2 biggest challenges hindering FinTech growth
FinTech has been one of the biggest talking points this year. Not only is it gaining investment traction, but also having an economic impact on society.
With Abu Dhabi FinTech Festival 2019 currently underway, FinTech startups from around the world are being recognised and celebrated in the UAE.
At the opening ceremony of the festival, Richard Teng, CEO of Financial Services Regulatory Authority (FSRA) of ADGM, said "In the first half of 2019, the MENA region saw close to half a billion USD of VC (Venture Capital) funding in start-ups, excluding Souq and Careem. This is a 66% increase compared to the same period last year. More than a quarter of the funding was invested in the UAE, with the FinTech industry being the most vibrant sector, accounting for 17% of all deals done."
Moving ahead, close to 500 FinTech companies in the Middle East will raise over USD 2 billion in venture capital funding in the next 3 years, based on a Milken Institute Report. And Abu Dhabi will be at the epicentre of this exciting development.Richard Teng, CEO of Financial Services Regulatory Authority of ADGM
In light of this progress and vision for the future, SME10X looked into the major hurdles that are inhibiting the growth and implementation of these FinTech solutions.
With cybersecurity being a major issue, governments around the world have been slow to ease regulations on financial technology startups.
It's not only for the young startups but even for large firms such as TransferWise, who are not allowed to operate in certain countries. Facebook, as we all know, is increasingly getting pressure from regulators regarding its Libra project.
Regulation is also a challenge for established banks and insurance companies, who devote vast resources to ensure compliance. However, this is exactly what has given way to FinTech startups, even though everyone struggles with it.
Regulation in itself is of utmost importance. It cannot be taken lightly as it impacts people's financial security, and can also affect the economy on a larger scale.
The need, however, is to smoothen and quicken the process of regulation.
One of the solutions provided by governments is a sandbox environment wherein the regulations are eased in order to allow FinTech to grow and experiment.
There have been cases whereby it takes years for startups to graduate from a regulatory sandbox, which delays the product introduction and its impact on the market.
Due to regulatory challenges, the infrastructure needed for FinTech to grow is also still nascent in the region. Open APIs for example, are unavailable in the GCC, except for in Bahrain, who has made it mandatory for banks to provide them.
Dapi, a UAE-based startup is looking to change this. It is currently part of DIFC FinTech Hive and Plug and Play ADGM’s cohorts, and are operating by being part of the ADGM RegLab sandbox.
The nascent infrastructure development, in part due to regulation, also poses other challenges that hinder FinTech startups, such as the hurdles in opening bank accounts, and expensive internet data charges — the two most basic yet necessary components for startups.
FinTech startups have a major economic impact on society — from Paytabs enabling e-commerce payments and strengthening the economy, to Democrance and NOW Money providing insurance and banking services to the large yet underserved section of society, to Sarwa making financial investment services more affordable and accessible to everyone. These startups and the hundreds of others are needed to lead our society towards inclusion and mutual prosperity.