Fintech offers transformative change for financial services

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Arab News published article by JARMO T. KOTILAINE is an eye-opener on the currently trendy of the ongoing rush towards another type of gold. Digital this time and not good old solid bars. Does Fintech offer transformative change for financial services? Would the MENA Region be the next Fintech hub? Would it be sustainable? Let us find out.

Transformative change for financial services through Fintech

Fintech has become one of the catchwords of our time, shorthand for creative innovation and potentially transformative change in the way financial services are provided. It has spawned a multitude of start-ups and pushed many incumbent financial institutions to review their operating models.

The restrictions on economic activity during COVID-19 further validated and popularized many of these new ideas, as more and more people resorted to home delivery, touchless payments, and other solutions that reduced physical contact.

Technological change proved effective in driving the growth of disruptive innovators, protecting — or even increasing — the margins of banks, and allowing many companies to generate profits at a time when their survival was threatened.

To what extent, though, have we truly unleashed the transformative potential of fintech? Better payment systems and digitalized transactions are important, but ultimately represent the application of digital technology to something that was happening already.

A very different situation occurred in some developing countries where the rise of fintech has become a potent tool for financial inclusion as new providers have levered widely available mobile telecommunications technology to compensate for the shortcomings of formal financial intermediation in a widely accessible, low-cost manner.

Of course, some of this has been seen in the Gulf, in the form, for instance, of new mechanisms for the remittance payments of unbanked laborers.

How could fintech deliver even more? The true promise of technology stems from its ability to lower costs and boost transparency. Meaningful progress in these areas can deliver substantial benefits in terms of increasing access to finance and of doing so more cheaply.

Many countries have now capitalized on open banking to foster more competition among lenders. Technology can be used to allow customers to compare services and products between banks. This is pushing service providers to compete on price and quality.

Technology can also make it easier to structure complex transactions and products which can not only reduce their prices but also helps broaden the range of available solutions.

Digitalization is reducing the cost and time of on-boarding new bank customers. By decentralizing financial service provision, technology is enabling more business ventures and projects to raise capital through novel mechanisms such as crowdfunding.

Transparency is an issue of particular importance and potential. Perhaps the most profound change delivered by digital technology stems from the ease with which data can be collected and analyzed. This matters because informational asymmetries have been among the main factors restricting access to capital.

Central banks have used sometimes cumbersome regulatory and reporting requirements as a way of addressing the problem. Risk managers at banks are often forced to cite limited or unverifiable information as an argument for restricting access to credit or for pushing up their cost.

In principle, technology could be used to obviate some of the tasks currently pursued through regulation and supervision by making it easier to gain access to all the relevant data more accurately and swiftly. It should also make it easier and faster for customers to build reliable credit profiles which could be used to assess their eligibility for different products.

Again, open banking is being used by more and more lenders to access customer data and evaluate their financial history through hard data rather than assumption or generalization on the basis of potentially inaccurate or misleading applications.

Easy access analytics can help customers make more informed and efficient decisions. For instance, more investment platforms now provide access to a wide-range of investment options on a global scale, along with analytics on their performance and risks. They have reduced the costs of trading and dramatically boosted the speed of execution. Such platforms can also be used to build financial literacy, for instance through tools for financial projections or scenarios.

Of course, technology cannot overcome human myopia and wishful thinking. The way forward must be to build ways that properly account for data privacy and security. Today, though, the technological toolkit is more versatile than ever.

Progress is already helping us reimagine financial service provision, but much more is both needed and possible. Virtually every independent assessment of the financial services sector in the Gulf comments on constraints on access to capital, which in turn limit financial inclusion, economic diversification, and business growth.

Making the most of the opportunities presented by technology is thus not only a business opportunity but a chance to drive the economic paradigm shift, whose success, in large part, hinges on financial services. With governments repositioning themselves, the core task of financial institutions, the pooling and efficient allocation of capital, will matter more than ever. Doing it faster, more accurately, and for more customers will be an important driver of success.

• Jarmo Kotilaine is an economist and strategist focusing on the Gulf region. He writes on issues ranging from economic development to changes within the corporate sector.

XTB’s Achraf Drid Discusses FX Growth and MENA Region

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In this interview published on Finance Magnates: XTB’s Achraf Drid Discusses FX Growth and MENA Region, and yet not only that. In effect, it does enlighten us on how:

  • The MD of XTB MENA believes that the FX market will continue to grow in 2022.
  • Drid highlighted XTB’s growing sponsorship activities to increase its global presence.

By Bilal Jafar

The above image is for illustration and is of Finance Magnates by Daily Advent.

Achraf Drid

In an exclusive interview with Finance Magnates, Achraf Drid, Managing Director of XTB MENA, recently discussed the global growth in trading volumes across the FX and CFD market. Drid believes that the MENA region holds a special place in the global financial services industry.

XTB is one of the largest financial brokerages in the world. Listed on Warsaw Stock Exchange, the financial trading services provider witnessed rapid growth in 2021.

It’s a pleasure having you with us Mr. Drid, for our readers, can you please introduce yourself?

Thank you for having me; it is my pleasure. I am the Managing Director of XTB MENA DIFC in Dubai, and XTB is one of the world’s leading brokerage companies. In my role, I’m actively involved in the company’s business development, legal processes, and all compliance aspects. I am also deeply involved in the company’s financial strength in investing in Fintech since we provide our customers not only the highest level of customer support but also the highest level of technology. Since XTB entered the MENA region, I have focused mainly on setting up and managing the company’s core sales and risk management processes. I’m also involved in the regulatory framework of the company to lead XTB into the future with integrity and transparency.

We are new to the MENA region, but we have been around since 2005 when XTB was founded in Warsaw as a company. We are one of the biggest brokerages in Europe and are also listed on the Warsaw Stock Exchange. Worldwide, we have been offering CFDs, Forex, commodities and indices for years, and then we saw an opportunity in the MENA region to cater to the increasing demand for a reliable and trustworthy broker in this part of the world.

What differentiates us from other brokers? First, we are not just a financial company, we are a fintech firm, since we employ more than 200 IT developers in our headquarters, and we keep improving our offering and services every month. We are not looking to be compared with other brokers; our goal is to be the Amazon or Netflix of trading.

Secondly, many brokers rely on the MetaTrader 4 platform, but we also offer our proprietary platform called xStation, which has won numerous awards. We have a large IT team responsible for keeping it up-to-date and who ensure it’s always working at top efficiency. I’m proud of our GUI platform and honestly believe it’s one of the best in the market.

Finally, we place a significant focus on education. I believe we’re one of the most education-focused brokerages in the world. Many resources are found on our platform, including various educational videos and reading material. The content recorded hasn’t only been produced by us and by some of the world’s most famous traders. We heavily focus on education when we present our platforms to the clients virtually and when we meet them in person.

Trading volumes across the FX and CFD industry jumped substantially in 2020 due to the lockdown, while the industry sustained growth levels in 2021, do you think the trend will continue into 2022?

The actual gross market value of OTC FX and CFDs has been rising; the Covid-19-induced market turmoil and strong policy responses drove developments in FX markets throughout 2020. This increase coincided with the significant depreciation of the US dollar against other major currencies. Acting as the primary vehicle currency, the US dollar was on one side of more than 80% of all currency pairs (measured by both notional amount and gross market value). Sizeable US dollar exchange rate movements can lead to more trading in FX and CFDs in the current year (2022).

Additionally, if you look back into the last ten years, forex trading has grown exponentially. Looking at the forex market in 2008, there were about US$48 trillion traded, and today that number is closer to US$80 trillion, which shows a growth of over 50%. I believe that the volume will continue to grow in 2022 at a steady rate, with forex trading making up 40% of the world’s total market.

In terms of financial services, the MENA region is one of the fastest-growing regions in the world, what makes MENA different from other locations?

The Middle East’s importance is rapidly growing in the global forex market, especially with its retail segment, compared to a relative slowdown and decline in other international markets.

It is driven by increased investor awareness of the opportunities available in global trading and the region’s strategic location between Asia and Europe as a hub. The local time zone enables it to capture market opening hours in the Far East and the US…and closing hours in the same working day, giving it better access to the broader global market, particularly the G7 currencies.

As we are based out of Dubai and regulated by the DIFC, we have experienced substantial growth of the UAE economy and the increasing number of ex-pats coming to live and work here; we have seen FX transactional flows rising, both in and out of the country.

Going forward into 2022, how is XTB MENA planning to expand its presence in the region?

The MENA region did go through significant challenges during the last two years, (with) the COVID-19 pandemic having an impact on the regional economy, like the rest of the world. However, some countries have adopted rapid, decisive and innovative measures to contain the virus, such as the smooth crisis management developed by regional governments.

MENA countries have responded rapidly to mitigate the economic consequences of the crisis on the private sectors and households and keep the financial market functioning. On average, 2.7% of GDP was allocated to fiscal measures, while 3.4% of GDP (over USD 47 billion) in liquidity injection was activated by Central Banks across the region during the first few weeks of the crisis.

The MENA market is estimated to witness significant growth, and at XTB, we feel very confident. The reason we decided to establish XTB regional office in the UAE is part of our strategic growth plan to support our customers locally, not only in FX but across other asset classes under our portfolio, including oil, gas and bullion.

Sponsorships played an important role in global brand awareness of financial trading platforms, how is XTB planning to use sports sponsorships for its global growth?

In the past, we had a partnership with McLaren Mercedes, then with Hollywood actor Mads Mikkelsen, and now we have a partnership with Jose Mourinho, and we have other plans for the future – for obvious reasons; we would like to keep this as a surprise!

Latest Trends shaping the region’s Start-up Ecosystem

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The increase in entrepreneurship and start-ups in the region has been happening over the past decade as revealed by Arabian Business in the latest trends shaping the region’s start-up ecosystem

Financial technologies and e-commerce businesses dominated the market in the Web 2.0 wave, while blockchain and cryptocurrencies are slowly growing in the region

In the post-pandemic economy, it feels like start-ups are launching almost daily in unprecedented numbers, but the Middle East entrepreneurial ecosystem has been steadily growing for almost a decade now, explained Walid Hanna, CEO and founder of MEVP, a venture capitalist firm.

Talking exclusively to Arabian Business, Hanna looked back at the evolution of start-ups in the region and the major trends that dominated each phase until today.

He also shared what venture capitalists look for when deciding whether to invest in a business or not and what challenges remain in the ecosystem.https://www.arabianbusiness.com/startup/why-we-are-never-too-old-or-too-young-to-be-an-entrepreneur/embed#?secret=Azh8pDLw27

What can you tell us about the regional landscape for start-ups in the post-pandemic economy?

The increase in entrepreneurship and start-ups in the region has been happening over the past decade.

We [at MEVP] began our journey back in 2010 and, at that time, we used to see one or two start-ups a week, while now we receive three or four business plans a day, so the multiplier has been enormous in terms of the number of start-ups.

This has been the case post-Covid as well. When the whole ecosystem realised how important technology is during the pandemic, it gave a boost to our portfolio of companies and they grew faster and it also gave a boost to potential entrepreneurs who left their jobs to start their own businesses.

Why do you think fuelled this growth in the pre-coronavirus days?

It’s a natural progression that happened across the US, Europe and China over the past two decades and since there’s always a lag with the Middle East, it’s finally happening here now.

If you look at the penetration rates in internet usage or mobile phone usage, the Middle East has typically been lagging, the exception being countries like the UAE. But, now they’re all catching up.

What are some of the trends you’ve seen among regional start-ups, in fintech and tech in general?

Trends have been evolving over the past decade as well.

Originally there was the Web 1.0 wave, which was only content-based such as browsing the internet for cooking recipes, for example.[Start-ups] were making money, but it was based on reading, there were no interactions or transactions involved.

Walid Hanna, CEO and founder of MEVP. Image: ITP Media Group

Then it evolved into Web 2.0, where we saw a lot of financial technologies, e-commerce sites and software-as-a-service for enterprises. We’ve invested in 60-plus companies across those verticals.

We’ve also seen a lot of mobility plays, such as Uber, and we’ve seen that model [replicated] across tuk-tuks, motorcycles, electric scooters and trucks which, in a way, is good for the environment.

Within fintech, we’ve seen a lot of sub-verticals, such as the Buy Now, Pay Later model, which is a big trend at the moment – there are around ten [such start-ups] in the region and we’ve invested in an Egypt-based one. But there are so many other trends within fintech, including micro-lending, SME-lending or treasury solutions; payment solutions in general.

The hype over non-fungible tokens and cryptocurrencies, the whole blockchain business model, has evolved tremendously over the past couple of years and is just starting to pick up in the Middle East. We’ve seen two NFT marketplaces and a couple of blockchain business models. It is still quite limited, although I expect it to grow much faster in the next three years.

How do you identify the companies you will invest in?

Just as they say “location, location, location” for real estate, it is “people, people, people” for start-ups.

If a start-up is at the earlier stages, the best thing you can look at is how investment-ready the business is and how qualified the founders are with relevant experience. We look at how dynamic, hardworking and motivated they are.

Buy Now, Pay Later model is a big trend at the moment.

We look at the total addressable market and try to understand if it’s big enough and if they are really answering a pain point that is large enough to make serious money. This is because we are not interested in a small niche in a tiny country. For example, if a start-up is trying to solve a small issue in a country like Lebanon and the issue is not the same in Saudi Arabia and the GCC, then we are not interested.

We also look at the business model and the unit economics to see if it is viable, meaning we try to find out if the cost of producing, marketing and selling whatever product is worthwhile. If you look at the cost of acquiring a user and realise that the margin you are making out of this one product is inferior to that, then it is not worth it.

We also look at how robust and scalable the technology itself is and the stack they use. We invest in tech start-ups only.

Growth is key to our assessment of technology companies. We don’t do seed capital so when we invest in Series A, we can already witness a traction behind the start-up. If the traction is interesting, we get interested but if it is not already interesting, we don’t invest.

What are the challenges that remain for entrepreneurs in the region?

It depends on the country. In the GCC, there are no currency risks because they are pegged to the dollar, but if you look at currency in Egypt, they got really hit by the devaluation about three years ago.

There is also a political risk because of the region’s instability and relationship with its neighbouring countries.

Enablers are becoming better and better, but we still have some issues with the banks, for example. Opening up a bank account for start-ups is very challenging across the region. It takes ages and a lot of KYCs.

Five years ago, the logistics were very poor. Even the online payment systems were very poor so it was difficult for start-ups to thrive within that environment. This has been enhanced over the past couple of years but, for some reason, many customers here still want to pay cash-on-delivery and not use credit cards online. Penetration is increasing in terms of card usage but it is still lower than the global average.

Other than that, the ecosystem has evolved well and the enablers have followed. I would say the only challenge that remains is for fintech companies in terms of licence and regulations. Government regulations are making it easier by offering sandbox licences, but other than that, the regulatory framework is quite limited. The process is very slow but will happen one day I am sure.

Exits are happening, but still at a low rate where selling the start-up is difficult. There are more investors from outside the region looking at the region, which is positive, and the big regional conglomerates have also started to acquire start-ups so the trend is good but the numbers are still behind.

We have good start-ups and we want to sell them, but buyers are scarce. We should expand our horizon of buyers towards the global market, such as China or the US.

.

Fintech industry poised for significant growth in the MENA region

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The MENA region, like much of the undeveloped world, is characterised by an omnipresent Informal Economy with however differing specifics. This label dates back to most countries Planned Economy. So why is now the Fintech industry poised for significant growth in the MENA region? And how?
All world economies have an informal economy, and the duties of all business and governments alike leaders are to sustain, help and assist in its good maintenance and eventual development. Informal Economy is not Black Market and can easily be formalised to become the locomotive of any nation’s economic life. Could Fintech be of serious help here?

Any way, the reasons are tied to those specifics at this conjecture as well summarised by Ayad Nahas below.

The Financial Technology (Fintech) industry in the Middle East and North Africa (MENA) looks well placed to enjoy a period of substantial growth.

  • As many as 69% of adults remain totally unbanked in the region
  • Internet penetration in Saudi Arabia stood at 95.7% in January 2021
  • Fintech is going to be the “game-changer”

Fintech industry poised for significant growth in the MENA region

By Ayad Nahas, Communication Strategist

The Financial Technology (fintech) industry in the Middle East and North Africa (MENA) looks well placed to enjoy a period of substantial growth.

 Part of this growth could come from a large unbanked population.

According to the World Bank, only 8% of adults belonged to the banked population in 2018 and as many as 69% of adults remain totally unbanked in the region.

GCC expatriates with low and middle-income salaries constitute a large proportion of the unbanked such as in the UAE, where around 80% of the population is outside the current financial system.

Yet, regional smartphone and internet penetration is very high, reaching 2 mobile-cellular subscriptions per UAE inhabitant in 2019, while Internet penetration in Saudi Arabia stood at 95.7% in January 2021.

 Regional governments spotted this opportunity and introduced regulation to substantially attract investments into the sector.

 Fintech is a term that describes new technology which seeks to improve and automate the delivery and usage of financial services. At its core, fintech helps companies, business owners, and consumers better manage their financial operations, processes, and lives by applying specialized software and algorithms on computers and, increasingly, smartphones.

 Fintech’s adaptability across a slew of consumer sectors is propelling its widespread acceptability. Managing finances, trading shares, furnishing payments, and shopping online (often on your smartphone) has never been more convenient.

At the forefront of the fintech disruption are agile innovations such as peer-to-peer (P2P) lending and crowdfunding, providing alternative lending platforms, and widening access to fundraising.

While they may currently still need some centralized form of finance, at the minimum, P2P lending and crowdfunding can use fintech and blockchain to quicken the process, avoid paying high banking fees, and garner the interest of digitally-minded Millennials and future Z-generations.   

A recent report by consultancy firm Deloitte also states that the UAE houses over 50% of the region’s fintech companies, with nearly 39% of the population using fintech for P2P money transfer.

According to a report by Crowd Funder, a leading online source for the fintech industry, the number of financial technology companies in the Middle East increased from around 105 companies in 2015 to 250 firms in the year 2021.

Hanna Sarraf, a senior banking executive from the MENA region, said fintech is going to be the “game-changer” that will decide the winners and losers within the financial services industry, globally and in the Middle East, in the short and long terms.  

He points out that new technologies and advanced data analytics are transforming the traditional banking business models from the way banks interact with customers to the way banks manage their middle and back-office operations. 

The global fintech market is expected to reach $309.98 billion at a CAGR of 24.8% by the year 2022 according to many key sources from the banking industry. In the MENA, the fintech industry is expected to hit a record valuation of $3.45 bn by 2026.

The growth of this sector is currently being propelled by the rapid rise in fintech startups as a result of the very high internet penetration in the region. Another major factor is that several traditional banks are undergoing digital transformations or even becoming neo-banks, a trend especially evident in the UAE.

In a survey by the Boston Consulting Group (BCG) last October, 70% of respondents said they are actively searching for a new bank, and 87% said they would be willing to open an account with a branchless digital-only lender.

Today, the UAE is leading the pack in financial technology and developing itself as a digital-first nation when it comes to banking, payments, and fintech, as evidenced by the UAE’s first digital bank to provide both retail and corporate banking services and which will soon be launched and led by Former Emaar Chairman, Mohamed Alabbar.

According to many experts, the fintech market in the MENA region is set to account for 8% of the Middle East financial services revenue by 2022. COVID-19 turned out to be a wakeup call to switch from traditionally deployed financial services to more sustainable finance and technology platforms

The fintech revolution is set to continue to disrupt, and traditional banks must keep up with the pace of technology in order to stay relevant and competitive. In this rapidly evolving, ever-changing market, it’s time to innovate, integrate and accelerate into the future.

Published by AMEInfo on 28 April 2021.

Qatar Now Ranked 2nd in MENA Region for . . .

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CROWDFUNDINSIDER By Omar Faridi reported that Qatar Now Ranked 2nd in MENA Region for . . . Early-Stage Entrepreneurial Activity as Fintech Sector Expected to Grow Rapidly as the MENA Region Is Poised To Be The Next Fintech Hub.

June 26, 2020

Randy Rivera, Executive Director of FinTEx, a member-led community focused on promoting innovation and collaboration within Fintech in Qatar and the MENA region, has said that his organization continues to work with international financial services industry participants.

During a June 23, 2020 virtual panel discussion (hosted by the US-Qatar Business Council) on “Qatar’s Growing Fintech Sector & Business Opportunities,” Rivera stated:

“We [aim to] … match talent with opportunity and what is going on in Qatar fits as an attractive platform not just for the Fintechs involved but for the Qatari market and the Middle East overall.”

He added:

“The design of these programs reflects thoughtfulness, broad participation and commitment of the right mix of leaders who can affect change and attract the talent to make that change uniquely impactful, not just to the market, but to the regional fintech community as well.”

Qatar is now a major financial hub in the Middle East. The country’s human development index (HDI) value is around 0.85, which puts it in the “very high” human development (and quality of life) category.

Qatar is ranked at 41 out of 189 countries and territories. Its HDI value has increased from around 0.75 to 0.85 in the past two decades – which indicates that the living standards of its residents may have improved significantly due to its booming economy.

As mentioned in a release shared with CI, Qatar aims to further support and develop a strong business community and a competitive environment that will help local SMEs while also attracting foreign SMEs.

The release revealed:

“Qatar has advanced 18 spots in the national level of entrepreneurial activity, securing the 15th rank globally and the 2nd in the MENA region for the Total Early-Stage Entrepreneurial Activity (TEA) index, according to the Global Entrepreneurship Monitor (GEM) Report 2019/2020.”

Amy Nauiokas, founder and CEO at Anthemis, a VC investment platform with over 100 portfolio firms, believes Qatar provides “a promising environment and set of opportunities for Fintech growth.”

Nauiokas, whose company supports an ecosystem of over 10,000 investors, incumbents, and high-potential Fintech firms, globally, stated:

“We look forward to solidifying some key relationships in Qatar as Anthemis further builds our MENA strategy.”

Mohammed Barakat, MD of US Qatar Business Council, who also attended the webinar, said:

“Considering Qatar’s large payment processing and remittance market and its strategy to become a regional gateway for a huge market, I foresee rapid growth in Qatar’s FinTech sector.”

The US-Qatar Business Council aims to support trade and investment between the two nations and to also build strategic business relationships.

As noted in the release, there are over 120 wholly-owned US firms operating in Qatar, and over 700 U.S.-Qatar joint projects currently active in the Middle Eastern nation.

As reported recently, the Qatar Financial Center will launch “Fintech Circle,” a co-workspace for qualifying financial technology firms free of charge for a year.