Fintech globally continues to stay busy and this remains true in regions such as the Middle East and Africa (MEA), especially throughout 2021. What will 2022 bring to the region? Read on for our predictions…
COVID REMAINS AND ALTERS CONSUMER BEHAVIOUR COUPLED WITH DIGITAL ECONOMIC DIVERSIFICATION
Unfortunately, the COVID-19 pandemic will still be around but hopefully, it will see eventual demise – at the very least going to an endemic status rather than what has it been known for since the start of it back in 2020. Nevertheless, it has left a lasting legacy in particular with the importance of digital economic development and its need to accelerate digital transformation; this has included solutions such as fintech and specifically within MEA.
This has changed consumer behaviours (and will continue to do so) in the new year and most likely in some cases permanently – of the way people conduct their daily lives. For instance, the way people shop will continue seeing eCommerce further thrive in a region where it generally has lagged behind compared to much of the rest of the world. Various reports across multiple sources – from studies by Mastercard Economics Institute to Visa to Checkout.com to management consulting firm McKinsey – have discovered– coupled with The Fintech Times own research, Fintech: Middle East and Africa 2021 Report – that the pandemic has made consumers and businesses go digital and having to embrace eCommerce and digital banking solutions.
With the former – for example, Mastercard Economics Institute last year highlighted in its report that in terms of the eCommerce spending surge, the report estimates a permanent stickiness factor of 20-30 per cent in overall retail spending in terms of the e-commerce spending surge; Mastercard also highlighted that 73 per cent of consumers were shopping more online than they did before the pandemic.
Similarly, another example had a study by Visa highlight that 38 per cent of merchants surveyed in Saudi Arabia have acquired or developed an e-commerce platform as a direct result of the pandemic. The same study showed that more than seven in ten in Kenya and two-thirds of consumers in the UAE and Saudi Arabia, as a result of the pandemic, has led to their first experience of online grocery shopping; similar numbers made their first online purchases from pharmacies.
Due to the uncertainty of the future, coupled with the push of digital transformation across the world including in MEA, it looks like the changing consumer behaviour will remain, and, within much of that to be longer-term changes. This is evident in the African continent, where eCommerce revenues via research from Lagos, Nigeria headquartered and pan-African TechCabel are expected to be under $30 billion (which is a jump of last year from around $25 billion and a far growth from 2017 where it was merely under $10 billion; 2024 sees this to jump to over $35 billion).
In terms of government priorities, as much of the MEA region such as countries in the Gulf Cooperation Council (GCC) region (Saudi Arabia, Qatar, Bahrain, Kuwait, Oman and the United Arab Emirates (UAE)) and others such as Egypt, Rwanda, Mauritius, Kenya, Jordan and Morocco – to name a few – have undergone wider economic transformations and diversification strategies, their implementations will see the likes of fintech continue playing a strong role in them.
A noticeable economic development initiative (at par with other major infrastructure projects such as the Olympics) has been the MEA region – for the first time ever – is playing host to the World’s Fair – Expo 2020 Dubai – that is hosting countries from across the world including The United States, Israel, Malaysia, the UK, Saudi Arabia, China, India, Pakistan, Brazil, Singapore – to name a few. Having won the right from the Bureau International des Expositions (BIE), Dubai is hosting the world’s largest gathering of people, which began 1st October 2021, and will conclude on the 31st March this year.
After all, national strategies such as the likes of Saudi Vision 2030, Egypt Vision 2030 and Qatar Vision 2030 – to name a few – have prioritised and made digital transformation and sector diversification which includes the likes of financial services (FS) and technology a key aspect in future growth. For instance, in Africa as a whole, it is estimated that digitalisation can help lift 30 million people out of poverty and boost economic development.
Before the pandemic digital transformation was in the horizons and strategies of much of MEA but the health crisis has solidified its importance even further. This has resulted in their own implementations well underway.
IMPLEMENTATION PRODUCES MORE INFRASTRUCTURE TO FOSTER GROWTH OF STRATEGIES AND PRIORITIES IN DIGITAL TRANSFORMATION – THE SECTOR WILL SEE MORE DIVERSITY BEYOND JUST MAINLY PAYMENTS
The last few years have seen infrastructure and incentives that have been consequences of the drive of wider digital transformation and also promoting fintech in particular.
First, there will be incentives that will further digitalise aspects such as standardised guidelines, rules and wider regulations to facilitate trade and investment. For instance, in the UAE in 2021, guidelines were published that set out cross-sectoral principles and best practices for financial institutions when adopting enabling technologies for the development or offering of innovative products and services called “Guidelines for Financial Institutions Adopting Enabling Technologies” (the Guidelines). This was issued by The Central Bank of the UAE (CBUAE), the Securities and Commodities Authority (SCA), as well as Dubai’s Dubai Financial Services Authority (DFSA) of the Dubai International Financial Centre (DIFC) and Abu Dhabi’s Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Market (ADGM).
This is predicted to see 2022 across much of MEA seeing further collaborations and working groups to further foster business to see aspects such as legislation and other policies that will not rather hinder but also promote business but also offer a standardised and transparent practice for its various participants. Often, not unique to MEA but across the rest of the world, legal challenges and regulations often prove to be a challenge for many fintechs as far as not only being regulated but also understanding the rules in a disruptive and innovative sector.
It is important, nonetheless, as the likes and global trends such as “Buy Now Pay Later” (BNPL) for instance has also reached the shores of MEA as it has disrupted Europe or America for quite some time. The BNPL in 2021 globally was estimated to be worth at least $100 billion – clearly quite a significant part of the global economy. For regulators, it will be important for them to quickly understand and make impactful decisions that will not only protect consumers and the ecosystem but not also be of a hindrance to economic growth in the sector. Other trends I predict will be the continued importance of remittances which has seen a growing trend with adopting fintech solutions globally.
MEA is home to some of the richest and most advanced economies in the world (such as Qatar, UAE and Israel to name a few) and also home to some of the world’s poorest (19 out of 20 of the world’s poorest economies are in MEA). Despite the challenges COVID-19 brought, mainly with regards to social distancing, lockdowns and an initial sudden jump in unemployment as a consequence of those that affected various sectors in particular with the likes of hospitality and tourism, the global remittance economy will continue to be of importance for the wider global economy. MEA will continue to drive much of that activity and further adoption and invention of solutions including fintech to further digitalise it.
Cybercrimes presents a challenge to the world, which has also impacted not only consumers but the bottom line of businesses. For instance, Kaspersky in Africa noted in the first half 2021 a rise in cybercrime such as in Kenya where it amounted to 32.8 million, South Africa accounting for 31.5 million, and near double the number recorded in Nigeria at 16.7 million. Therefore, more protectionist measures to help those, especially the vulnerable and in these times of digitalisation, should be addressed and enforced.
Second, there will be other infrastructures that will promote the likes of Open Banking, which has been a popular topic at events in MEA as a whole but yet to see much further public development with retrospect to the rest of the world in particular with the likes of Australia, Singapore, the European Union (EU) and of course the United Kingdom (UK). Nevertheless, this year should see interesting developments.
For instance, Saudi Arabia, which has its own implementation of Saudi Vision 2030, has seen its key fintech catalyst Fintech Saudi make positive impacts in the Kingdom through various initiatives such as its accelerator programmes and events – overall is also seem strides in Open Banking. The Saudi Central Bank (SAMA) announced its Open Banking Policy last year, whereby its roadmap had anticipated a go-live date during the first half of this year. In addition, neighbouring Bahrain should see its second phase of the Bahrain Open Banking Framework being implemented this year as well, as the Central Bank of Bahrain (CBB) directed retail banks and financial institutions to implement the requirements for it. Infrastructure will be important as it will promote further natural entrepreneurship to flourish, as well as attracting investment and other fintech solutions from abroad such as from London, Singapore, Hong Kong, New York and San Francisco – to name a few.
Third, there will be more acquisitions, collaborations, and other partnerships and more in-house solutions. At present, despite as estimated by The Fintech Times, for MEA to have over 2,800 fintech solutions in 2021, many banks, insurance, venture capital (VC) firms and other business to business (B2B) opportunities still struggle finding relevant fintechs in the region as compared to much of the rest of the world generally is still more infant. This year will be imperative to further see infrastructure grow to foster both foreign direct investment (FDI) from abroad but importantly for MEA to produce more native solutions of their own. Nonetheless, 2022 and beyond will see more of that as it has been occurring and potential produce more unicorns such as Egypt’s Fawry or Saudi Arabia’s STC Pay. Further acquisitions and/or investments will also happen in the MEA region – such as high-profile ones with the likes of Checkout.com and Saudi Arabia and UAE-based Tamara and Nigeria’s Paystack with American Stripe.
Speaking of banks in the Middle East and Africa, I predict there will be further acquisitions of fintechs and other solutions as well as more of them across the region doing their own in-house solutions – whether it be from scratch or those the former mentioned. This also includes the likes of other large multinationals (MNCs) that are interested in the financial technologies space or operate directly within it such as the likes of remittances and also even fintechs themselves. Across the world, the counterargument is that many traditional financial institutions have not embraced the likes of fintech as fast as they should but the likes of the pandemic have shown the relevance of digital transformation and digital globalisation as a whole.
Fourth, cross border transactions and collaborations will further foster solutions across a region that spans nearly 70 countries. In Africa, for instance, thanks in part to the new free trade agreement, the African Continental Free Trade Area (AfCFTA), saw an interesting collaboration end of 2021. African Export-Import Bank (Afreximbank) partnered with the AfCFTA Secretariat to launch the Pan-African Payments and Settlement Systems (PAPSS), a platform that facilitates instant cross-border payments in local currencies between countries; it has been piloted successfully in Nigeria, the Gambia, Sierra Leone, Liberia, Ghana and Guinea, the countries that make up the West African Monetary Zone (WAMZ).
Fifth, despite the dominance of payment solutions historically in the MEA region (in the Middle East and North Africa (MENA) region it at its peak was 85 per cent of fintech solutions), there is a growing trend of other verticals. The C word, besides COVID, has to be mentioned as a prime example – cryptocurrencies. For instance, Dubai, which has become an undisputed regional hub in MEA (and in some sectors such as transportation and logistics a global hub), expects to have 1,000 cryptocurrency businesses operational by this year and centres in Dubai notably the Dubai Multi Commodities Centre (DMCC) Crypto Centre is a thriving cryptocurrency ecosystem and a gateway to global trade in blockchain technologies, according to its website.
Despite its global popularity and buzz at present with the likes of Bitcoin and non-fungible tokens (NFTs), parts of MEA has been hostile to them in recent memory. While the likes of cryptocurrency can be popular for much of MEA, especially for those with less options such as with a lack of financial services offerings and stability coupled with a majority of the population that is unbanked, its growth has seen parts of the world including some in MEA that have banned them. Fun fact – out of the nine countries that all right ban crypto seven are actually in MEA – Egypt, Qatar, Iraq, Oman, Algeria, Tunisia and Morocco (other two non-MEA are China and Bangladesh).
To note there are 42 other countries that have placed restrictions on them that for instance effectively made it hard for banks to deal with crypto. As with much of the rest of the world, 2022 such as in MEA will at least address the growing rise of crypto in that some form of legislation will be needed to combat the likes of money laundering and other dirty money activities that much of its negative activity has been associated with it (as with commodities in the past and present such as with gold, etc).
Finally, it is worth noting that fintech in MEA in 2022 will also further see the rise of fintech for good. This is notable in particular with Islamic Finance, which as part of the other themes mentioned has also seen its own digital transformation. This for instance has seen the paying an alms (or charity) tax to benefit the poor and the needy (Zakat) come into fruition more, such as recent examples in MEA with Dubai’s Smart Dubai in 2021 collaborating with the UAE Zakat Fund to launch a new and secure Zakat payment service on the government service application DubaiNow during Ramadan or in Africa with Nigeria’s eTijar – to name a few. To note, the approximately 2 billion Muslims worldwide have a significant proportion live in the MEA region, which is also the birthplace of Islam.
2022 will further cement fintech and wider digital economic development across the Middle East and Africa, which without the pandemic had already seen its growth and importance.
