While technological change may not be new in financial services, financial technology (fintech) offers a broad range of alternative methods to pay, save, borrow, manage risk and offer advisory services that draw on innovations in artificial intelligence (AI), blockchain, big data, cloud computing, crypto-assets and mobile telephony. Digitalisation has been a major focus for Qatar’s banks as they look to implement fintech solutions and deliver more efficient services. Doha has emerged as a centre for fintech, offering incubator facilities and accelerator funds aimed at encouraging entrepreneurs to find new ways to improve banking.
Qatar’s financial regulators have highlighted fintech as a key component of the Second Strategic Plan for Financial Sector Regulation 2017-22, which dovetails with the economic diversification objectives in Qatar National Vision 2030. However, potential problems and stumbling blocks exist. Many of these new innovations are blurring the traditional lines drawn between financial services and technology, media and telecommunications (TMT) business segments, and banks are already seeing the world’s technology giants eroding their share of revenue and data. Advanced technology also brings with it new risks – as well as rewards – forcing regulators to adapt to activities such as cryptocurrency trading, dark web funding for crime, terrorism, money laundering and cybersecurity risks.
Rules & Regulations
Both the World Bank and the IMF have recognised the potential improvements and pitfalls fintech may bring to the financial stability of countries all over the world. In June 2019 the two bodies published the results of a joint study that drew on observations of the existing regulatory landscape. Qatar was mentioned along with Singapore, Japan, Chile and Mexico as examples where IMF executive boards had held discussions on the best approaches to fostering a healthy and robustly regulated fintech sector. The study found a variety of approaches to regulation and the use of so-called central bank sandboxes, a controlled system in which new technology can be tested while minimising risks to consumers. The World Bank and the IMF found 33 examples of sandboxes developed since 2016, but found a lack of consensus on their exact purpose, whether it be stimulating innovation (UK), stress-testing regulatory frameworks (Singapore), identifying gaps in provision (Malaysia) or promoting financial inclusion (Bahrain and Indonesia).
Qatar discussed options with the IMF in June 2019, and in February 2020 the governor of the Qatar Central Bank (QCB), Abdulla bin Saoud Al Thani, announced at a Qatar-UK financial services event in Doha that the bank would soon reveal a new fintech strategy featuring a sandbox. “We have a sensitive approach to fintech in Qatar, since digital brings benefits but can also create challenges due to the risks that surround the domain,” the governor said at the Euromoney Qatar Conference in late 2018. “Therefore, we are aiming at developing a secure fintech sector, keeping cybersecurity as a core component of every development.” In 2018 QCB issued a circular that banned transactions in Bitcoin and other cryptocurrencies, although its annual report for 2018 mentioned it was examining the possibility of launching a central bank digital currency.
The Qatar Fintech Hub, a subsidiary of Qatar Development Bank (QDB), hosts an incubator programme for fintech start-ups and hackathon events. In December 2018 QDB announced it was on track to launch a fintech accelerator, in partnership with fintech research company Medici and professional services firm EY, within the Qatar Fintech Hub by the end of the first quarter of 2020. By December 2019 some QR230m ($63.2m) had been committed to more than 30 start-ups. The fintech centre receives regulatory support from QCB, Qatar Financial Centre, the Ministry of Transport and Communications, the Ministry of Commerce and Industry and the Ministry of Interior. According to local media reports in February 2020, Abdulaziz bin Nasser Al Khalifa, the CEO of QDB, said at an event in Doha that fintech would provide “a huge opportunity for small and medium-sized enterprises (SMEs) in GCC countries, particularly in Qatar, to gain more access to funding, which is among the major challenges that SMEs are facing globally”.
Among Qatar Fintech Hub’s international partners is the Global Financial Innovation Network, which is spearheaded by the UK’s Financial Conduct Authority and includes 35 financial organisations that give insights on regulations in different jurisdictions. Other strategic partners include Lithuania’s Fintech Hub LT, the Fintech Association of Nigeria, the UK’s Innovate Finance, Sweden’s Findec and Turkey’s Fintech Istanbul.
A dozen leading financial services companies from Qatar’s conventional and Islamic banking segments also support the hub. Among these partners is Standard Chartered Qatar, which has established a global fintech unit to invest in start-ups. The bank notes how larger technology firms as well as start-ups can make inroads into retail banking. “Technology giants such as Apple and Facebook have already penetrated the market and can leverage their existing customer base to capture the mass retail banking scene, which means banks may be more selective with clients and focus on corporate or high-net-worth individuals,” Mohamed Gad, CEO of Standard Chartered Qatar, told OBG.
Raghavan Seetharaman, the CEO of Doha Bank, agrees that the banking sector is quickly approaching a paradigm shift in operations. “Several non-banking institutions are offering the same services provided by banks, such as Apple Pay,” Seetharaman told OBG. “Banks can either invest in fintech companies and partner with them for shared revenue.”
Looking abroad, Qatar can build off the success of fintech firms to create solutions tailored to its own market. Kenya’s M-Pesa mobile phone payment system, developed by Vodaphone partner Safaricom, is a well documented example of the impact TMT business solutions can have on traditional financial services and, ultimately, national economies by enabling financial inclusion, in this instance through peer-to-peer (P2P) transactions. In 2019 the Central Bank of Kenya reported that mobile money transactions in the country in 2018 increased by 10% from the previous year and were equivalent to 44% of the country’s GDP. About 80% of mobile payment transactions used M-Pesa that year, a service that was first introduced in 2007. In its 2019 annual report, Safaricom revealed it earned $745m from M-Pesa, through a network of 22.6m customers and 123,000 merchants using the service. Approximately 33.5% of transactions were for P2P lending, 38.4% for withdrawals and the remaining 28.1% for new business transactions. Safaricom’s earnings from M-Pesa are equivalent to QR2.7bn, and that is revenue Kenya’s retail banks are missing out on.
While M-Pesa may have made inroads into the retail segment, asset management has also been targeted by start-ups offering managed robo-advisory services, where investors can track their investments through apps where decisions are informed by AI analysis of market trends. New York-based start-up Wahed began in 2015 with a mission to target ethical Islamic investments and has since received regulatory approval to operate in the US, the UK, Malaysia, Bahrain, Kazakhstan and Mauritius. It is currently looking to serve customers in India and Indonesia as well.
While Qatar Fintech Hub may one day foster a unicorn fintech business that will be capable of transforming transactions or reassessing risk, banks operating in the country are investing in digital strategies to serve existing customers more efficiently. In its 2019 annual report, Qatar National Bank (QNB) reported that approximately 97% of its retail transactions were through digital or remote channels, with more than three-quarters of its customers banking through digital channels. QNB also introduced an electronic initial public offering service, e-IPO, which allows customers to subscribe to initial public offerings listed on the Qatar Stock Exchange.
In 2019 QNB’s credit card transactions volume increased by 13% in Qatar, while debit card transactions grew by 8%. The bank also worked to supply merchants with contactless point of sale devices. Meanwhile, Commercial Bank Qatar supplied 430,000 customers with contactless cards in 2019, and expanded its 60-second digital remittance service to more than 30 countries. Ahli Bank underscored the introduction of its contactless titanium credit card with the refurbishment and rebranding of its branch network to integrate new digital interfaces. At the start of 2020 Doha Bank had the second-largest retail footprint among conventional banks in Qatar, with 31 branches and 90 ATMs.
“Branches will eventually be of no use, especially with the growth of digital banking, and this will turn into a universal model,” Seetharaman told OBG. While the complete digitisation of retail banking may still be some way away, Qatar’s banks and regulators are trying to ensure they are ahead of the curve and embrace – and profit from – safe, sustainable fintech innovations that improve the banking experience for their customers.