The Role of Banks in Fintech
While regional governments have started to welcome the rise of fintech, established financial institutions operating in the region view it is both an opportunity and a threat. Banks have a number of advantages over fintech startups: they are in a position of trust with customers; they have access to years of data and are intimately familiar with the regulatory environment. However, they are also infamously slow in embracing change and delivering to customers what they want and need, creating a gap that fintech startups have gradually started to fill with their innovative, digital, and customer-oriented solutions. According to Wissam Khoury, managing director of FIS (Fidelity National Information Services), banks in the region need to embrace fintech and begin developing plans to capitalize and internalize advancements in technology, rather than try and compete with emerging firms in the fintech space.
Banks in the region have started embracing fintech in different ways. The Central Bank of Bahrain, for example, recently announced that it is considering introducing regulations on fintech and intends on inviting technology companies to set up offices in the Kingdom and serve the entire GCC region. Several banks have also launched fintech-related competitions. Emirates NBD launched a global competition ‘Group Fintech Challenge 2016’ in February 2016, inviting fintech startups from around the world to design financial services tools for the chance to win cash prizes. In November 2015, Emirates Islamic Bank launched ‘El Appathon’, as part of UAE Innovation Week, inviting app developers to create innovative and impactful banking apps in 36 hours. In October 2015, Decode Dubai, a 36-hour hackathon sponsored by First Gulf Bank, challenged 22 teams to build and develop banking and financial solutions to improve the banking experience of consumers. Finally, some banks such as Bank Al Etihad, the Arab Bank, and Bank Al Ahli, have approached fintech favorably by underwriting substantial amounts of capital in the fintech startup Liwwa’s platform as institutional investors.
However, to fully realize the disruptive potential of financial technology, banks and fintech startups need to partner up and share their experience and expertise. ‘If banks wish to compete and remain relevant, they will have to wake up to fintech and the accelerated shift to 'digital-first-physical-second’- says Sati, or risk being eliminated. Established financial institutions can learn a lot from startups, adopt some of their methods and even partner with them. Fintech startups can also help banks improve their consumer experience, reduce operating costs, and discover new opportunities for growth. As for banks, they can benefit startups with their brand credibility and consumers’ trust, expertise in financial risk and regulatory demands in addition to providing them with an audience for their apps. They can also build initiatives such as accelerator and incubator programs which will allow the benefits of both players to be enhanced in a collective environment and provide startups with what they lack in order to offer banks with what they need.
Stay tuned for the next installment of The Fintech Innovation Ecosystem in MENA 'The Future is Fintech' on Monday!