first six months of 2018, which is testament to the effective, sustainable and supportive ecosystem that the country has established to bring fresh, innovative ideas to fruition.
Dubai in particular has always been a strong advocate of technology adoption through its forward-looking strategies and state-of-the art infrastructure. Smart Dubai, a strategy born out of the visionary approach of Sheikh Mohammed Bin Rashid, pushes institutions to embrace technological innovation to make Dubai the most efficient, seamless, safe and impactful experience for residents and visitors. The emirate is a global example of economic diversification and the financial services sector remains one of the most significant contributors to its GDP.
DIFC was established in 2004 with the objective of driving growth and development of this dynamic sector. Today, the Centre is constantly exploring new opportunities to ensure the development of the regional financial services landscape, including programmes such as FinTech Hive. In 2018, the accelerator brought together 22 start-ups, which doubled from 11 in 2017. It has also tripled its commitment to FinTech by expanding the programme to include InsurTech, RegTech and Islamic FinTech streams. With more than 60 partners in its network, FinTech Hive at DIFC remains the largest accelerator in the region, connecting entrepreneurs with executives from world-renowned institutions to help them develop and test their solutions in a regulated environment.
For startups participating in FinTech Hive, the benefits are obvious and many. For Addenda, it was all about the credibility. Walid Daniel Dib said: “The media, angel investors, insurers, banks, and venture capitals now have their guard down when talking to our start-up because we have already been vetted by the FinTech Hive.” For Amplified Payment Systems Ltd., the access to relevant regulators, lawyers and consultants was crucial to help them bring their b2b model into the market. Segun Adeyemi added, “The network of finance, technology, regulation and other relevant experts within FinTech Hive means that we are able to get guidance on how to clearly adapt our product, value proposition and business model to meet the peculiarities of the region and increase our chances of success.”
The DIFC FinTech community continues to expand, supported by the Centre’s sophisticated platform, world-recognised legal framework and a robust independent regulator. The Centre today offers dedicated commercial licenses for FinTech, RegTech and InsurTech firms, an interactive and collaborative workspace, access to the region’s largest financial community along with a dedicated $100 million FinTech fund to accelerate the development of financial technology in the region. In addition, DIFC continues to partner with FinTech-focused, global leading entities to help innovative solutions contribute to the development of the financial services industry in the UAE and wider MENA region.
This article was first published in HBS Digital Initiative.