Fintech in Emerging Markets - Not as Disruptive or the Next Big Fintech Ecosystem?

This paper investigates the perception of fintech's impact on the financial services industry in the Middle East and North Africa (MENA) region.  It challenges the widely held belief that fintech is inherently disruptive.

Key Findings:

• Fintech's Nascent Stage: The MENA fintech sector is still in its early stages, despite favorable demographics and government initiatives. Disruption is not yet widespread, though potential exists in specific segments.

• Limited Disruption: While some participants believe fintech is disruptive, many see it as having a less transformative impact, particularly for corporate banking and wealth management. Retail banking, particularly payments, is more vulnerable.

• Bank-Fintech Collaboration: Incumbents' preferred strategy is collaboration with fintech companies, contrary to typical disruptive innovation theory. This is explained by the distinctive characteristics of the digital economy and the need for a robust ecosystem. The collaborative approach is believed to enhance efficiency, improve customer experience, and provide access to new customer segments.

• Challenges to Ecosystem Development: Several factors hinder fintech's progress in the MENA region, including:

  • A predominantly cash-based economy

  • Regulatory barriers

  • Lack of trust in the financial system

  • Scarcity of skilled talent

• SMEs and Fintech: SMEs in the region face significant gaps in commercial expertise and funding from risk-averse banks. Fintech solutions, such as crowdfunding and P2P lending platforms (like Liwwa), are stepping in to provide more accessible and lower-cost financing options. Banks' withdrawal from SME lending due to scalability issues has created an opportunity for fintech to fill this gap.

• Strategic Responses: Banks are employing various strategies to address fintech, including maintaining the status quo, pursuing sustaining innovations, deepening their digital capabilities, establishing internal fintech units, and investing in or collaborating with external fintech firms.

• Segments at Risk: Retail banking, particularly payments, is most vulnerable to disruption. However, other segments such as wealth management and SME lending also show potential for disruption.

Let's take a look at the journey of the MENA region, which has made great strides in the field of fintech in recent years, and the future of this journey.👀

💸Traditionally known for its oil-based economy, the MENA region has undergone a significant transformation in recent years, becoming a strong player in the fintech sector. Led by the United Arab Emirates and Saudi Arabia, the region is poised to become the new star of the fintech market. Serving as a bridge for global finance and with substantial investments, MENA is emerging as a key actor in this field.

🏦The UAE is positioning Abu Dhabi and Dubai as financial hubs with low taxes, progressive digital asset regulations, and high living standards, attracting entrepreneurs. Meanwhile, Saudi Arabia is becoming a fintech hotspot with substantial incentives for companies.

🌍Globally recognized MENA companies like Tabby, the region’s first fintech unicorn, Barq, a fast-growing digital wallet, STC Pay, the most used wallet in MENA, and Tarabut, with open banking potential, showcase the region’s rising value in fintech.

🚀MENA's rapid rise in fintech is driven by strong government support, including state funding and regulatory frameworks. The UAE focuses on attracting global companies, while KSA fosters homegrown businesses with global potential.

As a conclusion: 

The study suggests a collaborative approach, fostering a hybrid platform that leverages the strengths of both banks and fintechs.  This necessitates addressing regulatory challenges, promoting investment in fintech, and developing a more robust ecosystem.  This collaborative model aims to maximize value for customers and partners, ultimately driving sustainable innovation within the MENA financial services sector.