Bahrain’s financial technology (fintech) ecosystem has undergone significant changes in recent years as the country seeks to enhance its reputation for innovation in the financial services sector and stimulate the growth of start-ups. In September 2023 Benefit, a Bahraini fintech company providing electronic financial transaction services, finalised its acquisition of Bahrain FinTech Bay (BFB), which at the time of the deal had incubated over 116 start-ups since its inception in February 2018. Founded as a partnership between the Bahrain Economic Development Board (Bahrain EDB) and a group of 28 local and international companies known as the Fintech Consortium, BFB has emerged as a collaborative platform for the development and acceleration of the fintech ecosystem. It has positioned itself as a platform for established players, new entrants, investors and talent from the region and beyond.
Regulatory Strengths
Since its inception, BFB has received strong support from the Central Bank of Bahrain (CBB), which has developed a proactive regulatory framework to nurture the country’s fintech ecosystem. In June 2017 the CBB launched Bahrain’s first fintech regulatory sandbox, allowing eligible companies to test their innovative solutions in a supervised virtual space. To qualify, companies had to demonstrate innovative solutions, customer benefits, technical testing and a commitment to long-term operations in Bahrain.
Initially overseen by the CBB’s Fintech and Innovation Unit, this initiative made Bahrain the second GCC country to implement such a framework, attracting interest from local, regional and global start-ups. Within its first year 34 fintech firms had applied, with two – Tarabut Gateway and Rain – securing operational licences and completing the regulatory sandbox stage. As of June 2024 Tarabut Gateway had become the MENA region’s largest open banking platform. It secured $32m in a Series A round in May 2023 to finance its expansion in Saudi Arabia, and in March 2024 it launched a verification service for IBANs – an internationally recognised system of account numbering – in collaboration with the Labour Fund (Tamkeen), a semi-autonomous government body. Meanwhile, Rain became the region’s first regulated crypto-assets trading platform, raising $110m in Series B funding in January 2022.
In December 2021 the CBB enhanced its regulatory sandbox framework to bolster eligibility criteria, foster partnerships between start-ups and fintech companies, and streamline the sandbox process to provide more consistent and structured testing support. Additionally, in October 2020 the CBB, alongside the Bahrain EDB and several local banks, unveiled FinHub 973, which was billed as the region’s inaugural digital fintech lab. Fuelled by Fintech Galaxy’s FinX22 platform, FinHub 973 features an open banking application programming interface (API) sandbox that hosts over 430 APIs and facilitates the development, testing and deployment of fintech solutions. The platform also offers matchmaking and crowdsourcing features by connecting startups with financial institutions and other stakeholders.
Capitalising on the robust adoption of digital payment systems and demand for sharia-compliant loan access, fintech firms have also developed sharia-compliant buy now/pay later (BNPL) platforms. By February 2022 BNPL firms and robo-advisory services constituted the largest portion of entities in the sandbox, at 16% each, followed by cryptocurrency offerings, at 12%.
Broader Opportunities
Benefit’s acquisition of BFB is part of a broader strategy to strengthen national payment infrastructure and align with key investment trends in a competitive global market. Following the acquisition, BFB unveiled its 2024 strategy, focusing on enhancing the fintech sector through initiatives in education, events and partnerships. First, BFB will concentrate on research and development, with sector-focused reports and acceleration programmes. A key part of this initiative is establishing a fintech academy in collaboration with an international academic institute. The academy will offer courses in artificial intelligence, data analytics and entrepreneurship to foster a skilled workforce and position Bahrain as a regional talent centre. Second, BFB seeks to expand its events portfolio to include a crypto-focused event, an insurance technology event and the second iteration of Fintech Forward, held in October 2024. These are designed to attract global participants and enhance Bahrain’s status as a leading fintech market.
Additionally, BFB aims to promote inclusiveness by collaborating with the Supreme Council for Women, Bahrain Development Bank and other entities. This collaboration will focus on promoting gender inclusion and youth innovation in technology. Lastly, BFB will forge strategic partnerships with regional and global leaders in fintech. It has already signed agreements with Fintech Australia and Fintech Japan to exchange insights, skills and best practices.
Regional Pioneer
Bahrain’s commitment to fintech investment was reinforced with the launch of the CBB’s Financial Services Development Strategy 2022-26. This strategy prioritises financial markets, financial services and fintech, and aims to introduce reforms beyond the sandbox. Bahrain was the first country in the MENA region to implement formal open banking rules, mandating all retail banks to comply as early as December 2018. This was followed by the establishment of the Open Banking Committee in July 2019 and the launch of the Bahrain Open Banking Framework (Bahrain OBF) in October 2020. The framework aimed to ensure the consistent implementation of open banking rules that include technical API specifications, security and customer experience guidelines. In September 2021 the second phase of the Bahrain OBF began, mandating that retail banks and financial institutions provide open access to public data, among other requirements.
The CBB’s five-year strategy marks a shift towards open finance, allowing third-party providers access to financial data beyond banking – including pensions, insurance and investment. This initiative aims to help customers make better-informed decisions, access innovative products and receive customised financial services. In November 2022 the CBB granted Fintech Galaxy an operating licence, making it the first central-bank-regulated open finance platform in the MENA region. Additionally, the CBB’s strategy includes the introduction of a digital dinar, which is expected to be implemented by 2026. This digital currency is designed to facilitate faster and safer digital payments, improve cross-border payments and expand financial inclusion.
Prospects
Moving forwards, Bahrain aims to strengthen its position as a competitive financial services market in the GCC. According to a report by consultancy KPMG published in February 2023, Bahrain offers an annual direct cost advantage for investors of up to 28% compared to the rest of the GCC, which bolsters its potential for growth. With over 400 financial institutions, the financial sector is Bahrain’s largest employer. This environment is set to encourage innovation as traditional players partner with fintech start-ups to offer a robust range of financial services.
Read More from OBG
