Since 2017, governments in the MENA region started framing and implementing regulatory frameworks and agile policies to encourage the growth of Fintech. The Middle East has quickly come to the forefront of the scenario, and the UAE has emerged as a Fintech leader in the region. Let us examine the key reasons that have led to the rise of Fintech in the UAE.
In 2017, 30 Fintech companies in the Middle East raised almost USD 80 million in venture capital funding. By 2022, it is anticipated that 465 Fintech companies will be vying for their share in the market by raising more than USD 2 billion.
According to a 2019 report co-compiled by Magnitt and ADGM (Abu Dhabi Global Markets), the UAE played home to the greatest number of Fintech start-ups (46%) in the MENA region. Additionally, the report revealed that 69% of all Fintech funding and 47% of all Fintech deals were grabbed by the UAE. Another study conducted the same year by the Milken Institute found UAE housing one-third of the regional fintech startups.
According to a 2020 report related to MENA start-up funding, the UAE retained its top spot by receiving the biggest share of total funding, which was attributed to several later-stage investments in the region.
As businesses and people in the UAE are moving away from cash-based transactions to digital transactions, both legacy players and new entrants in the domain of digital banking and payments can capitalize on the growing fintech market. By 2021, the country has plans to become completely cashless. The UAE has a young population – around 1.4 million between 25-29 years, which is its second-largest age group after 1.8 million aged between 30 and 34 years (based on the forecasted population distribution in 2020 as per Statista). With great mobile penetration (185.2 subscriptions per 100 inhabitants from May 2019 to August 2020), the country is embracing digital payment options like mobile wallets and other fintech products with great enthusiasm.
According to McKinsey, the domain of mobile payments in the UAE is anticipated to grow annually by 30%. This trend is evident in the wider region since the mobile payment industry in the Middle East and Africa is projected to record a CAGR (compound annual growth rate) of 17.8% by 2025 to touch USD 434.5 billion. These figures augur well for the future of fintech in the UAE.
Government initiatives
Both ADGM and DIFC – the two major financial free zones in the UAE have supported the growing fintech sector in the UAE by providing them with the ideal ecosystems to thrive. Using the RegLab of ADGM, which is a fintech sandbox, fintech startups can develop and test their pioneering fintech solutions. ADGM also partnered with Plug and Play (headquartered in the Silicon Valley) for the first virtual accelerator in the region, which aims to facilitate some of the leading Silicon Valley startups to work with the regional financial institutions.
With the FinTech Hive of DIFC, which was set up with a dedicated fund of USD 100 million, fintech startups can get access to accelerator programs and mentorship from some of the top financial institutions and insurance partners. To foster fintech innovation and growth, DIFC has also partnered with leading names for its FinTech Hive, such as AWS, Microsoft, Accenture, Cigna, Careem, EmiratesNBD, Standard Chartered, and Visa, to name a few.
Different government initiatives and regulations have also played a major role in creating a conducive environment for fintech companies in the UAE. With its Emirates Blockchain Strategy 2021 launched in 2018, the UAE government aims to shift 50% of its transactions (including e-payment services) to the blockchain. This opens a huge domain of opportunity for fintech companies. Since 2019, the government has also started implementing its National Artificial Intelligence Strategy 2031. As a wide range of AI applications can benefit fintech, this strategy to invest in the most up-to-date AI tools and technologies to improve the performance and efficiency of the government will have a positive impact on the regional fintech scenario.
Some other notable steps include the establishment of the MBRIF (Mohammed Bin Rashid Innovation Fund) and AccelerateHer. With a massive fund of USD 544 million, the MBRIF aims to support companies registered in the UAE and resident individuals who offer innovative and unique technological products, solutions, or services. AccelerateHer of DIFC, which is a women-focused accelerator program, aims to nurture and support female fintech talent. Using this career mentorship program, budding female entrepreneurs will get the necessary guidance and tools to feel empowered and become more active in developing the fintech landscape of the UAE.
Partnerships with the private sector
Major regional banks and their UAE-based American financial and banking services counterparts have displayed a considerable enthusiasm to embrace the most up-to-date fintech innovations. Leading banks such as FAB (First Abu Dhabi Bank), ADCB (Abu Dhabi Commercial Bank), Emirates NBD, etc. are increasingly emphasizing on mobile banking and digital payments, which could increase opportunities for fintech companies.
Public-private partnerships as well as partnerships between the leading private sector players too have given a major boost to the fintech industry in the UAE. For instance, ADCB joined hands with ADGM and Plug and Play to benefit from the latter’s global ecosystem to support its extensive digital transformation strategy. Emirates NBD partnered with DIFC FinTech Hive to certify fintech startups that use the former’s Application Programming Interface Sandbox successfully to create and display innovative financial solutions that are functional. In 2018, the collaboration between Abu Dhabi Digital Authority and FAB led to the launch of ADPay to simplify digital payment for investors and customers in the UAE.
Concluding thoughts
Though financial regulatory regimes for UAE’s free financial zones have helped speed up the growth of fintech, some regulatory challenges remain, especially in the jurisdictions beyond these zones. But with the country’s fintech industry poised to grow fast in the future aided by government support and private partnerships, solutions to these and some other problems are likely to be found sometime soon.
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