Bahrain fintech push gathers pace as Dubai's financial hub dominates

Bahrain is losing ground to Dubai as a regional hub for financial services and must adopt new technology to stay relevant, a new report revealed on Thursday.

"The United Arab Emirates has been a more enthusiastic adopter and promoter of fintech, with Dubai having emerged as a leading digital services hub for the region in the last two years. Bahrain still has a long way to go before it can catch up, but recent efforts show that momentum is building and more developments can be expected in the months ahead," according to a report by BMI Research on Bahrain's fintech sector.
A new mobile wallet, made available to Bahrain Telecommunications Company's (Batelco) 1.4 million mobile customers in conjunction with Arab Financial Services (AFS), offers features such as peer-to-peer (P2P) money transfers and loyalty points linked to major brands; it will work on a range of smart devices.
The development follows the initial roll out of the Easy Pay mobile payment service in January, which allowed customers to upload credit from a prepaid card to their handsets to enable payments.
"The latest deal with AFS envisages a more streamlined payments process, one we believe will meet with good user engagement rates," the report said, adding that rival operators Viva and Zain already offer mobile payment services.
While basic mobile financial services are widely used across Sub-Saharan Africa and Asia, adoption rates in the Middle East are low due to easy access to banks and a high penetration of credit and debit cards.
"Many active payment cards already support near field communication (NFC) 'contactless' technology, but mobile payment adds an extra layer of security and convenience," said BMI Reserach.
According to a report released in March called the State of Fintech in Mena by Payfort and Wamda, the fintech ecosystem doubled from 46 companies to 105 in the three years between 2013 and 2015.
In May Fintech Hive at DIFC, the region's first fintech accelerator launched by Dubai International Financial Centre, revealed it had received over 100 applications from 32 countries for its inaugural programme for concepts such as Blockchain, payments and robo advisers.
According to BMI Research, the central bank of Bahrain spent last year developing new mobile-optimised payment and settlement mechanisms for both its own and third parties' use, while the National Bank of Bahrain enhanced its mobile banking services development strategy.
"Both banks acknowledge that Bahrain has moved relatively slowly in digitalising key payment processes and commercialising new fintech products that would augment local businesses' financial service toolkits and enable them to diversify into new markets," BMI Research said.
The region could be home to 250 fintech start-ups by 2020, according to the State of Fintech in Mena report.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

Bahrain fintech push gathers pace as Dubai's financial hub dominates

Batelco's new mobile wallet partnership a sign of Bahrain's eagerness to ramp up its financial technology offering