Dubai is the largest city and commercial hub in the United Arab Emirates (UAE), so its economic development naturally garners a lot of attention as it continues to grow at an immense pace. But how does fintech play a role in accelerating and driving this growth?
The most visible emblem of the role financial services are playing in Dubai specifically, but also the UAE on the whole, is the Dubai International Financial Centre (DIFC), which is the city’s primary special economic zone (SEZ) that is driving its status as not only a regional hub but as a global player too. The DIFC alone is estimated to contribute at least 12 per cent of Dubai’s total gross domestic product (GDP).
The DIFC is the only financial centre in the Middle East, Africa and South Asia (MEASA) to be ranked amongst the world’s top 10 leading financial centres (according to the Global Financial Centre’s Index) – joining the ranks of other centres situated in Hong Kong, Singapore, New York City and London.
According to Arif Amiri, CEO of DIFC Authority, “Through its Strategy 2030, DIFC is committed to drive the future of finance, differentiate Dubai as a global hub for financial institutions, fintech and innovation companies, and increase its economic contribution to the emirate.
During the first half of this year, a total of 537 new entities registered, representing an 11 per cent year-to-date increase. The total number of companies operating in DIFC has gone up from 3,297 to 4,031 at the end of June 2022, an increase of 22 per cent year-on-year. This led to the fastest job creation growth rate since inception, and further expands the largest and most diverse pool of industry talent in the region.
Demonstrating the attractiveness of DIFC’s market-leading operating environment, legal and regulatory framework, innovation offering and ecosystem depth, the Centre is now home to 1,252 financial and innovation related companies, an increase of 22 per cent from the same period in 2021. FinTech and innovation companies jumped from 406 to 599, a 23 per cent increase year-on-year. New clients include, Rapyd, the first Israeli firm to be regulated in the UAE; Tarabut Gateway, the first regulated Open Banking platform to be licensed by the Dubai Financial Services Authority (DFSA); KMMRCE Holdings, a leading Dubai-based digital-first technology provider; Oneglobal Broking, specialist international broking company; and ADIB Capital Ltd. for Wealth & Asset Management.
DIFC has been defining the region’s financial sector for several years. The ambitious steps taken by Dubai and specifically DIFC to drive the future of finance, will generate a significant number of new opportunities for businesses.
DIFC will also continue to be at the forefront of fintech and innovation evolution. In June, DIFC hosted FinTech Week, the region’s largest gathering of fintech innovators, leading investment firms, banks, policymakers, and service providers, to speed up the adoption of next-gen technology solutions in the industry.
To support the growth of fintech and innovation companies in the region, DIFC has expanded its Innovation Hub proposition by launching a global Venture Studios hub and introducing a $100 million Venture Debt Fund.”
Amiri adds, “In alignment with the country’s vision to become a global benchmark in Open Finance, DIFC has established the region’s first Open Finance Lab, following an agreement with the Central Bank of the UAE (CBUAE). The lab will work in collaboration with banks, FinTechs, regulators and the industry to unlock the next wave of growth for the sector and increase consumer protection, financial inclusion, social benefits and economic opportunities.
DIFC continues to develop its laws, regulations and industry thinking to differentiate its position as a global financial centre.
During the first half of this year, changes to DIFC laws and regulations included amendments to its globally recognised data protection law. The law supports the development of technology and innovation, while ensuring that the rights of individuals are properly safeguarded by the companies in DIFC and those they engage with. The DIFC Data Protection Law is in the final stages of being evaluated for equivalence with the United Kingdom’s privacy laws, a partnership that will provide practical solutions to the complex issues involved with data sharing across borders.
The Centre also generated a new wave of interest in Dubai from US financial services companies. This was following its successful roadshow with senior executives from more than 100 leading American financial services and technology companies in attendance. In addition, the Republic of Türkiye Roadshow witnessed a series of strategic meetings with key clients and partners in Istanbul in a move to create strong partnerships with companies in Republic of Türkiye. In the Middle East, DIFC held a successful roundtable in Tel Aviv, Israel, with 30 prospective clients across a wide range of businesses in the financial services sector.”
According to Ian Johnston, chief executive of DFSA, “The UAE economy has been quick to recover in 2022 and achieve pre-pandemic levels of growth. Initiatives such as the National Innovation Strategy, have encouraged the development of the UAE’s fintech sector.
“Within the DIFC, the regulated financial services ecosystem continues to grow with the DFSA authorising 63 financial institutions during the first nine months of 2022. That represents a 26 per cent increase from 2021.
“As a result of the introduction of new regulatory frameworks such as our money services regime in 2020 and investment tokens regime in 2021, as well as our Innovation Testing Licence (ITL) Programme, we continue to see diversification in the types of firms being licensed within the Centre. These include crowdfunding platforms, SME funding platforms and digital debt and sukuk issuance platforms.
“We expect to see further growth within the ecosystem following the introduction of our crypto token regime in November.
“As more and more innovative financial products and services are introduced to the market, the DFSA has been building dedicated teams within the organisation to effectively supervise these products and services. We look forward to seeing the sector flourish and being at the forefront of the future of finance.”
Across the Middle East and North Africa (MENA), Dubai is estimated to be home to around half of the fintechs in the entire region. Many of them are based in DIFC Fintech Hive, which is also based within DIFC and acts as the main catalyst for the fintech sector in Dubai.
For instance, DIFC FinTech Hive has its DIFC Fintech Accelerator Programme, which offers the most innovative start-ups access to the region’s largest financial industry banks and insurance companies for partnership opportunities, exposure to investors, mentorship and more.
This year, 20 startups were selected to participate – addressing challenges including crypto, digital assets wallet, investech – to name a few. In addition, running alongside this programme, was their AccelerateHER programme, which was sponsored this year by HSBC, which saw a record number of applicants.
In terms of startups, Dubai now accounts for 57 per cent of scaleup funding in the MENA region, while the emirate is home to 39 per cent of the region’s scaleups, according to a new report developed by Dubai Chamber of Digital Economy in cooperation with Mind the Bridge and Crunchbase.
Dubai also made news this year in the metaverse world where it announced its strategy and ambitions to be a global metaverse hub. The Government of Dubai recently formed the Higher Committee for Future Technology and Digital Economy to oversee the city’s push to become a leading global hub for metaverse technology adoption.
Even companies such as Emirates NBD, which is one of the largest banks in the Middle East and Africa (MEA) region, have launched a global accelerator programme for metaverse startups. This is in partnership with DIFC Fintech Hive and powered by Microsoft.
The environment will match authentic real-life events and locations, with a Beta version expected to go live in the fourth quarter of this year.
According to a report from PwC about UAE cryptocurrency regulation, the UAE’s share in the global market sits at around $25billion in transactions, a figure that has increased 500 per cent between July 2020 and June 2021. Regionally, the UAE ranks third by volume, behind Turkey at $132billion and Lebanon at $26billion.
The UAE has been actively encouraging the growth of its crypto industry, having enacted Dubai’s virtual assets law alongside the founding of the Dubai Virtual Assets Regulatory Authority (VARA), and while the industry was largely unregulated a few years ago, recent legislative measures have shown the government’s commitment to reduce the potential financial crime risk in the nascent industry.
Dubai becomes even more digital
Data from Mastercard’s Borderless Payments Report 2021/2022 reveals more than half (51 per cent) of those in the UAE who made online cross-border payments to family and friends over the last 12 months believe recipients would have struggled financially without that support. This compares to 40 per cent globally as the payments continue to provide a lifeline for people with families abroad.
Businesses have also become more digital in Dubai. The Department of Economy and Tourism (DET) in Dubai and the Visa Economic Empowerment Institute (VEEI) conducted a joint study and published their findings to assess the resilience of small businesses in Dubai during covid-19.
The resulting whitepaper, Dubai MSMEs: Digital and resilient, looked at the digital journey of micro, small, and medium enterprises (MSMEs) in Dubai and drew on Visa data to provide insights into UAE commerce trends.
The paper explored the results of a survey of more than 900 Dubai-based MSMEs which found that digital capabilities—in terms of digital payments acceptance, expanding use of social networks, messaging apps, online marketplaces, and cross-border reach— were key to MSMEs’ recovery and resilience.
The covid pandemic also led to a surge in ecommerce as business owners moved quickly to fulfil their customers’ demands. The joint Visa and DET study surveyed businesses that are actively accepting card not present (CNP) payments as an indication of eCommerce activity. For all businesses in Dubai, this percentage increased from eight per cent in July 2019 to 13 per cent in August 2021, a growth of 60 per cent.
With the neighbouring and the capital city of the UAE, Abu Dhabi, Dubai’s offering combined has continued to be of advantage for the country as a whole and I see more positive things to come with respect to its wider economic development and diversification. This gives the fintech sector a growing role to play in the future of the economy.