• Fintech could capture 10% of banking revenue
• Financial institutions are investing in technology
• Corporate finance remains stable

The rise of fintech in the Middle East is prompting traditional banks to refocus their strategies towards enhancing customer service and investing in subsidiaries, as this sectors increasingly encroaches upon their market dominance, according to industry analysts.

During the first quarter of the year, fintech investments represented nearly 60% of all venture capital funding in the Middle East and North Africa, further building on a decade of growth.

“Fintech companies have compelled banks to pay closer attention to their customers,” states Suvo Sarkar, the former head of retail banking and wealth management at Emirates NBD and host of the Money Majlis podcast, in an interview with AGBI.

“These fintechs have simplified various banking services—like remittances, credit cards, and deposits—taking away a portion of the banking industry’s business.”

A notable example is Wio, a digital banking entity launched in 2022, partially supported by ADQ, the emirate’s $200 billion sovereign wealth fund. Wio is garnering new customers and challenging traditional banking norms with its user-friendly application and customer-centric approach, according to Sarkar.

“Conversations related to fintech are increasingly taking center stage in boardrooms as the ramifications become clearer,” remarks Mustafa Domanic, a partner at the consulting firm Oliver Wyman.

Oliver Wyman’s forecasts suggest that fintech could capture up to 10% of overall banking revenue by 2030.

In response, some banks in the region have opted to develop their own digital banking platforms, such as Meem from Gulf International Bank, Weyay from the National Bank of Kuwait, and Liv Bank from Emirates NBD.

“Leading financial institutions are leveraging the threat posed by fintech challengers as a stimulus to speed up their digital transformations,” explains Amjad Ramahi of the banking software provider Backbase.

Traditional banks possess several advantages that fintechs lack, including years of established trust, regulatory expertise, and the capability for secure scaling, according to Ramahi.

Moreover, these banks have the financial resources necessary to maintain a competitive advantage.

“Many banks are positioning themselves as balance sheet supporters for fintechs that manage customer interactions,” Domanic adds.

Banks are also taking steps to invest in or collaborate with fintechs while enhancing their own technological capabilities.

“Banks still have the means to acquire or establish fintech competitors, ensuring they stay competitive as the financial landscape evolves,” notes Domanic.

Despite the growth of fintechs, not a single bank in the Middle East has faced failure due to this competition, according to Sarkar.

“The market is large enough for fintechs to stake their claims,” he remarks.

This resilience is further supported by fintech’s emphasis on consumer banking, which constitutes around 50% of banking revenues, while ousting banks from the realm of corporate finance is more difficult since businesses typically seek stability and international connections.

“That reliability is generally associated with major banks,” Sarkar concludes.