Technology and trends defining GCC fintechs

The Gulf Cooperation Council (GCC) is experiencing a surge in fintech growth driven by technological advancements. From emerging trends like blockchain and artificial intelligence to the expansion of digital payments and financial services, technology is playing a pivotal role in shaping the region's financial industry. The GCC's fintech landscape, while reflecting global fintech progress, also showcases cutting-edge technologies tailored to local needs. This article will explore the key trends and technologies propelling fintech innovation and growth in the GCC.

Payments remain a significant area of focus for fintech in the GCC. According to SixthFactor Consulting, approximately 30% of fintech companies in the region operate within this space. The cards and payments market in the UAE alone is projected to exceed $150 billion by the end of 2024. In fact, 58% of fintech companies surveyed by SixthFactor consider payments to be the most prominent emerging area.

Payment wallets are a key area, with fintech companies and telecom operators vying for dominance in the payments market. Essentially, any company with a large database is attempting to compete with payment wallets. The same holds true for cross-border payments: international payments are among the most active fintech sectors, with mobile-initiated payments significantly increasing as fintech companies offer lower rates/fees and instant completion.

Buy Now Pay Later (BNPL) and installment payments have emerged as major trends in the GCC's fintech landscape. Many of the large fintech companies in the GCC are involved in the BNPL space, with three BNPL unicorns in the Middle East and North Africa (MENA) region. SixthFactor estimates that over 50 fintech companies are operating BNPL businesses, with over $1 billion in investment expected to flow into the BNPL space in the next 12 to 24 months.

BNPL solutions have gained significant traction among the younger population in the UAE, particularly those who are tech-savvy, prefer simple user experiences, flexible payment options, and access to early credit that may not be available through traditional channels. While banks traditionally offer installment plans, they often require higher minimum purchase amounts and are generally limited to customers with higher credit scores. Furthermore, converting to installments often requires additional calls or actions by the purchaser, whereas BNPL offers instant decisions.

A recent study by SixthFactor Consulting reveals that one-third of bank customers in the GCC have tried or plan to try BNPL in the next six months, indicating a significant potential market for BNPL solutions. Furthermore, a recent Visa financial literacy study in the UAE shows that 64% of consumers are interested in installment payment solutions, and 52% believe installments help them manage their finances more effectively. Indeed, the gross merchandise value of BNPL in the region is projected to grow from $12.6 billion in 2023 to $32.6 billion in 2029.

The cryptocurrency market in the MENA region is experiencing strong growth. Between July 2022 and June 2023, the region’s crypto economy ranked sixth globally, with an estimated $389.8 billion in transactions, representing 7.2% of global volume. The UAE is leading in blockchain applications, with notable use cases in physical asset ownership, such as the Dubai Land Department. Furthermore, there are signs of stablecoins in the GCC countries. As of October 2023, the International Monetary Fund reported that 130 countries, accounting for 98% of global GDP, are exploring the potential of implementing central bank digital currencies (CBDCs). Closer to home, a survey of IMF country teams covering 31 economies in the Middle East and Central Asia (ME&CA) reveals that 19 countries are considering or actively exploring CBDCs. Most ME&CA countries are in the research phase, while a few, including Bahrain, Georgia, Saudi Arabia, and the United Arab Emirates, have progressed to the proof-of-concept stage. Kazakhstan is leading the region in CBDC development, having conducted two pilots of the digital tenge.

UAE regulators took the lead in regulating cryptocurrencies by launching a blockchain strategy in 2016. In February 2023, the Central Bank of the UAE launched the Financial Infrastructure Transformation (FIT) program to accelerate the digital transformation of its financial services sector. One of the program’s nine initiatives is its “Central Bank Digital Currency Strategy,” which aims to address “pain points” in domestic and cross-border payments, enhance financial inclusion, and drive the transition towards a cashless society. Dubai has also established its own Virtual Assets Regulatory Authority (VARA). Notably, the Central Bank of Bahrain oversees all regulations, providing a unified platform for both banks and crypto companies. This helps strengthen the link between traditional and decentralized finance ecosystems.

In Qatar, the Qatar Financial Centre established the Digital Assets Lab in 2023, and multiple Qatari regulators, including QDB, QFC, and QCB, are collaborating to host the 2024 Innovation Hackathon, with digital assets as a key theme. Bahrain, Saudi Arabia, and the UAE have all made significant strides in open banking. These countries have developed regulations allowing fintech companies to leverage bank data to improve products and credit solutions.

The opportunity lies in utilizing data for product development, credit offerings, and enhancing personalization capabilities, which involves creating a comprehensive profile of an individual's financial situation and tailoring products and services to meet their specific needs. Openness has led to the integration of diverse financial services and empowered non-financial institutions. The embedded fintech market in the GCC is projected to grow from $250 million in 2022 to $2 billion by 2030, reflecting an annual growth rate of approximately 30%. This means that retailers can offer point-of-sale financing on their e-commerce platforms, or healthcare providers can include tailored insurance products. Such integration enhances customer experience, improves engagement, and opens up new revenue streams.

Non-financial institutions can embed financial services into their offerings, creating new business models and revenue streams. For example, telecom companies can leverage their customer data to offer personalized micro-loans and insurance products to users. Telecom companies like STC have successfully integrated financial services into their platforms, allowing the company to tap into new markets and increase customer loyalty. STC Pay is now a fully-fledged bank in its own right, enabling users to make payments, send money, and access various financial services through their mobile devices.

Artificial intelligence (AI) is also playing an increasingly important role. In our survey, 73% of fintech companies in the SixthFactor study believe that AI will play a crucial role in their company’s future growth. According to SixthFactor’s projections, over 50 fintech companies in the GCC are leveraging AI to enhance customer experiences, from interactive chatbots to AI-driven investment strategies. AI is being applied across the entire customer journey, supporting tasks such as identity verification, customer onboarding, and fraud detection and mitigation.

The convergence of open banking and AI has the potential to revolutionize the financial industry by enabling highly personalized financial products and services. AI’s ability to analyze vast amounts of data to provide insights into customer behavior and preferences can lead to customized solutions that more effectively meet individual needs. In the GCC, the combination of AI and embedded fintech is expected to disrupt sectors such as consumer finance, corporate lending, and wealth management. For example, AI-driven investment platforms can offer personalized investment advice based on financial goals and risk tolerance, while educational institutions can offer tailored student loan products. Dubai's DIFC is also investing in a new AI and Web 3 campus to foster innovation in these areas.

As the GCC region continues to embrace technological advancements, the fintech sector is poised for significant growth and innovation. From the rise of digital payments and the adoption of emerging technologies like AI and blockchain, to the potential of open banking, the future of fintech in the GCC looks promising. By leveraging technology and adapting to evolving trends, fintech companies in the GCC can continue to deliver innovative solutions that meet the changing needs of consumers and businesses.