Why Does Fintech Matter to the Financial Services

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Jul 2017
Global, July, 30 2017 - With the increasing pace of technological development — driven by the internet, digital and mobile revolutions — the Fintech sector has grown exponentially since 2011 and in 2015 witnessed funding in the range of $16.5 billion to $20 billion (Dh60.5 billion to Dh73.4 billion). The industry broadly serves three segments: Banks & corporates; SMEs and consumers.

Fintech is a rapidly emerging industry that covers the overlapping space of technology with financial services. With the growing application of technology, financial services industry can no longer ignore this latest development.

With the increasing pace of technological development — driven by the internet, digital and mobile revolutions — the Fintech sector has grown exponentially since 2011 and in 2015 witnessed funding in the range of $16.5 billion to $20 billion (Dh60.5 billion to Dh73.4 billion). The industry broadly serves three segments: Banks & corporates; SMEs and consumers.

In the 1970s, automated teller machines (ATMs) changed the way people banked. In more recent years, PayPal has changed the way people purchase goods and services, smartphones have changed the way consumers interact with business and crowdfunding has changed the way individuals raise financing. Today, Fintech is changing the way people do business.

Globally, nearly half of all adults own at least one mobile phone and, according to the World Bank, there are 85 million individuals in the Middle East who remain unbanked. This suggests there is significant opportunity to increase access to basic financial services by individuals from underrepresented areas, such as rural areas and developing economies. This will lead to improved financial inclusion.

Competition

Fintech is already disrupting the region’s banking sector through offering alternative platforms for commercial and personal lending. By addressing fund-raising needs through newer products and services at lower fees and with more open lending criteria, Fintech companies are now in competition with traditional banks for market share. “The massive investment in Fintech shows that the digital revolution is well advanced in financial services, and it is both a threat and an opportunity for banks,” said Julian Skan, Accenture Managing Director overseeing the Fintech Innovation Lab London. “Fintech is empowering new competitors and start-ups to move into parts of the banking business but, paradoxically, it is also helping banks to create better, more convenient products and services for their clients. It is also leading to increased cooperation between traditional banks and innovative start-ups and technology businesses in a way that can result in totally new business models and revenue streams.”

Regional developments

In a recent survey by EY, 36 per cent of respondents stated that up to 10 per cent of the GCC banking sector is at risk of being lost to stand-alone Fintech firms in the next five years. 70 per cent of survey participants stated that the GCC banking sector would be open to integrating Fintech innovations into their businesses to help enhance consumer experiences and streamline operations. Closer to home, the State of Fintech report, recently launched by wamda and PayFort showed that almost 30 per cent of Fintech start-ups in the Middle East and North Africa are based in the UAE.

Dubai, and specifically the Dubai International Financial Centre (DIFC), is ideally situated to tap into the fast-growing emerging markets of the Middle East, Africa and South Asia (MEASA), where approximately 70 per cent of the population is unbanked yet remains a region with one of the highest investment opportunity.

India

Following an executive order last November by India’s Prime Minister Narendra Modi to retire 86 per cent of bank notes in circulation, regulatory tailwinds have propelled Fintech prospects in India. For a country where 78 per cent of all consumer payments by value are in cash, the vast array of Fintech firms from payments apps to digital wallets have embraced the rule. This is evidenced by the decline in India’s unbanked population from 557 million in 2011 to 133 million in 2017. Estimates for 2020 look promising with an estimated 520 million smartphone users in India (from 240 million today) and 500 billion forecasted digital payments (a 10x from 2016). Africa’s three largest economies, Egypt, Nigeria and South Africa, are among the top 15 countries globally by mobile penetration for mobile subscriptions.



Source : Gulf News
 

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