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As cashless payments and fintech hots up across Gulf Cooperation Council (GCC) countries, market participants warn of a skill shortage and some regulatory challenges.
The adoption of digital payments in the Middle East has for many years lagged behind other parts of the world. This is partly the result of consumer preferences for cash, but also because the industry has been relatively slow to embark on the path to payments modernisation.
Panellists at the Seamless Middle East event in Dubai, however, noted significant progress in parts of the region, particularly among members of the GCC.
Much of the modernisation efforts in the region, led by the United Arab Emirates (UAE), Saudi Arabia and, to some extent, Bahrain, have been boosted by significant policy initiatives and the adoption of regulations that encourage innovation in the financial ecosystem.
For instance, the Dubai government established a Cashless Dubai Working Group at the end of 2020 to create an action plan to shift to cashless payments platforms across all sectors.
To further boost cashless payments, in February, the Central Bank of the United Arab Emirates announced it had chosen Italian firm SIA, part of the Nexi group, to build and operate its instant payments platform.
Meanwhile, as part of its Vision 2030, the Saudi government is aiming to increase the level of non-cash transactions from 36 percent in 2019 to 70 percent in 2025, and the country is well on the way to achieving this target.
Saudi Arabia has also recently launched a new instant payments service. The Saudi Arabian Monetary Authority announced that the Mastercard-built service went live in February.
Digital acceleration
Although emerging digital trends were present in the region before COVID-19, the pandemic has further accelerated them, putting pressure on most industries to digitise and move operations from the offline to the online space.
With the large penetration of smartphones and a tech-savvy young population coming to an age of using financial services, there is also a strong appetite among consumers to use emerging payment methods, such as wearables, biometrics, digital wallets and currencies, and QR code.
Many large banks had already started to embark on the digitalisation journey before, but it has only really taken off at a mass market level since the start of the pandemic.
“Acceleration took place in two years, which otherwise would have taken place in ten years,” Sanjay Malhotra, chief of consumer banking at Dubai Islamic Bank (DIB), said.
As a result, the fintech market in the UAE has grown significantly during the pandemic, but there are still a lot of opportunities for fintechs to scale, Mohammad Alblooshi, sector head of fintech at the Dubai International Financial Centre (DIFC), noted.
The UAE is now home to 400 fintechs, but other GCC countries are also catching up.
Fintech Saudi reported a 37 percent increase in the number of operating fintech companies in Saudi Arabia last year, growing from 60 to 82. Meanwhile, a record level of more than SAR1.3bn ($346m) of venture capital was invested into Saudi Arabian fintech companies.
Regulations and talent shortages
A particular challenge currently facing payments firms in the UAE is the Retail Payment Services and Card Schemes (RPSCS) Regulation. This sets out rules and conditions for obtaining a licence for the provision of retail payment services and operating a card scheme.
The regulations were adopted last July and gave a one-year grace period for businesses to obtain a licence.
It means that businesses that cannot set up an office at the DIFC or the Abu Dhabi Global Market (ADGM), and wish to operate in the emirates, must obtain a payments licence from the central bank.
“Several payment facilitators are currently operating without a licence and aiming to obtain one within the regulatory deadline. Obviously, that would be a flexible transition process to ensure smooth operation of the payment aggregator entities,” Charles Matta, SVP of strategy and business growth at Monty Group, told VIXIO.
Those firms that are already operating but may not be able to obtain a licence may face challenges though.
In the wider region, some small start-ups are also struggling as they try to comply with the six different regulatory frameworks across the GCC. And although there has generally been a positive approach from regulators to drive innovation in the region, they often lack alignment across the different markets despite close ties.
In addition, as part of these efforts to encourage innovation and attract more capital, it is leading to fast moving and changing regulatory landscape in the different markets.
However, “the market is more agile than regulations”, the head of compliance at a local fintech firm told VIXIO, noting that rules are often reactive to recent market changes.
Fintechs are also facing difficulties with finding the right talent.
As Fintech Saudi noted, “the growth in fintech is the changing requirements for talent in the financial services industry”.
“The skills needed in the financial services industry in the future are likely to be very different to the skills required in the past.”
Gulf countries have historically built an ecosystem that relies on international talent as a means of stimulating innovation domestically.
“As a fintech centre, the UAE is a talent hub,” Matta said. However, it is a challenge in the wider region to both attract and retain talent, he added.
With the recent boom of the fintech sector, the demand for fintech-related talent has surged.
Some 88 percent of the financial services companies said finding the right skillset is one of the main challenges in recruitment, while 51 percent listed the right level of experience as such.
