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Global fintechs target Dubai but Mena expansion still elusive

Tower, Building, Architecture Unsplash
Dubai is seeing increasing interest from fintech companies based in Asia
  • Dubai’s Golden Visa, programmes and policies attract digital nomads
  • Majority don’t expand from UAE to other Mena countries
  • Saudi Arabia aims to host over 500 fintechs by 2030
  • Borderless neobanks threaten traditional finance institutions

Dubai is seeing elevated levels of interest from fintech companies based in Singapore, southeast Asia and Asia-Pacific as the emirate builds its status as a regional hub.

Dubai International Financial Centre said that during the first nine months of 2022, the number of fintech and innovation firms joining DIFC exceeded the total for the whole of 2021.

Between January and September, DIFC-based fintech firms also secured more than $559 million of funding, according to DIFC FinTech Hive’s 2022 Report. 

Among them are graduating startups from this year’s DIFC FinTech Hive programme cohort, the largest fintech accelerator programme in the region that has now attracted more than 3,000 applications from all over the world. 

The programme has delivered more than 100 proof of concepts with the support of over 65 partners.

DIFC said more fintech firms from overseas are seeking new opportunities to scale beyond their regional borders and into new economies with demand for their products and services. 

It added that Dubai has “become their bridge” to expand reach and capture opportunities”.

Wes Schwalje, chief operating officer at Tahseen Consulting, told AGBI: “Dubai is attracting more founders from emerging digital economies in southeast Asia, south Asia and Africa, using it as a base for global growth. 

“The Golden Visa, soft landing programmes and policies that support digital nomads are a key attraction.

“However, there is much more work to be done to support founders opportunistically domiciling in the UAE to expand deeper into the Middle East and North Africa.

“The majority of global founders who set up in the UAE don’t expand to other Mena countries, including significant neighbouring markets like Saudi Arabia.”

He added: “There is significant opportunity to attract Indian startups in particular which can both target India’s huge market and the GCC.

“The UAE’s competitiveness in the Web3 space is going to depend heavily on attracting founders and funding from India’s much larger developer and venture capital ecosystems.”

Door, Plant, Lamp
DIFC Fintech Hive has expanded to accommodate startups attracted by mentorship, knowledge-sharing, funding and access to global financial institutions

Arif Amiri, CEO of DIFC Authority, said: “In recent years, DIFC has remained at the forefront of innovation, attracting more than 600 startups, growth stage companies and unicorns to Dubai. 

“These businesses are now making a sizeable contribution to our economy. To continue building momentum it is the right time for us to strengthen our offerings by bringing more innovation propositions together under a new leader.”

Reflecting DIFC’s commitment to the growth of the fintech sector,  Mohammad AlBlooshi has been appointed as the vice president and head of DIFC Innovation Hub.

He said: “We are committed to helping fintech and innovation companies. We will continue to develop initiatives that will see us welcoming an influx of innovation and talent into our region.”

Last month DIFC announced the third phase of expansion of its Innovation Hub, currently home to more than 600 growth-stage tech firms, including established innovation companies, digital labs, venture capital firms and educational institutions. 

Sheikh Maktoum bin Mohammed bin Rashid Al Maktoum, Deputy Ruler of Dubai, Deputy Prime Minister and Minister of Finance of the UAE and president of DIFC, announced the original expansion in May 2021, quadrupling its size from 80,000 square feet to 315,000 square feet.

This expansion is due for completion at the end of next year.

Dubai banks
Abdul Aziz Al Ghurair, chairman of the UAE Banks Federation, warns lenders of competition from fintechs

Last month Abdul Aziz Al Ghurair, chairman of the UAE Banks Federation, warned lenders that they must double down on digitisation or face extinction amid the growing competition from fintechs.

“Competition from fintech and others will make it impossible to survive,” he said. “Banks need to fundamentally restructure their operating model.”

Schwalje agreed, saying traditional finance has been slow to innovate and has relied on limited competition for pricing power.

He added: “With the emergence of borderless neobanks and decentralised finance, the UAE’s traditional finance institutions are facing a situation of innovate or perish. 

“There is an urgent need to delink residency from financial service provision – like Switzerland, for example – to really take the market to the next level.

“Decentralised finance is really going to challenge this dated financial system policy orientation.”

Research by Arthur D Little, the management consulting firm, said banking as a service (BaaS) is poised for strong growth in the Middle East and could be worth $5 billion in 2026, about 4 percent of the total banking income in the region.

Philippe de Backer, managing partner and global financial services lead, said: “Banking as a service enables banks and non-banks to offer a host of completely new financial products to their end-customers.

“BaaS has a crucial role to play in enabling traditional banks held back by legacy IT to reinvent themselves with a more competitive offering.”

A number of standalone digital banks have launched in the UAE and wider region including YAP, which raised $41 million in July to fund its expansion; Wio, backed by Abu Dhabi’s $110 billion state holding company ADQ; and Zand, backed by Emaar Properties founder Mohamed Alabbar.

It’s not just the UAE where a fintech revolution is taking place. 

Saudi Arabia is poised to launch three digital banks over the next 12 months, plus new regulations, as part of its aim to become a major player in the industry.

The sector is “on the cusp of being propelled onto the global stage,” said Nezar Alhaidar, director of Fintech Saudi – an initiative set up by the kingdom’s central bank.

The kingdom aims to host over 500 fintechs by 2030 and offer 18,000 related jobs, with the sector contributing $3.5 billion to the economy.

Elsewhere, Bahrain has doubled its number of fintech startups since 2018, with the government closing in on $2.5 billion in direct investments until 2023. 

The growth comes as the Mena region has 2 billion people and a high adoption rate of smartphones.

But the majority lack access to essential financial services and there is no multi-billion dollar fintech company, such as Revolut (Europe), Chime (North America), Nubank (Latin America) or Ant Financial (Asia).

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