Oliver Wyman shares trends predictions that will shape the financial sector in the Middle East during 2022.

Mathieu Vasseux, Partner – Head of IMEA Financial Services, and KSA Market Leader at Oliver Wyman, said the region is undergoing a radical transformation of its financial sector, and 2022 should witness major developments.

The trends expected this year, according to Oliver Wyman, include:

Digital Payments, Cryptos and CBDCs

We see massive interest in Payments across the spectrum of banking incumbents, Fintech Disruptors and Central Banks. This is underpinned by a conjunction of factors, the first of which is that Payments have superior economics and Return on Capital Employed (ROCE). Secondly, Payments are a gateway to full banking relationships which Disruptors want to use as the anchor to attack Incumbents, and Incumbents want to deflect. Saudi Arabia’s STC Pay and UrPay (by Al Rajhi Bank) are good examples of this competition playing out. Thirdly, Payments are a key pillar of enhanced government services and regulatory supervision. For instance, the UAE and Saudi Arabia are partnering on Crypto-Currency and Distributed Ledger via project Aber, in a move which could transform interbank transactions and reserve management. We also foresee growing adoption of cryptocurrencies and a wider push on Central Bank Digital Currencies (CBDCs), along with broader blockchain applications. For example, global cryptocurrency exchange Binance and Dubai World Trade Centre signed a MoU in December 2021 to develop the broader virtual asset ecosystem within the UAE; Binance was also then awarded in-principle approval as a Crypto-Asset Provider in the Kingdom of Bahrain.

Finance as an Ecosystem and BAAS

The financial services industry is now reshaping at record speed. We see continued digitalization of financial services across banking, insurance, and asset management, where we support leading banks and insurers on their journey to BAAS (Banking As A Service) and Ecosystem builds.

Financial ecosystems are emerging with multiple partnerships – such as when Stripe entered the UAE market in 2021 and had 13,000 merchants expressing interest in joining their platform for payments and adjacent services. We are also witnessing consolidation via large mergers (Samba-NCB, ADCB-UNB-Hilal, SABB-Al Awal, etc.) and restructuring in most markets. Rapid financial service modularization, which has been disrupted by new entrant FinTechs, like Tamara, a Buy Now Pay Later (BNPL) start-up, raising a record USD 110 MM Series A round in KSA shows that there is a need for incumbents to integrate and co-exist with other established FinTechs already in the market.

Fiscal consolidation

We foresee fiscal consolidation at a national level in 2022. Saudi Arabia for instance has diversified revenues and optimized expenditure enabling a potential 2.5% budget surplus this year. Both fiscal management and tax compliance are now being enabled by AI, advanced analytics, and predictive algorithms. The launch of e-invoicing, Fatura, would enable both increase ease of doing business for companies, stronger tax compliance as well as real time GDP/economic analytics at a transaction level in the Kingdom. We expect peers to embrace the possibilities of e-invoicing for macro-economic, fiscal, and social transformation. We also see more diversified government funding models in 2022, with sophisticated debt issuance including Green Bonds and optimized reserve management, along with more focus put on managing and effectively deploying sovereign wealth. We also foresee an increased focus on ESG-friendly government investing and policies both at SWF and bank lending level. In parallel budget priorities are being refocused to enable long-term growth and resilience.