Fintech in GCC: What can it disrupt?

Marmore MENA Intelligence

Financial Sector-Status quo to be punished
Although, the evolution is still pretty nascent, Fintech has the potential to revolutionize how financial services are delivered in the GCC, and around the world. While the fintech ecosystem in the Middle East is less developed than in other regions, it is expected to grow swiftly, aided and abetted by the young, tech-savvy demography in the region. In fact, most fintech products are aimed at capturing the “millennials” (The term Millennials is usually refers to individuals who reached adulthood around the turn of the 21st century, consisting of individuals born between the early 1980s and early 2000s) market, as they usually decide on the trends that stick. For instance, Commercial Bank of Dubai (CBD) launched “CBD Now”, Dubai’s first digital-only bank, targeting millennials and digitally connected customers. GCC fintech companies now account for 7% of all fintech business in the MENA region, and are reaping the benefits of catering to the ever-connected millennials. These emerging technocrats aim to attract the attention of millennials, by providing convenient, easy-to-use, cost- & time-effective solutions that minimizes human interaction, and cuts through old-world problems, such as nepotism, red-tape and bureaucracy.

Companies in the financial sector still rely on old legacy systems and deep rooted traditions, with apathetic customer service. These conditions make the industry particularly vulnerable for disruption, allowing software and technology to potentially play a large role in the delivery of more efficient services. The value propositions presented by these novel digital technologies threaten the status quo of the banks and financial institutions eco-system. According to Boston Consulting Group (BCG) over the next five years, corporate banks that remain digital laggards could see profits drop by as much as 15%-30% relative to their digitally fast-moving competitors.

According to PWC, consumer banking and payments segment are most susceptible to the disruption caused by fintech, followed by insurance and asset management. Arrival of online insurance marketplaces is expected to lead to homogenization of risks and a complete overhaul of traditional channels of distribution. Fintech companies have now entered the remittance space, despite regulatory hassles, and are cutting out the middlemen (i.e.) the banks, thereby reducing costs for the remitter. With advancements in technology, advisory function will become more automated (eg. Robo-advisors), which will affect the margins of traditional financial services firms. Algorithm trading will also gain a significant boost, as FinTech will enable investors to build, test and execute trading algorithms, with limited technical knowledge.

The success of various crowdfunding platforms have indicated the big gap that exists in the supply and demand of capital. While they may not replace the traditional sources of funding, such as banks, PEs and VCs, crowdfunding has provided another option for a region that is facing severe liquidity-crunch.

Islamic Finance
As in conventional finance, Fintech’s penetration into Islamic finance is still in its infancy with very few participants. However, the potential positive disruptions to traditional Islamic finance cannot be underestimated. From a consumer perspective, fintech provides more choices that suit individual needs at competitive cost and easier access, over the internet, mobile devices and social media. SMEs that find it hard to obtain bank funding from Islamic Financial Institutions (IFIs) could look to fintechs to fill that gap, via sharia-compliant P2P lending and crowd funding platforms. Lenders also enjoy higher returns by directly investing in businesses via an online platform, than through a third party.

Therefore, the biggest potential impacts of fintech on Islamic finance would be the increase in reach of Islamic financial services, as an alternative to conventional finance, especially in places, where it is yet to enter and the standardization of rules and regulations, which currently vary across borders. Fintech will have a positive impact on consumers of Islamic finance, while the current providers of sharia compliant products and offerings will have to adapt, or face obsolescence.

Payment Solutions
At present, payment solutions account for approximately 40% of all financial technology (fintech) business in the GCC, followed by crowdfunding and P2P lending, and the region is poised to experience the most explosive growth, despite receiving the lowest funding.

Supplementing the growth of fintech, blockchain technologies have the potential to revolutionize the rapidly growing financial services sector in the GCC, with multitude of applications, including retail payments infrastructure, remittances, trade finance and syndicated loans, capital markets, and compliance activities. A prominent application of the blockchain technology would be the move towards digital currency, unrestricted by national borders. Although the GCC has a mixed record in payment virtualization, developments in payments technology are paving the way to wider adoption of digital currencies, which would throw up new challenges in cross-border transactions, investment flows etc.

The Fintech Companies can broadly be classified into two different types of namely the competitive and the collaborative. The competitive companies pose a direct challenge to the financial services institutions, on the contrary, the collaborative segment, offer solutions that complement the position of existing market players. The reason for the collaboration is because, the conventional players are finding it difficult to make the transition to digital, and are hamstrung by slower pace of response, which has led to skyrocketing interest in technology start-ups in the BFSI domain. The interest in fintech is driven both by conventional players and by new startups, with the former seeking to safeguard their interest against potential disruption, and the latter trying to reduce cost and improve customer convenience. Disruption of business models is a certainty, but traditional players may yet survive the fintech onslaught.

This blog was original published on Marmore MENA Intelligence is a research house focused on conducting Mena-specific business, economic and capital market research. We welcome questions from our readers through email at, or via twitter @marmoremena

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