How is UAE Boosting the Growth of Fintech Innovations?

FinTech in UAE

FinTech in UAE

A brief overview of how UAE is enabling disruption in the Financial Sector.

As digital transformation played a pivotal role in propelling disruption in the past few months, the fintech industry was critical in enabling the transition from traditional banking to digital banking. Born in the midst of the 2008 economic crisis, the industry generally operates online, thus, allowing many of them to run seamlessly in the remote-work environment. Fintech can be instrumental in helping the government administer the recovery from the COVID-19 pandemic downturn. Today, the industry is delivering innovation across the full spectrum of financial services like payments, credit, wealth management and insurance, in both advanced and emerging economies. UAE is also moving to a new chapter in this industry.

At present, the nation is the largest fintech hub for startups in the Middle East and North Africa (MENA), housing about 50% of the region’s fintech companies.  According to Magnitt’s H1 2020 MENA Venture Investment Report, UAE ranked first as it received the largest share of total funding as a result of several later-stage investments. It was followed by Egypt, which ranks first by the number of deals and Saudi Arabia which saw the largest percentage increase (44%) in total funding from H1 2019 to H1 2020. The report findings indicate that the startup ecosystem in UAE has matured enough to display its resilience amid the COVID-19. In the past few years, UAE accounted for 47% of all financial tech deals and 69% of total funding and is home to most of the MENA region’s fintech startups.

Dubai, which centers its focus on evolving into a major commercial and financial hub of the MENA region, is also prioritizing to become a leading fintech hub in coming years. As per Top 10 fintech Locations of the Future 2019/20 for Economic Potential Index by fDi Intelligence, Dubai is the seventh fintech location with promising economic potential, highlighting its efforts to support and expedite sustainable economic growth.

Moreover, UAE’s commitment to good governance, robust infrastructure, and a diverse range of opportunities for citizens positions to emerge as a nexus of financial technology. This also enabled the nation to position itself among the best in the World Bank’s Global Ease of Business Index. Meanwhile, by 2022, fintech is expected to account for 8% of financial services revenue across the Middle East and Africa (MEA). Last year, while several industries struggled to survive the economic downturn, the financial services and insurance businesses in the UAE grew by 1.4% last year.

The financial free zones — the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) are emerging as fintech hotspots in UAE. With their own initiative and regulations, these zones are boosting the growth of fintech in the UAE. For instance, DIFC’s Fintech Hive which was established in partnership with Accenture, has built and run Fintech Innovation Labs in other global hubs like London, New York and Hong Kong. This 12-week fintech accelerator program offers technology companies with mentoring and support from Middle Eastern and global financial institutions and insurance companies. Fintech Hive is empowering new fintech firms by reducing the regulatory barriers and cost burdens faced when trying to enter the region.

Last year, as part of the US$ 100 million Fintech Fund launched in 2019 to help establish, grow and upscale startup and growth stage fintech companies seeking access to the MEASA markets, DIFC, announced its investment plans in four Fintech startup companies. These companies are: FlexxPay, Go Rise, NOW Money and Sarwa.  In November 2020, DIFC rolled out the DIFC Innovation Hub in a bid to attract more entrepreneurs and growth companies.

In 2017, ADGM announced plans to establish a fintech innovation center and a fintech association in the city to represent the rising fintech industry and attract startups and talent from around the world. ADGM also started RegLab initiative, which is a controlled environment for fintech participants to develop and test innovative fintech solutions. Recently, ADGM launched a virtual environment called ADGM Digital Lab for fintechs and financial institutions to co-create and test digital solutions. The ADGM Digital Lab allows fintech firms access to resources including data, APIs, system images and reference architectures.

ADGM’s Financial Services Regulatory Authority (FSRA), also launched three RegTech pilot initiatives, with the objective of helping its regulated financial services firms achieve better compliance and risk management outcomes, while reducing regulatory costs and burden. One of these initiatives called RegBot, leverages natural language processing (NLP) and machine learning to identify information and risk gaps in the application and ask clarifying questions via automation.

Another notable fintech regulator in UAE — the Central Bank of the UAE, also launched the Fintech Office, with objective to develop a mature fintech ecosystem within the UAE and position the nation as a fintech hub regionally and globally. Even the Dubai Financial Services Authority is also in the process of rolling out a supervisory environment to aid the development of the fintech industry, says Deloitte.

Further, with new innovations in blockchain and regulations to secure crypto-assets, the UAE fintech sector is on the verge of bringing new dimension to the existing market.