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Fintech in the Middle East

An overview

18 July 2019

Financial technology (fintech) is transforming the delivery of financial services across the Middle East. Fintech sandboxes and Government driven initiatives support a growing base of fintech startups. Regional and international banks are developing digital platforms and smart solutions and are coming together to create projects such as the Emirates Digital Wallet, which is expected to change the off-line payments landscape in the UAE.

Across the Middle East, fintech is driven both by technology-enabled innovation that improves existing financial services, but also provides routes for unbanked populations to access financial services. 

Government support and tech developments, together with high smartphone penetration, have contributed to the development of startups in Middle East and the GCC in particular. 

As of 2016, it has been reported that 84 per cent of all Middle East fintech startups are payments and crowdfunding‑related and the UAE, Egypt Jordan and Lebanon account for 73 per cent of all MENA-based fintech startup with the majority being in the UAE (State of Fintech report 2016, Wamda Research Lab and Payfort).

Whilst the market is currently dominated by payments and crowdfunding and home‑grown innovation/collaboration by financial institutions, we expect other areas to catch up quickly given the opportunities in the market and support from local governments, particularly in the UAE. 

From a regulatory perspective, the development of Middle East startups is being accelerated through regulatory sandboxes in the UAE and Bahrain, which have permitted a bespoke, firm‑specific licensing regime for a limited testing period. These sandboxes also allow governments to learn about new technologies and to shape regulations accordingly. There are currently three sandboxes across the Middle East: the Dubai International Financial Centre (DIFC), the Abu Dhabi Global Market (ADGM), and Bahrain.

MENA governments and regulators are increasingly acknowledging the need for legislative reforms to capitalise on fintech. The central banks of Egypt, Bahrain, UAE and Jordan have adopted specific initiatives to regulate digital payment services, while Lebanon, the DIFC and Bahrain have introduced crowdfunding regulations. Dialogue is underway between regulators in the region, especially amongst the GCC, regarding the challenges and opportunities presented by the evolution of fintech. 

Across the Middle East, legislation is in place to recognise e-commerce and digital signatures, with more recent e-commerce regulations covering electronic payments in certain jurisdictions, such as Kuwait. However, most e-commerce regulations still contain significant exclusions for certain types of transactions, limiting the use of e-contracts and electronic communications in these areas. The UAE’s electronic communications laws, for example, exclude transactions in real estate, negotiable instruments and matters for which a notarisation is required, requiring wet ink signatures in respect of many transactions. This could constrain the ability to roll out blockchain‑based smart contract solutions for certain sectors at a time when such initiatives are driving the next generation of fintech startups. 

Despite the fintech developments taking place, Middle East fintech remains in its early stages, as of January 2017, having reportedly attracted only 1% of the US$50 billion invested in fintech globally since 2010 (source: Accenture) and half of all MENA-based startups were founded after 2012.  

In the attached report, we aim to show that the Middle East has great potential for future investment in fintech and that, despite challenges in the region, these are mitigated by significant development and modernisation happening across the region.

To read the full report, please click here.