The rapidly evolving financial technology (fintech) industry is emerging as one of the most vibrant segments of the global financial services sector, collecting over $22bn in investment in 2015 – a figure that is expected to grow exponentially. The usefully disruptive effect of new products and services has raised competition levels and compelled incumbent institutions to innovate their offerings across a range of sectors, a trend which has enhanced the consumer experience and helped drive financial sector growth.
Jordan’s status as an active start-up market is driving the fintech trend domestically – according to a 2017 report by UAE-based Magnitt the kingdom has the fourth-largest share of start-ups in the region. One of the most salient examples of a home-grown fintech innovator is electronic payments solutions company MadfooatCom, which connects banks, billers and customers. In 2011 the start-up secured support from Amman-based seed investor and business accelerator Oasis500, and by 2014 had won the contract from the Central Bank of Jordan (CBJ) to operate the national electronic bill payment portal, eFAWATEERcom.
The digital system replaces a cash-based one in which bill-payers frequently queued for hours at government offices and were often unable to pay by credit card. By 2016 eFAWATEERcom was reporting that 95% of the banks in Jordan had been connected with 50 utilities firms, telecoms companies and other government entities, and that an average of 4000 bills daily were being processed. After its initial funding round, MadfooatCom received a $5m Series A capital injection from Capital Bank, Cairo Amman Bank and Etihad Bank, prompting Forbes magazine to include the company in its “Top 100 Startups in the Arab World 2017” list, where it was ranked 17th and reportedly secured $5.8m of total funding.
The interest taken by local and regional banks in the start-up’s cooperative project with the CBJ is significant. Across the region, banks are directing capital into fintech as a way to cut costs and secure new revenue, either developing in-house solutions or investing in promising ventures they believe will grant them a competitive edge in a crowded market.
At the simpler end of the spectrum this involves advances such as enhancement of online banking portals and increased use of digital services in core areas, such as loan applications. However, more innovative products have begun to emerge in the domestic market. Cairo Amman Bank’s University Smart Card, for example, doubles as a means of identification to grant students and staff access to the university campus, and a payment card that can be used at points of sale both inside and outside the premises. It also enables holders to pay their fees; receive scholarship funds, per diems, salaries or disbursements from the Royal Aid Fund; borrow library books; and pay parking and cafeteria fees.
Jordan Ahli Bank, meanwhile, has established the Ahli Fintech Seed Programme, the first accelerator company to be fully owned by a bank licensed in the country. As with other accelerators, applicants will be granted access to advice and mentorship, investor networks, and resources such as working space and financing options. Perhaps the most innovative aspect of the programme is the AhliSandbox, a self-contained, virtual testing environment that emulates the live production environment and allows developers to create and safely test customer-facing applications. After passing the CBJ’s compliance review, successful products can be migrated to the live environment of Ahli’s data or bank accounts.
The deployment of fintech products and services in Jordan is not without its challenges, however. “The unbanked population of Jordan is huge. A survey revealed that only 24% of adults have a bank account,” Maha Bahou, executive manager of the CBJ’s Payment Systems & Domestic Banking operations and Financial Inclusion Department, told OBG. Fewer still enjoy access to credit.
The CBJ’s response has been to work with both financial players and academic institutions to uncover the reasons behind this phenomenon, and visit foreign markets with comparable challenges, such as Kenya, to inform the strategy by which the regulator will tackle the issue. The establishment by the CBJ in 2013 of JoMoPay, a national payments system aimed at the unbanked and underbanked, might be seen as the starting point of the government’s recent fintech drive, and since that point the state’s efforts have multiplied significantly.
This government support is important in a market that has traditionally been characterised by cash payments and personal interactions. In the case of MadfooatCom, it was the partnership with the CBJ which proved to be the inflection point in the company’s growth – receiving the imprimatur of the state played a crucial role in ensuring client confidence in the new technology. Encouragingly from the perspective of private sector fintech players, the government intends to maintain its proactive approach over the coming years. The area of digital payments makes up one of the five key pillars of the National Financial Inclusion strategy formulated in 2017, and the CBJ has established itself as the coordinating authority which will marshal the efforts of various ministries, agencies and government departments.
Much of the CBJ’s work is expected to bear fruit in 2018. A special lending window, by which banks can re-lend low-cost funds from the government to fintech and IT projects, is already in place and will be heavily marketed to the public over the coming year. Other areas of government have been successfully co-opted into the effort: a new IT fund, established by a partnership between the World Bank and the Ministry of Planning and International Cooperation, will provide a pool of nearly $100m to support innovative start-ups. The project was launched in February 2018, will be implemented and operated by the Jordan Loan Guarantee Corporation, and aims to support 200 entrepreneurs across the country.
The biggest innovation, however, is likely to come in the fourth quarter, when the CBJ aims to launch its own regulatory sandbox in which fintech companies can develop their ideas in a safe environment. The facility will allow both domestic and foreign firms to test new products on a limited sample of customers made up of employees for defined periods, utilising a “test and learn” approach which has been pioneered by a small number of regulators, such as the UK’s Financial Authority.
The regulations for the Jordanian iteration of the sandbox concept are being developed in conjunction with the World Bank, and the end result is likely to be a unique offering in the region: “We travelled to numerous markets to see how they were doing it, including Singapore, India and Malaysia, but we would prefer to have a sandbox which is tailored for Jordan,” Bahou told OBG.
The new products and services that emerge from the new platform will provide useful tools for domestic banks in areas ranging from customer acquisition to online trading. While attracting private sector fintech companies to the sandbox will doubtless be a priority for the regulator, it is also likely to be a useful tool by which it can develop its own innovations.
One possibility is the development of a digital lending marketplace, which will feature built-in intelligent scoring – an ambitious project that will likely involve a collaborative arrangement between the CBJ and private sector financial institutions. Another potential innovation involves the pairing of existing mobile wallet technology with the blockchain concept, which is emerging as one of the most disruptive fintech products in the global market.
Once again, private sector stakeholders and entrepreneurs are likely to play a role in any such undertaking, with the CBJ benefitting from their technical expertise and bestowing upon the project the credibility associated with a well-regarded regulator.
The Road Ahead
The global fintech industry continues to expand and evolve, showing an increasing diversity in products, funding sources and geographic spread. Within the MENA region, Jordan is joining a small number of jurisdictions that are developing regulatory sandboxes, a development which will aid the CBJ in maintaining its reputation for regulatory progressiveness. Challenges remain for the domestic industry. Regulating for fintech is a complex undertaking, and keeping up with successive waves of cutting-edge technology is a daunting prospect for most regulatory bodies. Protecting the public and the wider financial system from technological misadventures is a primary responsibility, and yet a rigid regulatory framework makes financial innovation all but impossible. Striking the balance between these competing objectives is likely to be a key priority for the CBJ over the coming years.
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