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19 October 2017

Transitioning to a digital future in the Middle East

Head of Relationship Management CIS & MEA, Treasury Services at The Bank of New York Mellon
Fintech is increasingly spurring the transformation of the financial landscape in the Middle East. But collaboration is key to harnessing the new innovative opportunities unfolding in the region.

The era of fintech is upon us. Global fintech investment has risen phenomenally in recent years – from $3 billion in 2013 to $24.7 billion in 2016. It is becoming increasingly understood that technology could significantly enhance existing processes, and deliver new digital solutions that promote efficiency, transparency, security and accessibility.

Although less than 0.1% of fintech investment originates in the Middle East, growing influence from a soaring millennial population, and increasing expectations for digital solutions, are giving rise to a burgeoning number of fintech initiatives throughout the region. In fact, the number of fintech companies in the Middle East and North Africa (MENA) region is expected to surge – from 105 at the start of 2016 to 250 by 2020. And fintech investment is predicted to grow by 270% in the Middle East this year, indicating the huge potential for digital change –and a strengthening drive to deliver it.

With appetite and opportunities for modernised processes growing, banks have a major role to play in pushing the fintech agenda along, and providing new capabilities that enhance the client experience. 


The majority of fintech innovation so far has been in the payments sector. Although fintech has already made a mark in the retail payments space – with new companies such as the UAE’s Beehive, an online marketplace for peer to peer lending, and Telr, an online payment gateway for emerging markets – effecting change in the corporate sector is more challenging. This is primarily due to the often more complex, cross-border nature of corporate payments and the accompanying regulations and security requirements.

Still, with demand for modernised solutions growing in the corporate world, projects and innovations that are designed to transform the corporate payments industry are underway.

A key project in this respect is SWIFT’s global payments innovation (gpi) initiative. Its objective is to establish global standards that will enhance the correspondent banking sector’s ability to provide interoperable and transparent payment services.

SWIFT gpi already has the backing of over 110 banks across the globe – including BNY Mellon – which represents over 75% of SWIFT’s global payments traffic. The UAE’s Mashreq Bank was the first Middle Eastern bank to join SWIFT gpi earlier this year.

A number of products are being rolled out as part of SWIFT gpi, one of which is the gpi Tracker. This will enable gpi banks – and in turn their clients – to monitor the status of international payments in real-time and any fee deductions at any stage in the payment process, throughout the correspondent banking model. This will help to deliver unprecedented transparency for cross-border transactions.

Trade finance and fintech development

There has been considerable traction when it comes to initiatives geared to modernising payments. Yet, it is increasingly being realised that an area with considerable potential for digitalisation is trade finance – which could hold significant benefits for the Middle East.

Trade is a particularly labour and document intensive industry, often involving long and complex supply chains across a number of jurisdictions. This can result in trade being inefficient and prone to manual error.

New fintech developments could help to streamline the trade and value chain process – replacing time consuming manual procedures and paper-based documents with automation. This means improved efficiency, improved cash flow and reduced costs. Innovations including artificial intelligence (AI) and blockchain have begun to stand out as particularly relevant tools to enhance the future of the supply chain.

AI, for instance, offers solutions to improve documentation flow and cut the need for time consuming processes. Two types of AI that could benefit trade finance are optimal character recognition (OCR) and intelligent character recognition (ICR). OCR converts images of paper documents into machine-encoded text, enabling documents used in trade transactions to be verified automatically; while ICR is able to learn and identify patterns of behaviour embedded in trade documentation. These capabilities would both help to improve efficiency and reduce costs in the supply chain. 

Moreover, technological innovation brings the prospect of significantly enhanced transparency and security. In this respect, distributed ledger technology such as blockchain – the cryptographic database that is the foundation of bitcoin’s infrastructure – is perhaps one of the most promising.

With blockchain, when information is entered into a “block” it is automatically in the public domain, and cannot be changed. This centralised, cloud-based ledger ensures that records cannot be duplicated, manipulated or faked, creating a level of transparency that is unparalleled across the financial services industry. And for the Middle East in particular, where economic risk can be a barrier to trade, the potential for blockchain to create an improved trade landscape could be particularly beneficial.


Technology is presenting significant opportunities to enhance transactions. Yet, the complexity of trade and the broad number of stakeholders involved means that introducing new capabilities and solutions can be challenging. Indeed, a case in point is Bank Payment Obligation (BPO), which has so far not seen the levels of uptake expected.

In addition, for the region to realise the full potential of fintech innovation, local barriers need to be addressed. One of the reasons that the Middle East has been somewhat slower to join the fintech revolution than regions such as the US or Europe, is due to its founding business structures and methodologies. At the heart of many companies in the Middle East lies a strong local and family run business culture, with ingrained values. This can extend to processes and procedures, meaning it can be challenging to demonstrate and prove the value of new technological endeavours.

Furthermore, the region’s locally rooted businesses may find it harder to adapt to the presence of fintech start-ups due to a culture that widely supports traditional banking practices.

Nonetheless, digitalisation and fintech innovation is making ground – though receptiveness to fintech adoption varies across the region. The UAE, for example, is a fintech hotspot, and location to over a third of all fintech firms in the MENA region – which may correlate with the country’s high millennial population (60% of the UAE is under 25) and its growing influence on the region’s business evolution.

In response, governments are quickly recognising the rewards of investing in fintech for the future, and many are aiming to become leaders in the field. Abu Dhabi’s Financial Services Regulatory Authority, for instance, has created Regulatory Laboratory (RegLab). This pioneering development is a sandbox environment designed to fuel innovation, where start-ups and existing financial institutions can work on new digital solutions under a flexible regulatory framework.

An area that RegLab will explore is leveraging the application of blockchain technology – with the aim of improving trade productivity and growth, as well as promoting safer payment transactions.

Another initiative is Lebanon’s Circular 331, a $400 million entrepreneurship investment stimulus programme led by the nation’s central bank, Banque du Liban (BDL). A key feature of the programme is BDL’s commitment to guarantee the first 75% of any capital invested, thereby de-risking local banks’ investment to just 25%. This in turn encourages banks to increase investment into the Lebanese enterprise market, and eliminates the capital funding hurdle experienced by many fintech start-ups.

Through this programme, the government is able to contribute to changing business practices and directly encourage fintech investment. As a result, obtaining fintech investment in Lebanon has been ranked less of a challenge than other countries in the region, and there is now a growing pipeline of fintech start-ups in different stages of growth.

Bank-fintech collaboration

Such collaborative approaches between banks and fintechs can help to drive significant change and benefits in the industry – marrying the expertise and experience of both parties to accelerate the development and roll-out of new solutions in the Middle East.

Indeed, while fintechs have the ability to innovate with fewer regulatory constraints than banks, banks possess the regulatory expertise, established trust, capital and client bases that many fintechs lack. And, in order to ensure that they remain leaders in their fields, banks must adapt to the evolving digital world – and a key way of achieving this is by engaging with, and leveraging the knowledge of, fintechs.

With 70% of Gulf Cooperation Council (GCC) bankers open to fintech integration – combined with the rapid growth of fintech presence in the region – bank-fintech alliances seem likely to become increasingly commonplace.

Strengthening partnerships

Banks are increasingly investing in innovation and partnerships, and it is important that their innovation focus remains on delivering added value to clients. Actively engaging in dialogue with clients to fully understand their individual business needs and to share ideas is paramount.

APIs, or “application programme interfaces”, are innovative tools that can facilitate greater collaboration between banks and clients. By enabling seamless integration between the back-end of client systems and offerings from banks and fintechs, APIs grant clients the ability to tailor end-products specifically to their requirements.

BNY Mellon’s new cloud-based ecosystem NEXENSM is a one stop shop digital portal, incorporating solutions and data from across BNY Mellon, clients and select third-parties – and which clients can access via APIs. Currently, more than 100 APIs with different functions are available in the API store, which will update and expand according to changing client needs.

The fact that APIs enable collaborative innovation between banks and clients, and customisability of solutions, indicates they could be a key facilitator of change in the Middle East – helping to overcome uncertainty regarding fintech and digitalisation by allowing clients to have greater influence of how developments unfold.

Yet, for many local banks, significant investment into new digital platforms may be challenging. In this way, non-compete alliances with global banks can play a key role. Such correspondent banking partnerships enable local banks to gain access to sophisticated technology capabilities and, in turn, global banks can gain access to local banks’ unrivalled country-specific insights and expertise.

Digitalisation holds a great deal of promise for enhancing the banking landscape in the Middle East. As the region begins to fully embrace the opportunities offered by fintech innovation, traditional banks are tuning in to the importance of digital innovation and collaboration – indeed, collaboration between banks, fintechs and clients is key to delivering new capabilities and value-added developments. By working together, we can leverage technology and shape the region’s future financial landscape – to the benefit of all.

The views expressed herein are those of the author only and may not reflect the views of BNY Mellon. This does not constitute treasury services advice, or any other business or legal advice, and it should not be relied upon as such.

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