GCC nations to adopt FinTech faster than peers, S&P says

Internet use, customers’ inclination, ready capital and regulators will be the main drivers

UAE tops the list of countries with highest number of FinTech startups in Middle East. Bloomberg

Gulf Cooperation Council nations are well positioned to adopt financial technology (FinTech) than their counterparts in the Middle East and Africa, according to S&P Global Ratings.

Customer preference for digital banking, access to capital and public policy reforms are driving the growth of FinTech in GCC states, while North and Sub-Saharan African countries are lagging behind due to poor infrastructure, lack of capital, limited digital adoption and weak regulation, said S&P.

“In MEA, the most advanced [cities] are Dubai, through the Fintech Hive in the Dubai International Financial Centre, and Bahrain, through Fintech Bay,” it added.

The DIFC rolled out a $100 million (Dh367mn) FinTech fund in 2017, to help get start-ups off the ground and help businesses grow. Likewise, Bahrain Development Bank and the Economic Development Board of Bahrain launched two separate funds of $100m each to support FinTech in the past.

Some FinTech ventures help speed up payments, remittances and strengthen underlying monitoring systems that record such transactions. Remittances "are the low-hanging fruit", according to S&P, representing a massive market in the GCC where 37 per cent of the workforce is expatriate. Expatriates in the GCC sent $120 billion back home by the end of 2017, according to S&P.

Regional interest in FinTech has soared in recent years, as more players enter the market and demonstrate how advanced technology can be deployed to cut costs and better serve customers.

The UAE tops the list of countries with the highest number of FinTech start-ups in the region, in 2019, according to Bloomberg Intelligence. The UAE - with 67 FinTech startups, was followed by Turkey at 44 and Jordan and Lebanon tying at 30 each.

However, industry experts say FinTech growth in MEA overall will be sluggish due to a lack of funds. According to Accenture, only 1 per cent of more than $90bn invested in FinTech start-ups globally from 2010 to 2017 went to MEA businesses.

Due to slow FinTech growth, the sector poses a limited risk to the region's well-established financial organisations in the near future, and the creation of a favourable FinTech ecosystem is "still in progress" in most cities in the region, according to S&P.

“We do not expect FinTech alone to have a significant bearing on our ratings on MEA banks in the next two years,” said S&P Global Ratings credit analyst Mohamed Damak.

“Instead, we foresee more cooperation between FinTech firms and banks and strong regulatory protection, given the significant role of banks in financing regional economies,” Mr Damak said.

Wider adoption of FinTech in MEA will provide financial access in less developed African countries through mobile banking and introduce the use of secure technologies like blockchain in banking, according to the report.