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Shafique Ibrahim, CEO of Alif Pay
When we talk about the cities and countries leading fintech innovation, there is a tendency to focus on places in Europe, North America and East Asia. Based on fintech’s evolution over the past decade, such a focus makes sense. Traditional financial centers in cities like London, New York City and Singapore have effectively leveraged their global financial status and facilitated the rise of fintech startups who have permanently transformed the banking sector.
Today, fintech is still a trending topic of discussion. The reason for this boils down to the fact that the untapped potential, and subsequent opportunities on offer, is significant. This is certainly the feeling in the UAE, which is on the brink of becoming a new global voice on fintech innovation. The country is currently the leading fintech hub in the Middle East and North Africa (MENA) – the total value of transactions recorded in 2022 was just under $40 billion, with analysts anticipating a projected CAGR of 15% up until 2028.
The UAE’s rapid rise is a consequence of many factors. Its geographical location, local demands for fintech solutions, attractiveness as a destination for foreign direct investment, and digital disruption all play a role. Yet perhaps most significant has been the willingness of the UAE’s governing authorities to deliver policies that encourage innovation, such as the introduction of regulatory sandboxes and the issuing of digital banking licenses. These have been delivered as part of the bold framework set out in the Abu Dhabi Economic Vision 2030 which sets out the strategy for encouraging innovation and moving away from a reliance on oil to power the economy.
These announcements were pivotal for Central Asian fintech Alif, which launched Alif Pay in the UAE in September 2023 to offer innovative payments and financial services solutions.
With any market projection, a realistic perspective which acknowledges both the opportunities and challenges are warranted. The future of the UAE’s fintech sectors stands bright. However, its future success will depend on whether the UAE can sustain its growth and realise its projections in the immediate and long-term. A myriad of factors are at play here, with 2024 set to be a defining year.
Fintech solutions to local demands
The UAE has been embracing fintech solutions to modernise existing financial processes. This was initially spurred on during the COVID-19 pandemic, when lockdown restrictions sparked a shift towards digitally-enabled solutions. The expat community now numbers 9 million people according to GMI, which is remarkable given the population of the UAE is estimated to be around 10.17 million. It demonstrates why interest in fintech solutions, and in particular, cross border payments is so strong.
Remittance payments, namely outbound, are notably high in the UAE. As a result of migrant workers and expats sending money abroad to their home countries, the transactional value of digital remittances is set to reach $6.95 billion in 2023. The number of users is also expected to grow to 1.4 million users by 2027. This is being led by fintech startups. In the past, sending funds cross-border proved to be a costly, long and in some instances, a complicated process. Fintech startups have drastically improved the process by cutting down time and costs involved for cross-border transactions. These can also be arranged via a mobile app, improving accessibility.
Given the size of the UAE’s remittance market on a global scale, and the growing popularity of Dubai as a destination for international commerce, fintech services related to cross border payments will remain high. As such, we are likely to see more fintech companies entering the remittance market in 2024 to support the UAE’s demands.
Maintaining FDI inflows
Of all the factors that have supported the rise of fintech hubs, FDI has proven integral. At the base level, FDI brings in capital from foreign investors, which is essential for fintech startups and companies to fund their operations, research, development, and expansion. Significant financial resources are required, particularly at the early stages of a business’ growth cycle. FDI can provide this, as well as opening up access to new global markets.
It’s no surprise then that the UAE is ranked West Asia’s top region for FDI, receiving 47.1% of total regional inflows in 2022, amounting to $48.3 billion. The country also ranked first in MENA, albeit with a lower percentage (32.4%) of total regional FDI inflows.
Within this context of FDI, the UAE government has identified fintech as one of its most promising sectors, and will continue to pursue reforms to enhance international access to new opportunities. This is likely to remain the case in 2024. However, the UAE should maintain its streak of reforms and supportive policies to effectively defend and build its status as the rising fintech hub of MENA. The potential on offer across MENA makes it a competitive environment for investment. The UAE needs to attract investment by ensuring its fintech industry boasts the startups set to lead on the next iteration of fintech innovation.
Preparing for the new year
Dubai has been laying down the foundations to establish itself as fintech capital over the long-term. The combination of FDI, local market demand and innovation will continue to be key, supported by opportunities to champion the potential on offer.
Dubai International Financial Centre (DIFC) will be running the second Dubai Fintech Summit in 2024, with the aim of setting the global benchmark for the manner in which enterprises and governments approach financial innovation. The themes underpinning the summit include payments, Web3, embedded finance, open finance and regulation and policy making – a reflection of the themes that the DIFC considers integral to the sector’s rise.
We will also see the UAE continue to fulfill its vision set out in the Financial Infrastructure Transformation Programme which seeks to make it a global innovation hub for financial and digital payments. A core pillar of this is the creation of a regulatory environment which is supportive of innovation and makes the UAE globally competitive in the fintech sphere.
Whatever the path the UAE’s fintech sector takes, we are only at the beginning of a longer journey. By maintaining a vision and encouraging collaboration between private and public bodies, the UAE could be on path to becoming a global fintech capital.
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