Whilst the dual shock of low oil prices and the unprecedented impact of a global pandemic has presented economies and businesses around the world with serious challenges and uncertainty, times of crisis can also present opportunities and act as a catalyst for change and disruption, both at a societal and economic level.
The entire world has faced the unprecedented impact of the COVID-19 pandemic for the past few months, but with economies slowly opening up and businesses shifting gear from ‘respond’ to ‘recover’ mode, companies need to consider the different opportunities and begin to adopt more agile approaches to secure their future success in the ‘new normal’. While some sectors and supply chains have been hit hard due to the pandemic, some are inherently well-positioned to be resilient to the impact of the pandemic. A strong example of this is the fintech sector, which is emerging stronger than ever as people turn towards digital services.
The digitalisation of the financial services sector has been ramping up for several years now, with FinTech companies like Softbank, Venmo, and Liv. Bank in the UAE utilizing breakthrough technologies like AI, big data, blockchain and cryptocurrencies. However, the onset of COVID-19 has accelerated the process, creating an environment ripe for the rapid digitization of financial services as social distancing and containment measures increase the appetite for mobile and online FinTech solutions for both consumers and corporates. The process has been accelerated particularly in the Middle East, as the region has already adopted technology considerably and their forward looking national visions such as UAE’s 2020 Vision: onto the next 50 and KSA’s Vision 2030 aim for digital transformation across several industries, including the financial services sector. During the crisis, the adoption of FinTech by financial institutions has seen a new peak, one which is expected to continue to develop and disrupt traditional, often outdated, practices.
Globally, the FinTech industry has seen a surge during the current situation with a study from financial advisory firm deVere Group showing a 72 per cent spike in FinTech mobile application usage in just one week at the beginning of the crisis. According to a study by McKinsey, more than 92 per cent of people in the UAE use smartphones which presents a substantial opportunity for FinTech companies – particularly those in the mobile payments sector, which is forecasted to grow at an increasing rate of 30 per cent per year in the UAE alone. The MENA FinTech market is also expected to grow exponentially and set to be worth $2.5 billion by 2022.
How will FinTech lead the way?
Unlike regular financial service providers, FinTech providers operate in a more flexible and agile manner to adapt to new services based on ever-changing demands. This unique capability poses an excellent opportunity for FinTech firms to build their reputations, emerge stronger than ever before, and become the leading advocates while economies shift and adapt to the new normal.
The wide adoption of FinTech has vastly improved accessibility to technology and solutions, which puts FinTech companies in a secure position to consider extending their capacity to support underbanked businesses and help them recover. FinTech companies that transcend support to their customers during this challenging period are likely to drive extended growth post-crisis. Therefore, investors and business leaders are pushing their portfolio companies to refocus on their customer service mission and core product roadmap to provide top-grade FinTech services. According to a report by FinTech accelerator Village Capital, the main FinTech innovation that will boost the financial health of the MENA region’s marginalised communities by democratising access to financial services post-pandemic are; savings and wealth building tech, employment tech, digital ID, financial literacy, access to capital and alternate lending.
In recent years, more banks have digitalized their systems and transformed the way they conduct business through FinTech companies that have introduced digital and data-driven tools. From RPA in the back office to customer-facing technology using AI chatbots and digital money transfers, FinTech has opened up a new field of innovation upon banks. However, to adapt to the post-COVID-19 world, these new tools are not just mere add-ons but are integral to any bank’s strategy.
Now is the time for change
The current situation presents the perfect opportunity for private sector entities to accelerate the digitization of financial services and public sector entities to explore digital currencies by partnering with FinTech startups. The central government banks in the UAE and Saudi Arabia have been ahead of the curve and have set up a pilot program that has been in effect since 2019 to develop a shared digital currency for cross-border bank transactions to help drive the transformation of the finance industry and build investor trust in digital currencies which other retail banks can participate in. The program aims to safeguard customer interests, set technology standards, and assess cybersecurity risks along with determining the impact of a central currency on monetary policies. As the region’s financial sector undergoes a period of rapid digital transformation, banks and financial institutions will need to radically restructure the way they work.
To deliver their products in a more accessible way, banks need to partner with FinTech providers to offer fast and convenient digital financial services and incorporate innovative solutions to common problems and develop new products that will propel the industry digitally and meet the demands of the ‘new normal’. This will ultimately drive economic recovery in the months and years to come.