A deeper look at the Middle East's FinTech market

FinTech is quickly changing how consumers manage their payments, and how businesses target thier clientele

Tags: FinanceKPMG InternationalTelr (telr.com)United Arab EmiratesVeriFone Systems, Inc (www.verifone.co.uk)
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A deeper look at the Middle East's FinTech market Despite a record-setting 2015 year that saw total global funding to Fintech companies reach $46.7bn, 2016 saw a decline in Fintech investment by 47.2%.
By  Alexander Sophoclis Pieri Published  June 24, 2017

Despite a record-setting 2015 year that saw total global funding to Fintech companies reach $46.7bn, 2016 saw a decline in Fintech investment by 47.2%. Revealed as part of KPMG International’s The Pulse of Fintech quarterly report, it was also noted that despite the decline, 2016 Fintech funding performed better than pre-2015 investment levels with a total value of $24.7bn.

The quarterly report noted that despite VC investments slowing down in the second half of 2016, the year concluded with $2bn invested in Q416 across 200 deals. As a result, VC funding to Fintech companies reached a record of $13.6bn in 2016, up from the $12.6bn reported the year before.

KPMG also highlighted that corporate VC investment in Fintech rose for the seventh year in a row, reaching 145 deals and a total of $8.5bn in 2016.

Meanwhile, Fintech-related merger and acquisitions (M&A) saw a dip in 2016 from $134bn to $11bn.

Commenting at the time the report was released, Warren Mead, global co-leader of Fintech, KPMG International and Partner, KPMG in the UK, shared, “Two key trends in 2016 were collaboration, with Fintechs learning to work with the big banks, and the rise of China. China has become a Fintech powerhouse, both in investment flow and deal activity.

“Looking ahead to 2017, with implementation of the revised Payment Services Directive (PSD2) rapidly approaching in Europe, and growing pressure for real-time payments and open banking all over the world, there will no doubt be some exciting developments coming down the pipe.”

KPMG’s report also highlighted a strong outlook for 2017. In particular, Insurtech is expected to continue building on the strong growth experienced in 2016, supported by technologies such as wearables, Internet-of-Things, and artificial intelligence. There is also an expectation that well-established technology firms will become more actively involved in the Fintech market.

Back in the Middle East, last month saw the latest iteration of Seamless Middle East, a technology and solution exhibition dedicated to the e-commerce, retail and payment industries. Serving as a continuation of the long-running Cards & Payments Middle East conference, the two-day event drew over 10,000 attendees from across the world.

One of the many firms exhibiting at this year’s edition of Seamless Middle East was US-based Verifone, a provider of technologies for electronic payment transactions and value-added services for point-of-sale (POS). Serving also as a sponsor of the event, Verifone was also present to showcase the release of its Engage product range to the Middle East region.

“This year is a special one for us because we are showing our newly released product portfolio. We called it Engage. It is going to replace the old terminals that we were selling to our customers,” commented Ozgur Ozvardar, vice president and general manager, Verifone Middle East and Northern Africa.

“Engage helps us to move more to the solution area, because we are changing our operating system. We started to use Linux, which is more open to the developer. We want third-parties to develop for our customers that use our terminals as a platform. All around the world, we have more than 30 million terminals in the field.”

In addition to operating on Linux-based OS, Verifone’s latest commerce-enabled payment device range supports features, such as individualised loyalty rewards, personalised content, as well as the ability to pay with points.

The release marks the latest development from Verifone’s research division, which the VP and GM for Verifone MENA shared receives roughly $100m spend annually. He went on to highlight the advances within the payment ecosystem, noting that a decade ago, contactless was a relatively unknown concept. Today, the movement has shifted away from plastic cards, and the focus is instead on payments through NFC and mobile.

Despite the progress however, Ozvardar pointed out that the biggest obstacles remain with security and the customer’s perception of cashless payments.

“I have to say that cash is still King. 70% of transactions are still done by cash. People want to use cash. One of the reason is, they don’t trust the security. They don’t think it is secure,” explains Ozvardar.

“Every player in this market is trying to teach the consumers that if they use an electronic payment, it will be safe. It’s more secure than having money in your pocket.”

Elaborating further, Ozvardar explained that technologies, such as the RTA’s payphone terminals, are helping to sway the viewpoint held by consumers on electronic payments. He is quick to point out though that mobile payments has yet to peak in terms of volumes, but will soon become a major factor in payments.
“Some of the solution will replace plastic cards, because people tend to forget their wallets. No one forgets their phone,” he added.

Also exhibiting at Seamless Payments Middle East 2017 was Telr, an online payment solution provider. While the company primarily showcased its e-commerce payments and merchant fraud prevention solutions at the event, Telr’s executives took this opportunity to highlight emerging payment trends in both online purchases and social media.

“In fact in social media penetration, it [UAE] now ranks in the top five markets of the world … what we are seeing here is that more and more, the price of owning a smartphone has significantly reduced. And images and voice is going to become a very important form of communication, between the years 2020 – 2021,” commented Sirish Kumar, founder & CEO of online payment gateway, Telr.

“What this also means is, the social media platform — if properly leveraged by the online sellers, or by the offline guys coming to online side — becomes a very good way to convert a social conversation into a business conversation.”

Pointing to figures produced in a Euromonitor 2016 report, online retail was reportedly less than 1.5% of total retail sales in the Middle East region in 2015. By comparison, mature e-commerce markets saw 15 – 20% of their total retail business from online purchases.

The team from Telr also highlighted a 2016 Mary Meeker report that focused on the growing trend across social media channels of the transition of social conversations into business conversations and online transactions. Resulting in less customers needing to visit the merchant’s website to conduct purchases, this in turn drives online payment tools. With examples such as email invoicing and quick links, the report projects a 30% increase of payment features use in the next year.

“From our perspective, users start their daily online interaction from social media first. Then they start searching on google. The third stage is to conduct bill payments, and the final stage is that to start shopping online … what Telr is trying to do is helping merchants to tap the online population,” explained Kumar.

Telr’s founder and CEO added however, driving traffic to the website, which has been the traditional method for the last decade, may no longer the most effective way to spend marketing budget and to capture one’s audience.

“Through the merchant daskboard, you could send an proposal on Facebook or WhatsApp? You could send a very simple link to your consumer, who when convinced of what he or she wants to buy, they can just click on the link, go Telr.com, and just complete a transaction,” said Kumar.

“I’m helping my consumer come directly to the payment page and complete the transaction. So the checkout will get reduced, as well as the number of steps in the payment process.”

Moving across to the banking & finance sector, the National Bank of Ras Al-Khaimah (RAKBANK) has constantly improved its capabilities and offerings with the latest technological advancements. Established back in the 1970s, RAKBANK, like many other financial institutions, has closely followed the development of the Fintech market, identifying the very best technologies suited to its needs.

“The current initiatives on IT advancements that are influencing the banking sector begin with the Open Application Programming Interface, where larger financial institutions are collaborating with Fintechs and other companies to share platforms and services,” said Geoffrey Stecyk, chief operating officer, RAKBANK.

“The Bank has been a part of several signings with strong partners such as C3, ICICI Bank, Habib Bank Limited, etc. on services like remittance. This allows the Bank and its partners to build a mutually beneficial ecosystem.”

RAKBANK’s COO added that the bank also secured a business analytics platform that is utilised to process data of consumer behaviour and develop new products. Additionally, the bank is also exploring possibilities surrounding blockchain technology, particularly within the international remittance arena.

Other recent additions to its arsenal includes the launch of a multi-channel platform that provides customers with a unified digital experience across all channels. The platform itself is equipped with a Quick Balance facility and a Multiple bill payment module, the former utilises fingerprints to access balances, while the latter can complete multiple payments with a single click.

Beyond the digital platform, the bank has also launched a market leading remittance platform, unified rewards platform, and the MobileCash cardless cash withdrawal service.

“The FinTech market is expected to grow further in the country and the region; banks should embrace a collaborative approach and look for opportunity to offer their customers the best possible services,” explained Stecyk.

“The banking industry needs to keep in mind that regulation may play a very important role in the overall ecosystem. Similarly, data security and privacy laws will matter as FinTech enters more complex banking operations.

“We see banks taking the FinTech revolution as an opportunity instead of a threat, and work alongside of them and partner up with incubators to create an innovative ecosystem.”

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