Financial technology, or fintech for short, is revolutionising financial services and the way finance is perceived by consumers, businesses, and financial institutions globally. This disruptive technology impacts access, efficiency, and personalisation of financial services for consumers.
Driven by digital transformation, fintech modernises payments and financial services to introduce more inclusivity and democratisation. Therefore, fintech aids governments in furthering financial inclusion strategies by bringing more unbanked and underserved populations within the financial system.
Fintech has gained a significant stronghold in the UAE. Investment towards fintech surged 92 percent in 2023, making the country among the top 10 well-funded fintech hubs by Innovate Finance. This growth was recorded as an outlier in a global landscape where fintech funding is slowing down. S&P data shows that since 2021, UAE-based fintech companies raised $567.8m, with $128.4m in 2023 alone. In 2023, UAE captured 54 deals worth $1.3bn.
Owing to business-friendly regulatory structures and a focus on innovation in finance, the UAE’s attractiveness has increased over the years, particularly in new payment methods, cryptocurrency, among others. The impact of fintech is manifold, enabling further innovation and diversification within traditional financial structures.
Financial institutions innovate with fintech to reinvent their operations and distribution of solutions, allowing them to further bolster their competitiveness in the market. Fintech, being consumer-focused, transforms the financial industry and the way people interact with financial services. As a result of new fintech companies entering the industry, consumers are spoilt for choice with the number of new digital payment solutions within the market.
Delving into enablers of fintech in the UAE, primarily, the regulatory frameworks are the biggest facilitators for fintech establishment in the UAE. World-class environments such as the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market (ADGM) have been the biggest enablers due to strong legal structures and a supportive work culture that embeds innovation.
DIFC’s fintech focus includes accelerators and incubators such as the National Digital Talent Incubator, Hub71 among others, targeting finance-forward fintech companies. Another positive that works in favour of fintechs is the tech-savvy population. The UAE has the world’s highest mobile phone penetration at 204 percent, according to the Telecommunications Regulatory Authority (TRA).
According to the latest report by the Media Lab, the UAE stands out with an internet adoption rate of 99 percent among its total population. As a result, the UAE has been able to diversify from traditional payment systems to adopting new digital payment methods for everyday commerce and spending.
Ecommerce has seen increased activity due to new online payment facilities being updated and launched. There is significant demand for mobile banking due to fintech, seen by the uptick in payment apps and mobile banking apps. Cross-border payments have become easier, facilitating further trade and commerce between the UAE and other countries. The demand for digital services seems unlikely to subside, with more consumers exhibiting a preference towards innovative amenities that are seamless, secure, and fast.
As the financial sector evolves, new solutions in financial services will come into being, fostering innovation and competition within the sector. It is up to each individual player to self-analyse and manage risks in this process. Regulators will bring in greater supervision and entry barriers which will encourage sophistication and serious contenders with compelling solutions for future financial challenges.
Policy discussions are in the works for open finance infrastructure, and this will require enhanced cross-border policies, best practice, and information exchange. Banks and financial institutions that are forward-thinking and innovative will be open to this disruptive trend.
Inspired by the ideas at hackathons and accelerators, large banks can bring new, relevant products to life. Such ventures open opportunities to offer streamlined services and tailored solutions, harnessing the entrepreneurial spirit.