Finance Monthly March 2020 Edition

like microlending and wallet solutions, telcos can build strong offerings to become serious digital banking contenders. This is welcomed by many regulators in the Middle East, it seems? Innovation strides by the regulators are an important driver of innovation overall. The Middle East has seen a massive increase in activities of the regulators to attract, encourage and adopt innovation. Open banking regulations are one example of the introduction of innovation through regulation. Regulatory sandboxes are another, very relevant example as they allow new players to test new business models and partnerships without the full burden of comprehensive regulations. In free zones, there have been deliberate strides in creating a robust innovation culture paired with light regulation so that startups have a home for experimentation. Some free zones then aim to bridge and communicate with the regulators to slowly migrate these innovations into the mainstream economy. None of these dynamics would be possiblewithout support from the regulators. Does it seem like there is more to come? Online and mobile banking indeed changed the industry. However, they represent how customers access banking services instead of a change in the core workings of a bank. We think that this presents a real opportunity and threat at the same time. As FinTech and BigTech become more important threats to traditional players in the industry, banks must consider the way they innovate. In this respect, we believe that banks should pursue “real across the value-chain innovation” rather than “superficial front end services”. These three developments are just the start of how digitalisation is changing the financial services space in the Middle East. A look beyond towards the US, China and Europe provides some perspective of what is yet to come, including fully digitalised banks and insurers, algorithmic support in core processes such as claims management or credit scoring and much more. Take China for example - just to name one example, Ant Financial operates Alipay, the world’s largest mobile and online payments platform as well as Yu’e Bao, the world’s largest money-market fund. Ant Financial also operates credit payment company Huabei, as well as an online bank called MYbank. In 2015 Ant Financial launched Ant Fortune, a wealth management light tech-stack solutions that enable new forms of partnerships that allow for digital onboarding, personal finance management and digital loyalty programs to be provided from various sources, held together by a flexible middleware. We are also noticing the rise in multiple FinTech arms of big established players from non- Financial Services sector like telcos, retailers, logistics, etc. across the region. So we are talking more about a patchwork of partnerships and integrations that are emerging as a solution? Yes, developing best-in-breed partnerships has become a key advantage: the usage of SDKs and APIs allows real-time connectivity between systems from a variety of specialised providers. This enables a fast and flexible roll-out of services compared to cycles of pure in-house development. One important effect from this is an increase in the overall level of product quality if the technical aspects are properly resolved. Another important effect is to reduce the advantage of pure size for financial institutions and thus to further increase competitive pressure in the market. As a specific example, consider telco providers partnering with financial institutions to provide micro-lending via a smartphone app like Tamam. life in Saudi Arabia. Originating from such simple beginnings “Digitalisation allows players from outside the financial services space to make inroads into banking and insurance” FINANCIAL INNOVATION & FINTECH - DIGITALISATION 42 www.finance-monthly.com