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By Khofiz Shakhidi, Chairman, Alif Bank
By all accounts, the rise of fintech can be considered a success story. Since its inception over a decade ago, financial technologies have challenged and permanently transformed the manner in which businesses, consumers, and investors manage their banking and financial services. The success stemmed from a driven generation of entrepreneurs, leading startups, questioning the status quo, and attracting the interest of investors.
Move forward to 2024, and industry commentators are confident momentum will not just be sustained but increase. A report from the Boston Consulting Group and QED investors projects that fintech revenue will sixfold from $245 billion to $1.5 trillion by 2030. At the same time, the fintech sector’s global share of global financial services revenue is estimated to grow from 2% to 7%.
These are impressive figures, but it naturally leads to questions. Can a sector that has already successfully scaled at pace be able to accelerate its growth and reach new milestones in the coming decade? The short answer: yes. The reasons for this are multiple, and yet are all linked together by the rise of new fintech markets outside of the established jurisdictions.
The Rise of New Fintech Hubs
The majority of fintech innovation has come from the world’s leading financial markets. The US, UK, Europe, and China have accommodated some of the sector’s biggest names, fostering an environment that promotes company growth through targeted reforms and regulations. Alongside the recognizable unicorns based in these established hubs, we are also seeing a new wave of fintechs addressing more technical or specific gaps across the B2B and B2C space.
However, a significant share of fintech’s growth will stem from emerging markets. The UAE is a clear example of this. The UAE government has been clear in its mission to make the country not only a leading hub for fintech in MENA but recognized globally. This will reinforce the fintech trends across the GCC region with greater intra-regional connectivity over the next 10 years.
Data from Innovate Finance showed that while global investment into fintechs dropped in 2022, in the UAE, total investment flows increased by 92%; a result of accommodating regulations and the rising adoption of digital banking and tech-enabled financial tools. High investment flows also suggest a healthy collection of SMEs and startups, with investors clearly confident in the long-term prospects on display in the region.
The factors contributing to the rise of scaling markets range from state-backed initiatives to market sentiment and the innovation on display from local fintech businesses. In the UAE, an effective balance has been struck between innovation and regulatory policies, ensuring that companies have the freedom to scale at pace, attract new talent, and support their commercial targets. Advanced technological infrastructure is vital in this regard. Emerging markets have had to pool significant capital investment into the infrastructure needed to make them globally competitive with established markets. The UAE has effectively done so, with Dubai positioning itself as the city of the future. All this plays into the market potential, triggering a snowball effect that encourages new investment, business creation, and ultimately secures the long-term future of the local fintech industry.
Catering to Local Populations with Local Solutions
Alongside investment, the other factor driving the rise of emerging markets is the rise of local populations who have access to the internet and rely upon smart devices to complete daily activities. In Central Asia, enhanced digital penetration through infrastructure investment, the adoption of digital over cash payments, and greater consumer awareness has promoted the use of fintech solutions. Tajikistan and Uzbekistan are two countries of note, with e-commerce and banking products growing in popularity. As awareness increases, so too will the adoption of fintech solutions.
With new markets come new demands. Local needs require local solutions, with fintech companies offering products that are tailored to the habits of native populations. According to research from Mastercard, just under half (48%) of the UAE population is planning to send cross-border payments more frequently in 2024. This is due to the UAE accommodating one of the world’s largest international migrant workforces, as 87.9% of the entire population, making the case for tech-enabled payment systems to overcome the traditional challenges faced when sending money cross-border.
Emerging fintech hubs have the benefit of learning from the experiences of the established hubs, particularly from the West. A decade ago, fintech’s integration into banking and financial practices was rapid. The heightened adoption by consumers, investors, and businesses provoked questions over whether fintech was sustainable and able to challenge the legacy enjoyed by the mainstream financial institutions. Now, emerging fintech hubs can learn from these experiences, understanding what policies can be introduced to mitigate any obstacles for growth and provide an environment that supports industry growth.
With the established fintech hubs entering a period of consolidation, we are likely to see a large share of industry growth occur in places like the GCC and Central Asia. Through investment, innovation, and higher adoption rates, these emerging hubs will be one of the central forces driving the perpetual evolution of fintech. Excitingly, it demonstrates that fintech is a global force that is not just the marriage of financial services and technology but a movement that is digitally empowering populations around the globe.
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