Fintech is cool. It must be cool if Hollywood celebrities such as Snoop Dogg and Jared Leto, between attending an exclusive pool party and a yoga class, found the time to invest in a fintech startup.
However, behind all the hype, fintech has a genuine ability to structurally change financial services, making them faster, cheaper, safer, and more transparent and accessible.
Even in MENA governments have recognised the potential. In November, Abu Dhabi Global Market launched Reg Lab, the first MENA fintech sandbox, which means the startups and firms working in it will be subject to a lighter regulatory framework for two years.
Fintech can have a quantifiable impact on economies, and one of these consequences is the capacity to unlock the potential of all kinds of MENA startups. It can lower barriers to entry and failure rates by improving access to finance, technology and even customers.
Capital raising alternatives making startups’ lives easier
Fintech makes raising capital easier by introducing new forms of funding such as P2P lending, crowdfunding and crowd equity. This is desperately needed in MENA where SME borrowing is 8 percent of total bank lending, compared to 18 percent on average in middle income countries.
Zoomaal, a crowdfunding platform enabling Arab creative projects, has helped its members raise $1.7 million.
Similarly Beehive, the world’s first independently certified Sharia-compliant P2P finance platform, channeled AED 25 million (almost US$7 million) to more than 50 SMEs in its first year.
Sharia-compliant crowdfunding and investing platform Liwwa, founded at Harvard University’s Innovation Lab, that lent $1.6 million in one year in Jordan only.
New technologies foster MENA competitiveness
Technology contributes to a firm’s comparative advantage. The more technologically advanced MENA startups are, the more they can compete at a regional and global level.
Cutting-edge fintech startups apply new technologies to the financial sector, but these technologies could be applied in other sectors too. In Dadaab refugee camp in Kenya blockchain platform Banqu provides Somali refugees with ‘economic identities’, digital or electronic credentials that identify a person and their financial history.
MENA startups could benefit from a rising fintech presence in the region through a ‘knowledge spillover’, as they adopt new technologies developed in the sector and provide new services based on those technologies.
Bitoasis, a fintech startup building the infrastructure for new digital payment products using the blockchain, was founded in 2015 in Dubai. Since then it has contributed to Dubai's Global Blockchain Council (GBC), a public-private initiative encouraging blockchain adoption.
Subsequently, in early 2016, Dubai government launched the Blockchain Strategy announcing that by the year 2020, 100 percent of its documents will be on blockchain and 1,000 firms will use blockchain-based technologies.
Gateway towards more payments, more customers
According to a Wamda Research Lab report on scaling, 29 percent of MENA startups stated that generating revenue was their key challenge.
“One of the biggest challenges any entrepreneur faces in turning their idea into a commercially viable startup is how to collect payments from potential customers who are geographically dispersed,” said Payfort managing director Omar Soudodi in a company statement in 2013.
Combine this with late payments, and you have a true startup killer.
Fintech furnishes a viable solution to these problems by reducing payment delays and providing faster and cheaper payments.
For example Payfort, an online payment platform, offers a payments service customized for startups called Start. This service allows safe and fast payments to startups.
Fintech also enlarges the pool of potential customers by fostering financial inclusion through new forms of payments.
Fawry, an electronic bill presentment service, offers financial services to consumers and businesses through more than 50,000 locations and a variety of channels. As of today, it reached 15 million customers in Egypt, where 86 percent of adults are unbanked.
No more money mismanagement
Money comes and money goes. However, without a serious check on cash flows, money can exclusively tend to go away, very quickly.
Fintech provides new money management services that improves startups’ financial planning. Thus leading to better business development and lower failure rates.
A valuable example is Business Clouds, a startup founded in Saudi Arabia in 2010 which is developing and managing cloud software services targeted towards the MENA business sector.
In 2014 it launched Dafater, a cloud enterprise resource planning (ERP) solution especially tailored for businesses in Saudi. It deals with “the mundane accounting tasks for those who do not have a full time accountant or would like to have an independant senior accountant audit how their staff uses the system,” according to Business Clouds executive Saleh Almutairi in 2014.
Refreshing change in finance
Fintech is cool because it supports Arab creativity to best express itself despite difficult conditions. It disseminates new ideas and technologies across the MENA region, promoting alternative perspectives. It can open the door to entrepreneurship among people from various backgrounds.
Arab fintech is genuinely cool.
Feature image via Pexels.