Start-up-led digital disruption has upended the once-traditional financial industry in the Middle East and North Africa (MENA). In just less than a decade, the financial technology (FinTech) market in the region will see explosive growth of more than 400 per cent, as the number of start-ups offering financial services is set to increase from 46 in 2013 to 250 by 2020, according to a report by Wamda and Payfort.1
Financial institutions, including HSBC, are actively taking part in accelerator programmes such as DIFC FinTech Hive’s FinTech Accelerator Programme, where HSBC has recently renewed their partnership for a third year, to nurture the region’s young but dynamic FinTech start-ups.
In addition, investment in the sector has been robust, as data from MAGNiTT’s latest MENA Venture Investment Report2 indicate.
In 2018, FinTech start-ups accounted for 12 per cent of the US$ 893 million total funding secured from 366 investment deals in the region. MENA Research Partners3, a Dubai-based research and consultancy outsourcing company, is similarly bullish about investments in GCC-based FinTech start-ups, which will likely reach US$ 2 billion in the next 10 years, compared with only US$ 150 million a decade ago. At the centre of MENA’s FinTech revolution is the UAE, where 30 of the 105 regional FinTech start-ups are located.
For a while FinTechs were touted as a challenger to traditional banks but digital innovation is creating new opportunities for banks and FinTechs to collaborate on cutting-edge financial services solutions.
HSBC sees a symbiotic relationship in which it provides a regulated environment, extensive client network, capital and liquidity rules, and the necessary prudential framework in which FinTechs can deploy innovation, agility and ability to deliver at pace.
Pamela Attebery, Head of Innovation, Technology, MENA at HSBC Bank Middle East, believes that financial institutions can benefit from exploring external partnerships for technological changes and innovation to improve customer experience.
“The exponential growth in technology over the past decade has accentuated a key trait in customers – the need for speed. Customers’ are demanding real-time solutions for just about everything.”
“As a bank, we are very aware that we can’t build everything internally. We see a symbiotic relationship with FinTechs where we provide the regulated environment, extensive client network, capital and liquidity rules, and the necessary prudential framework in which FinTechs can deploy innovation, agility and ability to deliver at pace.”
HSBC has adopted FinTech solutions in the areas of team collaboration and supply chain finance.
The UAE is keen to cement the country’s profile as MENA’s most dynamic FinTech hub by easing regulatory barriers and collaborating with financial institutions to help FinTech start-ups reach their potential.
Innovation hubs, such as the DIFC FinTech Hive, have been partnering with local and international banks in the country to provide an environment where start-ups can test their innovations under regulatory supervision.
HSBC has also recently participated in Startupbootcamp’s FinTech accelerator programme, which is also run in partnership with the DIFC. Startupbootcamp has a global portfolio of more than 700 start-ups in over 20 countries, which have raised in excess of US $500 million in funding.
For both programs, start-ups are provided onsite residency at DIFC FinTech Hive. HSBC offers a three-month mentorship programme, tailored to the needs of start-up participants. For example, for the DIFC FinTech Hive accelerator program, which focuses on scaling fintech start-ups, the mentorship revolves around helping them understand product/market fit and regulations. The programme has also been an ideal platform for HSBC to develop commercial partnerships with start-ups that may have solutions which can be adopted by the bank’s businesses.
“We provide FinTech start-ups a context of how their solutions fit in with UAE regulations and market developments,” said Attebery. “To date, HSBC has developed several Proof of Concepts (PoCs) through the FinTech Hive accelerator programme.”
In the Startupbootcamp programme, which focuses on earlier stage start-ups, HSBC’s mentoring programme centres on helping founders develop and accelerate their unique value proposition.
Attebery believes “it is important to nurture young technology firms in order to create an ecosystem of innovation”.
According to Ernst & Young (EY), FinTech firms have reached a tipping point and are poised for mainstream adoption globally. In emerging markets, average adoption rate has reached 46 per cent, while customer awareness is also increasing with 84 per cent of retail customers in 20175 saying they are aware of FinTech services, compared with 62 per cent in 2015.
As a result, FinTech is expected to have a more profound impact in the banking sector, as demand from customers grow. Perhaps the most important FinTech trend shaping the financial industry in the MENA region is financial inclusion.
According to World Bank data, MENA has the lowest level of financial inclusion worldwide6, with only 14 per cent of adults having a bank account.
FinTech has the potential to create a paradigm shift by serving the unbanked population through innovations like mobile money, e-wallets, cross-border remittances and crowdfunding. This has also transformed the region’s payments landscape by enabling customers to make digital payments more convenient and accessible.
Attebery said many FinTech firms in the region are focusing on making opening a bank account easier and quicker, providing effortless access to financial services. In the UAE, for example, HSBC customers can open an account and receive all account materials within just 15 minutes.
FinTech will play a vital role as the financial services industry in the MENA region enters an era of seamless service. To maximise the potential of this disruptive technology, authorities are pushing ahead with initiatives to develop progressive FinTech regulations.