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Why I’m rooting for the fintechs

Apps like Revolut will give the UAE's slow incumbent banks a wake-up call

Fintechs offer transparency and simplicity in banking Unsplash/edikurniawan
The UK business delegation is slated to meet officials from the Saudi Central Bank and PIF in Riyadh

News this week that popular British fintech Revolut is set to launch in Dubai has been met with joy by those, including this writer, who loudly bemoan the big banks.

If you’ve ever stumbled upon the daily rants on X (formerly Twitter) about major UAE banks, you know the struggle is real.

Local financial institutions may have turned their paper processes into digital services to join the 21st century, but they have missed one point: banking should not be an ordeal.

Fintechs and neobanks, on the other hand, are fixated on solving problems. They offer intuitive interfaces and transparency in an otherwise convoluted financial world.

Let’s look at international money transfers, which are commonplace to most UAE residents.

Traditional banks, in their charming old ways, are still trapped in a timewarp when it comes to these transactions. They may take days or even weeks to reach a final destination while offering poor exchange rates.

Fintechs undercut traditional banks in cross-border payments, being 3 to 4 percent cheaper on average. Your funds are already over the other side of the world because the challengers sidestep the reliable but expensive and slow SWIFT network used by banks, instead using their own networks to avoid intermediary fees.

Fintech customers typically pay into a local account, with recipients receiving funds from the fintech’s foreign account. No money crosses borders, which cuts a lot of the costs, inefficiency and waste from the system.

Meanwhile, I’m still on hold with the bank as customer service can’t seem to track where my money is and why it hasn’t yet reached its end user. Several phone calls later, they can however ‘send an email to escalate’. 

The difference is also evident in the retail investment space. One UAE bank recently ran a promotion pledging to “refund” applicable charges for trades “within seven working days following each calendar month’s end.”

In contrast, I trade on fintechs for free, with no hidden terms, fees or the need for lengthy refunds.

S&P Global Ratings, in a recent Future of Banking report, downplayed the threat of a mass exodus from traditional banks to neobanks.

The report added that the Central Bank of the UAE will “continue to maintain the stability of the traditional banking system and encourage banks to strengthen their digitalisation efforts.”

Banking revolution

But as veteran banker Suvo Sarkar – founder of digital bank Liv and CEO of management consulting business 3D Advisory – told me: “It’s death by a thousand cuts, so it’s going to hurt over time”. In other words, time is running out for the incumbents.

According to Statista, the number of neobank customers worldwide reached approximately 188 million in 2022, up from about 19 million in 2017.

This figure is likely to exceed 350 million by 2026.

This growth has been accompanied by a proliferation of neobanks, with more than 500 in operation in 2022.

Here at home in the UAE, comparison website Finder suggests that the number of adults with neobank accounts grew to 19 percent in 2022, up from 17 percent in 2021.

S&P expects adoption of digital-only banks to rise between 35 to 40 percent by 2027, in line with the global average.

Additionally, S&P said neobanks – owing to lower transfer fees, better exchange rates, and speed – can attract a portion of the lucrative market of expat remittances, which amounted to $46.5 billion in 2021, according to the World Bank.

BCG’s market research reveals a high level of acceptance for new entrants in the Gulf region, driven in part by the lag in digital offerings from incumbent banks. 

BCG’s latest Digital Maturity Benchmark shows that the quality of digital banking services in Saudi Arabia scored just 13 out of 100, compared to 45 in the US and 49 in Germany.

Furthermore, 88 percent of consumers in the kingdom expressed willingness to open accounts with digital-only banks, presenting significant opportunities for consumer-centric neobanks to capture market share from incumbent competitors.

So will it take a British fintech to start the banking Revolut-ion?

Valued at approximately $33 billion and with 35 million customers already, Revolut is certainly going to shake things up.

“It’s going to be a wake-up call for staid and lazy incumbents, who haven’t got a worthwhile digital banking strategy or are being slow or not very innovative,” Prashant Gulati, an angel investor in Dubai, told me.

What is a Neobank?

Neobanks, or challengers, are banks that operate only online and have no physical presence. The most successful models include digital-only propositions to cater to underserved segments like small businesses, and solutions for savings and wealth management, personal finance and lending, buy-now-pay-later (BNPL) and insurance.

Megha Merani is a Dubai-based reporter

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