Until a few centuries ago, empires waged wars against others to gain access to their resources and people in order to make their own nations richer. Today, this race to become the most powerful country in the world takes place in a much more sophisticated manner—by governments attracting talented people and companies from across the globe to boost their economy and the welfare of its people—through high standards of living, advanced infrastructures and opportunities to earn a good living.
Although there are many parameters to judge the attractiveness of a country or place, one of the most important questions is: how easy it is to do business in the country?
Many factors determine the answer, such as regulation, physical and digital infrastructure, market growth potential, and ease of setting up a business. However, what ties this all together in the 21st century is the technological infrastructure, especially in the financial sector. This is the reason why governments are launching initiatives in order to bolster FinTech advancement and adoption, such as free zones, co-working spaces, accelerator programmes and, more recently, regulatory sandbox environments.
A regulatory sandbox is an environment specifically built to allow new ideas for innovative products or services to be experimented. What differentiate them are the less stringent regulations, which would otherwise have cause hinderances for a company to propose or work on their idea that could be the next ground-breaking innovation. For example, until a few years ago, blockchain or the idea of a decentralised currency was not paid any heed, but today cryptocurrencies have a market capitalisation of $104 billion.
Hence, a sandbox provides an environment where innovation can thrive without unnecessary regulatory burden, whilst ensuring the safety and soundness of the financial and banking sector. That way, the country and its economy benefit from the accelerated pace of innovation, especially when it comes to financial technology.
Recently, the Central Bank of Kuwait outlined its initiatives to accelerate FinTech adoption and upgrade the IT infrastructure of the country’s financial systems. Part of the initiatives is the launch of a sandbox, in addition to the launch of the Kuwait National Payment System (KNPS). The KNPS is a strategic project being developed in collaboration with local banks and payment gateways, which will be rolled out in two phases, in 2019 and 2020.
Other GCC countries, such as Bahrain and the UAE, have created similar sandbox frameworks to boost their entrepreneurial ecosystems. However, they have looked internationally to import best practices into the region, by partnering with globally recognised international institutions.
The Financial Services Regulatory Authority (FSRA) of Abu Dhabi Global Markets (ADGM), for example, has agreed to initiate the world’s first cross-border testing of its FinTech sandbox connectivity in collaboration with the ASEAN Financial Innovation Network (AFIN), an entity located in Singapore.
Richard Teng, the CEO of the FSRA, said, “We are excited that the first pilot testing of the FinTech digital sandbox took place successfully under regulatory supervision. The immense power of digital platforms, cloud and APIs to drive connectivity, ability to test innovative solutions and collaborate on a cross-border basis form an important part of our FinTech strategy. Our Digital Sandbox platform will be a portal to the digital economy and the next generation of financial services for MENA and beyond.”
The Economic Development Bank of Bahrain, on the other hand, has signed a memorandum of understanding (MoU) with the Government of Maharashtra in India, to provide a framework for co-operation between the two authorities to promote FinTech in their respective markets. This partnership aims to identify new areas of growth within the financial sector and explore projects in areas such as blockchain, digital payments, big data, flexible platforms, machine learning, and other technologies.
Aside from these partnerships with renowned international institutions, local governments have also set up their own entities to encourage entrepreneurship in general. However, some of these entities have been specifically set up to promote the innovation in FinTech, such as the FinTech Hive in the UAE and the FinTech Bay in Bahrain.
The FinTech Hive, set up in Dubai in 2017, offers an accelerator programme to a group of selected start-up finalists to support them. The programme consists of a 12-week curriculum, in which the start-ups work with established financial institutions and other stakeholders to create innovative solutions to address the needs of the region’s finance industry. On the other hand, in February 2018, Bahrain launched the FinTech Bay, that provides co-working spaces and shared infrastructure to support local and international corporate innovation labs and start-ups.
In line with its Vision 2030, Saudi Arabia also initiated a collaboration between the Saudi Arabian Monetary Authority (SAMA) and Deloitte Middle East, giving rise to FinTechSaudi—an initiative to support the Saudi Arabian FinTech ecosystem. Launched in May 2018, the initiative aims to promote the Kingdom as a FinTech hub by embracing a thriving ecosystem of banks, investors, companies, colleges, and state institutions.
All these initiatives are part of these countries’ long-term visions, as they see the potential of building more sound infrastructures that support the growth of FinTech innovations. This in turns contributes to the development of a more sustainable economic environment, as the GCC diversifies away from oil. The growth rate shown by these countries in the past two decades is rarely seen in any country. With its ambitious FinTech plans and strong leadership that is laying the groundwork with strategic partnerships, it’s not too long before we see this vision becoming our reality.