Dubai, the region’s financial hub, focuses on fintech

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A series of recent developments have underlined Dubai’s commitment to strengthening its position as a regional financial technology (fintech) leader.

In mid-September the Dubai International Financial Centre (DIFC) announced that its fintech ecosystem had more than doubled in size since the beginning of the year, rising from 80 to 200 companies. New entrants include UK-based digital banking firm Bankable and Hong Kong’s QFPay, a mobile payment technology provider.

The increase comes off the back of efforts to attract new and established fintech talent through the creation of an open and flexible regulatory environment, an approach the emirate has successfully applied to several areas of its economy in its efforts to diversify away from oil rents over the past two decades.

In another sign of capacity-building in the sector, the DIFC also announced that it had received 425 applications for the third iteration of its accelerator programme, the FinTech Hive, which ran from September to November.

Furthermore, in July the Dubai Financial Services Authority (DFSA) announced that it had accepted four fintech firms into its Summer 2019 Innovation Testing Licence (ITL) programme. The ITL programme, which gives firms temporary flexibility to test and develop fintech solutions within a restricted regulatory environment, allows companies to experiment with equity crowdfunding, blockchain-enabled property crowdfunding platforms and blockchain-enabled supply chain financing.

However, while regulations have been put in place to incentivise the development of fintech, there are fears that the onshore market may still be too restrictive for the ecosystem to flourish. While 45 fintech start-ups have received the DFSA ITL since 2017, none of these have expanded beyond the sandbox setting.

Partly in response to this, the central bank recently announced plans to set up a dedicated fintech office, which will help start-ups access the onshore financial services market.

See also: The Report – Dubai 2020

Cashless horizon

Central to Dubai’s fintech strategy is the planned shift towards becoming a cashless economy.

Benefitting from a youthful population and widespread penetration of mobile devices, Dubai is well placed to make the transition. According to a 2017 report commissioned by Visa and conducted by Roubini ThoughtLab, the UAE as a whole could see a $2.2bn boost to the economy if it moves to adopt more cashless facilities.

The UAE in general is moving towards becoming fully cashless, with the e-payments market expected to grow by an annual average of 23% between 2018 and 2022, according to research released by Visa in June.

In addition, the retail sector is increasingly responsive and open to disruption, as 63% of point-of-sale devices in the UAE now accept contactless.

Smartphone use in e-payments is also on the rise, with mobile payments now accounting for 18% of all payments. This is in part attributable to growth in payment infrastructure, merchant acceptance and user confidence.

Dubai-based platforms initially led the sector. However, major global players are now well established, with their presence overshadowing the local fintech sector. Samsung Pay entered the UAE market in early 2017, followed by Apple Pay later that year.

Meanwhile, although the online retail market has been expanding, there is still room for growth. As a percentage of total retail sales, the UAE has an online purchase rate of 4.2%, which is the highest in the region but still behind the 7% seen in Europe.  

Smart cities and foreign investment

Digital solutions such as fintech, cashless solutions and blockchain are key to the Dubai government’s smart city agenda, the Smart Dubai initiative, which is part of the broader UAE Vision 2021 economic plan.

The emirate aims to become a leader in blockchain database technology, and has committed to using it for all government documents by 2020. To this end, the Dubai Future Council for Blockchain launched its Dubai Blockchain Strategy at the 9th Smart City Expo World Congress, held in Barcelona from November 19 to 21.

The policy provides a blueprint for blockchain growth in the emirate and focuses on three core areas: foundational capabilities, network governance and network operations.

Several regulations that encourage people to pay for utility bills and public services via digital platforms have already been implemented. For example, the Roads and Transport Authority service centre charges customers more if they pay in cash rather than online.

Dubai is also developing the use of so-called smart receipts – digital receipts that can be stored in a mobile device. These enhance transparency in retailing, boost consumer confidence and improve personal financial management.

These efforts are enhancing the ease of doing business in the emirate, and dovetail with the broader drive to bolster economic growth by bringing in foreign direct investment (FDI).

In particular, it has been successful at attracting FDI into technology-oriented projects. According to Dubai FDI Monitor, FDI projects with high and medium technology totalled 47% of all FDI projects between January and the end of June, based on OECD classification criteria.

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