"Fintech and Banking in the Gulf Countries:
An Oasis of Global Innovations"

A book by Konstantin Tserazov

"Fintech and Banking in the Gulf Countries: An Oasis of Global Innovations" provides a unique perspective from a seasoned fintech strategist who has served on the boards of major financial institutions, including Otkritie Broker, St. Petersburg Stock Exchange, and NAUFOR. His passion for innovation yielded impressive results at Otkritie Broker, where he implemented digital solutions that enabled 76% of accounts to be opened remotely, driving an annual client asset portfolio growth of 32% and contributing to a 28% increase in operational income at Otkritie Bank.

The book delves into the digital transformation of banking within the Gulf Cooperation Council (GCC) countries, exploring the impact of advanced technologies that position the GCC as a global fintech leader.

Structured into five parts, it covers the current financial ecosystem, digital innovations, regulatory frameworks, future developments, and individual country case studies. Through a detailed analysis of the GCC countries, the author opens a door to understanding how global finance is set to evolve, providing readers with a strategic view of the Gulf's dynamic fintech landscape and its influence on global financial trends. This book is essential reading for anyone looking to grasp the transformative potential of digital banking and innovations.

CHAPTERS

28.08.2024

The Acknowledgments

This odyssey to craft this book has been a profoundly personal journey. Before venturing into its pages, I must extend my heartfelt gratitude to those who made it a reality. Primarily, my family and friends. You’ve been my steadfast bedrock, my unwavering support system. Your belief in me has been the lifeblood fueling my endeavor. I am eternally grateful for your stable presence. A monumental thank you to the visionary innovators and entrepreneurs who fearlessly push the boundaries of fintech. Your passion, creativity, and audacious spirit are an unceasing source of inspiration. You remind me that the impossible is merely a challenge awaiting a solution. It is the immense potential of the Gulf Council Countries (GCC) region to spearhead global fintech innovation that ignited my passion for this project. I felt a profound responsibility to share my insights, to illuminate my vision for the future, and, hopefully, to inspire others to embrace the transformative power of technology in the financial realm. Writing this book was about distilling my own diverse experiences in banking and brokering into a clear framework. I wrestled with those experiences, examining them from every angle, in order to develop a perspective that could provide a unique lens through which to see the current trends shaping the fintech landscape in the GCC region. This allowed me to dive deep, to understand the intricacies, and to look ahead to where we might be headed. Even with years spent in leadership roles and serving on the boards of major financial institutions, I’ve always prioritized human connection. It's not just about directives and KPIs; it's about fostering genuine dialogue, building collaborative relationships at all levels. I have personally observed how this emphasis on people, on cultivating an environment of open dialogue, is the true catalyst for organizational success, propelling them beyond the limits of imagination. It’s about fostering a culture where individuals feel valued and empowered, and that, to me, is the ultimate priority. Konstantin Tserazov Corporate Strategy Advisor

29.08.2024

The Author's Note

With extensive experience in fintech strategy, I have had the chance to see how technology can reshape the financial industry. My roles on the boards of large financial institutions like Otkritie Broker have given me deep insights into how to navigate a business through the intricacies we see now. In this volume, I dive into the high-stakes bet on fintech in the Gulf Cooperation Council (GCC). This region is rapidly emerging as a global powerhouse while maintaining its local traditions. Governments and financial institutions in the region are racing to adopt cutting-edge technology to pave the way for sustainable and qualitative GDP growth and to streamline the financial services industry. Through thorough research, I examine the latest trends, technologies, and regulatory frameworks that are influencing fintech in the GCC. I have analyzed various statistical data and developed my own insights into the current state of fintech across these countries, which serve as a unique intersection of global and local trends. The book includes detailed analyses of the sector and case studies that showcase both the achievements made and the significant potential still to be tapped. Readers will discover how to spot emerging trends in fintech, identify promising investment opportunities, and navigate the rapidly changing landscape for fintech businesses in the GCC. Additionally, I share insights into how these countries may evolve in the future. I am confident that this book will compel readers to recognize and seize the opportunities presented by the future of finance. This isn't just another business book. It's your playbook for navigating what's coming next in global finance. The future is being written right now in the GCC, and you need to understand why. Konstantin Tserazov Corporate Strategy Advisor

30.08.2024

The Foreword

Let's be honest, the global financial world is a ferociously competitive arena. It's a constant race, a relentless pursuit of advantage. And in this hyper-competitive environment, only a handful of regions are truly grasping the transformative power of the fintech revolution. The countries of the Gulf Cooperation Council (GCC) are clearly at the leading edge of this dramatic change. As the author of "Fintech and Banking in the Gulf Countries: An Oasis of Global Innovations," I'm thrilled to offer a front-row seat to this fascinating transformation. My own experience in the trenches, from helping implement digital solutions at Otkritie Broker to advising major financial institutions, has given me a unique perspective. At Otkritie Broker, we saw a staggering 76% increase in remote account openings — a dramatic shift in how we do business, boosting client assets and operational income significantly. Witnessing the transformative impact of fintech firsthand underscores its revolutionary potential. This book examines how this force is fundamentally reshaping the banking landscape throughout the GCC. It achieves this through a carefully structured approach, dividing the subject matter into five essential parts. From laying the groundwork with an in-depth look at the current financial ecosystem, to scrutinizing the innovations and regulatory frameworks propelling the digital shift, the book offers a complete and nuanced perspective on fintech in the region. Case studies from individual Gulf countries offer a more granular understanding of their unique strategies and successes. What's particularly striking is the proactive approach of GCC nations. Forget bolted-on solutions; we're experiencing a deliberate and visionary integration of AI, blockchain, digital payments, and cybersecurity. This isn't just about enhancing financial inclusion; it's about igniting economic engines. Saudi Arabia and the UAE are blazing a trail, their advancements rivaling the world's most innovative ecosystems. Start reading this manuscript and step into a story of innovation still in motion. This fascinating narrative carries the potential to redefine the contours of global finance. I invite your keen attention; this is a journey poised to leave an indelible mark on the future of fintech industry. Konstantin Tserazov Corporate Strategy Advisor

01.09.2024

Chapter 1

The Current Financial Ecosystem in GCC: A Focus on Banking and Fintech

By 2024, the Gulf Cooperation Council (GCC) nations, including Saudi Arabia, the United Arab Emirates, Qatar, Kuwait, Oman, and Bahrain, are projected to align with the major global economies in the post-pandemic landscape. The International Monetary Fund anticipates that global growth will contract to 3.0% in 2024. The World Bank's projections suggest a more pronounced deceleration in global economic expansion, with the risk of a recession looming due to the majority of central banks implementing tighter monetary policies. Consequently, the World Bank has reduced its global growth projection to just 2.4% for 2024. The higher interest rates imposed by key central banks globally, such as the U.S. Federal Reserve and the European Central Bank, to curb inflation are continuously impacting economic activities. While global inflation is projected to decrease to 5.2% in 2024, it remains volatile. In contrast, the GCC countries are expected to experience an inflation rate of 2.3% in 2024, consistent with the previous year. This lower inflation rate in the GCC compared to global levels suggests that these nations can afford to import advanced technology from other countries to bolster their digital economies. Core inflation appears to be more resilient, indicating that even if oil and natural gas prices remain low in 2024, the underlying structural issues of the global economy will sustain inflation expectations. These structural challenges can be addressed by modernizing banking systems through the accelerated adoption of fintech. However, the reduction in headline inflation has both positive and negative implications. It indicates that the world is grappling with lower fuel and commodity prices due to weak global demand, and the early 2024 consumer demand stagnation is evident in the world's second-largest economy, China, which is now facing a deflation crisis. For the GCC countries, 2023 was marked by a slowing GDP growth rate, with an estimated 2.3% growth following a remarkable surge of 7.6% in 2022. However, 2024 appears to be a brighter year, with the bloc's economic growth rate expected to improve to 3.2%. This growth is expected to be fueled by increased oil production (excluding Saudi Arabia), easing monetary policy tightening, government and private sector initiatives to boost fintech and digitalize the banking sector, and a rise in non-energy exports. The key to further GDP growth lies in enhancing total factor productivity, which can be achieved through innovations integrated into the financial system. **GCC Banks and Fintech at a Glance** The banking industries of the United Arab Emirates (UAE), Oman, Qatar, and Saudi Arabia have been witnessing some key trends in the current economic environment. These trends showcase a blend of internal dynamics within these economies and external influences from global economic conditions. _Net Interest Margins_ A notable trend in the region is the upturn in net interest margins (NIM). In 2023, NIMs in GCC banks soared to a multi-year peak of 3.1%. UAE banks spearheaded this rise, registering a significant surge of 26 basis points to hit 3.28%. This outpaced Saudi Arabian banks at 3.22% and Qatari banks at 3.05%. The banking sectors of these nations are also impacted by external elements like the tightening monetary policies of central banks, leading to fluctuations in interest rates that can impact lending and deposit behaviors. Furthermore, the aggressive interest rate hikes by the U.S. Federal Reserve have been closely mirrored by GCC banks, fostering expectations of NIM expansion in the foreseeable future. Lending Growth Despite a slowdown in lending growth to a five-quarter low of 1.2%, aggregate gross loans surged to a record high of $1.89 trillion. Saudi-listed banks reported the strongest quarter-over-quarter growth in lending at 3.2%, reaching $623 billion. UAE-listed banks followed with a 1.6% growth in gross loans amounting to $518 billion. Deposit Growth The total customer deposits at GCC banks continued the growth trajectory seen in 2021-2022, hitting a new peak of $2.3 trillion. This growth indicates higher income-seeking depositors, as banks raised interest rates following the local central banks' monetary tightening policies. UAE banks had the largest absolute increase in deposits, growing by an average quarter in 2023 $41 billion or 6.2% to $705 billion, followed by Saudi banks with a 3.7% growth to $717 billion. Omani banks also experienced a growth of 6.8%, reaching $67 billion. Loan-to-Deposit Ratio The collective seasonally adjusted loan-to-deposit ratio for the GCC banking sector remained below the 80% threshold, clocking in at 78.5% in 2023. UAE and Omani banks led the decrease. The loan-to-deposit ratio remains under the historical average, marking one of the lowest points for regional banks, paving the way for digital lending practices to sustain the ongoing growth trend. Initial Public Offerings Dubai has experienced significant activity in the initial public offering (IPO) market, with the biggest IPO in the Middle East taking place in 2022, indicating investor confidence in the local economy and the banking sector's ability to attract international attention through successful IPOs. However, GCC IPO proceeds fell by 55% to $10.1 billion in 2023 due to the tightening monetary environment worldwide. Capital Movement In the realm of capital movement, the countries of Oman, Qatar, the U.A.E., and Saudi Arabia are primarily known as remittance-sending jurisdictions. Interestingly, less than 20% of all remittances sent from these countries are transferred to other Middle Eastern nations. This pattern suggests the potential for the emergence of new global cross-border services utilizing fintech, which could find a niche in the GCC countries. Fintech The payments and transfers sector is widely recognized as one of the most prevalent areas for the application of modern financial technologies in the Gulf Cooperation Council (GCC) countries. This sector holds the largest share in the realm of modern financial technologies within the GCC countries. Modern financial technology companies are offering a myriad of solutions related to digital wallets for mobile phones and payment gateways. Additionally, these technologies present opportunities for regulatory and supervisory authorities in the GCC countries to prudently utilize modern financial technologies for regulatory purposes. The GCC countries are currently undergoing rapid digitalization and experiencing substantial growth in the fintech industry. Investments in digital infrastructure, including cloud computing, digital and instant payments, artificial intelligence, and APIs, which are already prevalent in many GCC countries, are enhancing the capabilities of financial institutions to support new banking decisions. These decisions encompass initiatives such as Open Banking (OB) and Open Finance (OF). There is a growing trend of collaboration between traditional banks, non-banking financial institutions, and fintech firms to develop innovative solutions that leverage OB and OF principles. The regional Open Banking market size is projected to reach $0.7 billion in 2024, with a forecast to increase to $1.17 billion by 2027, reflecting an average compound annual growth rate (CAGR) of 25%. Rapid Growth of Fintech in the GCC countries The fintech industry in Oman, Qatar, the United Arab Emirates (UAE), and Saudi Arabia is experiencing substantial growth due to the integration of technology into financial services to improve delivery and usability. These countries have witnessed an increase in venture capital investments, a surge in digital payments, and a growing adoption of fintech applications. Saudi Arabia, as the largest economy in the GCC region, is making significant strides in the fintech sector. According to a report from the Saudi Central Bank (SAMA), the country's fintech industry is projected to reach a value of $1.2 billion by 2025, with a compound annual growth rate (CAGR) of 81%. Similarly, the Qatar Central Bank (QCB) has set a comparable CAGR for fintech development in Qatar, albeit with a market value expected to be six times lower than that of Saudi Arabia. The United Arab Emirates is also a strong contender, with its fintech industry anticipated to reach a value of $774 million by 2025, growing at a CAGR of 67%. Finally, the Central Bank of Oman (CBO) forecasts that Oman's fintech industry will reach a value of $100 million by 2025, with a CAGR of 72%. Key Trends Reshaping the GCC Banking and Fintech The GCC countries are undergoing significant transformations in their banking and fintech landscape, driven by several key trends: Digitalization: fintech is rapidly reshaping the region's banking sector, with a strong emphasis on mobile banking, online payments, and AI-powered solutions. Banks are making substantial investments in technology to streamline operations and enhance customer experiences. Consolidation: Mergers and acquisitions are on the rise as banks seek to bolster their competitiveness and scale. This process also creates opportunities for the burgeoning fintech business community in these countries. Economic Diversification: GCC countries are actively diversifying their economies, reducing their reliance on oil, and creating new prospects for the banking sector. Sustainability and ESG: There is a growing focus on sustainable and responsible banking, aligning with global Environmental, Social, and Governance (ESG) standards. Regulatory Reforms: Governments are implementing stricter regulations and promoting financial inclusion to enhance the sector's stability and outreach. Local central banks are playing a pivotal role in supporting the banking sector through progressive regulations and fostering an environment conducive to innovation and growth. Geopolitical Uncertainty: The banking systems in Oman, Qatar, the UAE, and Saudi Arabia are interconnected with the global economy. Events in the U.S., European, and Chinese banking systems, such as economic downturns, trade disputes, or geopolitical risks, can have spillover effects on the banking sectors in these countries, adding another layer of complexity to their challenges

08.09.2024

Chapter 2

Fintech Evolution: A Voyage Through Webs and Generations, Trends and Challenges

From Spark to Symbiosis: The Enduring Journey of Fintech From AI-backed personalized financial guidance to secure, seamless transactions authenticated by cutting-edge biometrics, the horizon of fintech shimmers with boundless opportunities. This realm pledges a more inclusive and streamlined financial ecosystem for all individuals. The Future of fintech gleams with opportunities arising through the Web transformation and everlasting generation shift. How did it start? Web 1.0 (1991-2006) was characterized by the internet consisting of static web pages that users could look up and read. User participation during this period was limited, with interactivity mostly restricted to basic actions such as clicking links and submitting forms. The era saw a proliferation of plastic credit cards and ATMs. The potential use of the internet in the fintech sphere was very promising but was premature. Investors poured substantial funds into Internet service and technology companies in the early years of 1995-2000. Following the peak and subsequent crash of the dot-com bubble in March 2000, it took nearly 17 years for this sector to reach a new high, enduring an 82% drawdown along the way. Web 2.0 (2006-2009) was a period when the internet became a bunch of dynamic web pages and platforms where anybody could upload their own content. The network connectivity of Web 2.0 enabled information to spread at an accelerated rate to a wide scope, creating viral demand for financial products. This period witnessed the rise of online banking, peer-to-peer lending, and the early stages of mobile banking applications. Web 3.0 (2009-2016) heralded decentralization and distributed ledger technology (DLT), spearheading the era of cryptocurrencies, decentralized finance (DeFi), smart contracts, and non-fungible tokens (NFTs), reshaping financial landscapes fundamentally. In the beginning of 2009 Bitcoin went live. Stablecoins gained a vast adoption in the world, and crypto ecosystems started competing with the legacy financial institutions in the field of various financial services. Web 4.0 (2016-2023) was the period of connectivity and vast data, epitomized by the ubiquitous use of mobile devices and cloud computing, gave rise to AI-driven financial advisors. In April of 2016 there was the public beta release of OpenAI Gym, a toolkit for developing and comparing reinforcement learning algorithms. This sets the stage for even more revolutionary changes with the onset of Web 5.0. Web 5.0 (2023 - Future) is characterized by a deep interrelation of physical and digital worlds. Envisioned to be characterized by the fusion of human and machine intelligence, mixed, virtual and augmented reality, and further advancements in decentralized technologies, Web 5.0 heralds transformative shifts in fintech. Fintech in this epoch will likely concentrate on highly personalized financial offerings, seamless integration with the Internet of Things (IoT), and heightened security through biometrics and AI. On February 19, 2024, the groundbreaking event of implanting a chip developed by Elon Musk's Neuralink company into a human brain enabled direct control of a computer mouse through thoughts alone. This technology restores financial autonomy for patients with disabilities, allowing them to seamlessly conduct financial transactions and manage investments with the assistance of web-based banking services. This highlights the potential of technology to bridge the gap between the human body and the external financial world, marking the dawn of a new era in Fintech. The implementation of Web 5.0 in Fintech will rest on the shoulders of Gen Alpha. As each generation has approached fintech with unique needs and expectations, we witness the changes in fintech style. Fintech's Evolutionary Path Through Different Generations Boomers, who value stability, initially exhibited hesitancy but gradually embraced convenient fintech solutions. Despite being older and typically more resistant to change, Boomers have increasingly engaged with Fintech. Boomers' financial priorities primarily revolve around safeguarding their wealth for retirement. Gen X, known for being pragmatic and tech-savvy, swiftly adopted online tools for enhanced efficiency. They are quick adopters of buy now, pay later (BNPL) options. Gen Xers also show a preference for banking via mobile apps, driven partly by the time-saving benefits it provides, which is crucial for those in the peak productive years of their professional lives. Millennials seamlessly integrate fintech into their daily lives, advocating for innovation and accessibility. They gravitate towards fintech applications that simplify their financial routines, with a strong demand for mobile banking and investment platforms that prioritize user experience and simplicity. Gen Z, who grew up in a connected world, are comfortable with intricate financial concepts and are shaping the future of decentralized finance. They eagerly explore novel financial instruments and services, relying heavily on social media for discovering financial products and making decisions. The rise in the use of the TikTok social app for sharing financial advice in recent years underscores the influence of social media as a financial services influencer for Gen Z. There is a notable preference among Gen Z for omnichannel banking experiences, showcasing their remarkable adaptability and willingness to experiment. Gen Alpha witnesses how AI changes the way we interact with the external world, including financial issues. This generation is poised to redefine the financial services landscape as they grow up with the integration of AI and other advanced technologies. Fintech: From First Plastic Credit Cards to Current Challenges At last, the evolution of fintech can be seen in phases, each marked by groundbreaking technological and industry advancements. The era from the second half of the 19th century to the 1970s of the 20th century witnessed the initial sparks of digitization and globalization, with the pantelegraph paving the way for the rapid transfer of financial data across borders. The introduction of the Diners Club credit card in 1950 laid the groundwork for future developments. Eight years later, the American Express Company joined the club with its offer. The installation of the first ATM in 1967 marked a significant step forward. Four years later, the establishment of NASDAQ as the first electronic stock market signaled the emergence of key pillars of the modern financial system. In 1973, SWIFT (Society for Worldwide Interbank Financial Telecommunications) was established and maintained a leading and unchallenged role as a suitable framework for financial communications for years. SWIFT, launched to service transactions in various currencies, has actually symbolized the dollar-dominated global financial order. As time progressed, the 2008 global financial crisis prompted a reevaluation of the nature of the global financial system. Basel III, new international banking standards developed by the Basel Committee on Banking Supervision, were swiftly implemented in response to the crisis. However, ongoing challenges led to the emergence of Basel IV, the implementation of which began in 2023. In reality, the global financial legacy systems still feel the ramifications of the 2008 global financial crisis, exacerbated by the easing of monetary policies during the COVID-19 pandemic (2020-2023) in developed economies. The escalating rate of rise in U.S. public debt and elevated inflation in developed economies in 2023 prompted a number of countries to question the sustainability of the path along which the classical world financial system was developing. These concerns drew the attention of the Gulf Countries and many others to the importance of investing in fintech to build their own digital financial infrastructure. Despite the implementation of Basel III and Basel IV, the global financial system still exhibits vulnerabilities, as evidenced by the banking crisis that occurred in the United States in March of last year. Optimistic predictions that the crisis would be limited to small, regional U.S. banks were proven to be naive. By early 2024, the consequences of this crisis began to impact the balance sheets of several European banks. However, amidst these challenges, fintech emerges as a beacon of hope. Its innovative solutions offer alternatives and alleviate burdens for both individuals and economies. Countries harnessing its potential stand to be leaders in the digitally-driven future of finance.

14.09.2024

Chapter 3

Digital Transformation of the Banking Sector in the Gulf Countries: A New Era of Opportunities

Market Concentration and Technological Achievements The banking sector in the Gulf Cooperation Council (GCC) countries is characterized by a high concentration, with a few large players controlling a significant share of the market. For instance, in the United Arab Emirates (UAE), the top 5 banks hold approximately 60% of the market share, while in Kuwait and Qatar, they control about 85% and 70%, respectively. Since the banking sector in the Gulf Cooperation Council (GCC) is highly concentrated, with a few large banks holding a substantial share of the market. In the UAE, for example, the top five banks account for about 60% of the market capitalization of the Abu Dhabi Securities Exchange and the Dubai Financial Market . Similarly, in Kuwait, the top five banks account for about 85% of the market capitalization of the Kuwait Stock Market, and in Qatar, the top five banks account for about 70% of the market capitalization of the Qatar Stock Exchange. The banking sector in the GCC is facing heightened competition due to the rapidly evolving technological landscape. The World Bank reports that the GCC region boasts one of the highest internet use rates globally, with a rate of 94% in 2023. In the UAE, for instance, the internet use rate stands at a staggering 99%, while there are more than two mobile phones per person. Similarly, in Saudi Arabia only 4% of the population has not embraced the internet but the number of mobile phones exceeds the number of people residing now in the country by 1.2. This technology's advancement is a bedrock for the growth of digital banking services, including neobanks that are challenging the dominance of traditional banks. As a result, legacy banks are increasingly adopting fintech and digitization to stay competitive. Growth of Digital Payments and Mobile Banking The GCC region for the last three years demonstrates the trend of rise in popularity of digital payments, with the total volume of such payments being $100 billion in 2020, according to the International Labor Organization. This year this value is expected to reach $140-150 billion. The rise of usage of mobile devices in the region is also contributing to the growth of non-cash transactions. In Qatar, 91% of the population uses mobile devices, while in the UAE, this figure stands at 80%. Notably, over 50% of credit card transactions in the UAE are made through mobile in 2023. As a result, non-cash payments account for more than 80% of total transactions in the GCC, with projections indicating that this figure will reach 90% by 2025. Mobile banking is becoming increasingly popular, with an estimated 70% of the population in the region using mobile banking services by 2024, according to a report by the International Finance Corporation. Saudi Arabia has already surpassed this number, with 76% of banking customers using online or mobile bank applications. Most banks in the region offer various perks associated with using mobile bank apps including non-physical prepaid debit cards (50%), virtual discount coupons (51%) and various benefits for loyal clients (53%). The use of digital payments in the region surpassed $100 billion in value in 2023, according to a report by the World Economic Forum (WEF). Banks in the region are actively integrating blockchain technology into their operations. In 2020, around 70 banks in the region already used blockchain platforms. By 2025, this number is expected to rise to 100. Fintech and Banks Fintech adoption is becoming increasingly prevalent in the Gulf countries. According to a report by the World Bank, 75% of banks in the region planned to partner with fintech companies in 2023. This trend is driven by the recognition of the power of fintech to deliver sustainable economic growth, promote financial inclusion and create the economy of abundance. Several Gulf countries are focusing on the digitization of the banking sector as part of their governmental strategic initiatives. For example, the UAE's National Program for AI and Digital Transformation is aimed to help banks to adopt more innovations allowing seamless digital transition of the country’s economy. Additionally, the UAE's Open Banking Regulatory Sandbox creates an opportunity to test all new digital decisions in the favorable legal environment. Regulators in the region have recognized the potential of fintech and are committed to creating a favorable regulatory environment. The Stimulation of Innovations The digitization and fintech adoption are also being stimulated through interbank investments too. For instance, Bank Muscat, Oman's largest bank, has set up a strategic investment fund to invest up to $390 million in banks in the GCC over the next few years. Moreover, Gartner predicts that banking and security firms will invest $12 billion into fintech adoption and new innovations over the next 10 years, due in part to recent launches of public cloud data centers in the region. The initiatives like Saudi Arabia’s Vision 2030 and the New Kuwait Vision 2035 are encouraging governments to utilize cloud services. After adopting the Cloud First Policy in 2019 to promote cloud adoption throughout the public and private sectors, Saudi Arabia has seen a 16% increase in the use of cloud services. By 2030, there might be a $10 billion market for cloud services in the Kingdom. Also the Saudi Arabian Monetary Authority established the Fintech Saudi initiative to accelerate the growth of fintech in the country. Moreover, as Faisal Alibrahim, Saudi Arabia's minister of economy and planning, told the audience during the last WEF in Davos, Saudi Arabia initiated reforms aiming to accelerate the non-oil side of the economy. Also in Davos Mohammed Al Jadaan, Saudi Arabia's minister of finance, stressed that the country would tap international and local debt markets this year to fulfill its strategic goals. Traditional lenders and fintech startups in the region are racing to launch digital banking offerings, viewing the market's rapid adoption of mobile technology and economic growth as a massive opportunity. Around 40 digital banking offerings have been launched in the last year, with the UAE hosting six new neobanking brands. Neobanks in the Gulf countries are currently serving over 32 million customers, with the number of users of bank applications of all banking organizations in the Persian Gulf projected to reach 150 million by the end of the current year. Another trend is the use of artificial intelligence (AI) and machine learning to improve processes in the banking sector. Banks are introducing AI systems in credit risk assessment, data processing, and customer service, which accelerates decision-making processes and improves customer service quality. AI-driven solutions such as identification document verification and biometric validation solutions, know-your-customer and customer due diligence, significantly mitigate the risk of fraud. The metaverse, a virtual space where users can interact and engage with one another in a shared, immersive environment, is becoming a reality as technology advances. Millennials and Generation Z, who constitute approximately 60% of the population in the GCC, are comfortable with digital interactions and expect seamless experiences across all touchpoints. The legacy banks have struggled to connect with the new generation of users, but those that can offer services on the metaverse platform will have a unique opportunity to engage with them. By bridging the metaverse with real-life banking, banks can also establish payment rails in the metaverse's back-of-the-house. This presents a perfect opportunity for banks to interact with consumers and provide them with innovative solutions. We are observing a gradual shift of Gulf region banks towards becoming technology and data-driven companies, generating revenue from various digital services such as software, banking-as-a-service (BaaS), digital banking, and digital currencies. They are developing digital banking platforms and modernizing their technological infrastructure to facilitate the efficient growth of digital product marketplaces, mega apps, cloud services, API governance, and third-party data connections management. Challenges and Solutions However, there are challenges to the adoption of cloud services in the banking sector of Gulf countries. According to IDC, the Gulf’s lack of IT talent and skills availability is a major challenge for 45% of organizations when it comes to cloud management. This situation will slow the race of adoption of cloud services in the banking sector. Digitization is also helping to combat crime risks in the banking sphere. The banking watchdogs are working to make the banking sector more vulnerable to financial crime risks. The Central Bank of the United Arab Emirates has issued a guidance note encouraging FIs to use the ‘Digital ID’ framework to conduct a customer background check. The Saudi Central Bank made an assignment to local banks to figure out and carry out a plan for the sourcing/development and use of counter-fraud digital innovations to mitigate fraud risks in their activities. The Qatar Central Bank ordered local banks to gather enough resources, including digital technology, to prepare effective decisions while facing challenges from cyber crime and other kinds of fraudulent activities of the criminals. A breathtaking increase in the use cases of AI in the banking sphere is slated to benefit the overall security of the Gulf banks. This will help banks to stay ahead of financial crime and maintain the trust of their customers and the society in the broad meaning.

15.09.2024

Chapter 4

The Role of AI and Its Impact: Gulf Nations' Strategic Approach

In the first months of 2024, the S&P 500 hit record highs, propelled by Artificial Intelligence (AI)-related tech stocks. Stocks are up, not just due to AI hype speculation. Jamie Dimon, CEO of J.P. Morgan Chase, emphasized in February 2024 that AI is not just a trend but a tangible reality. And he is right. The preliminary estimation shows that Generative AI could potentially boost banks’ productivity by 30%. AI empowers computer systems to undertake tasks that traditionally demand human intelligence. Combining Machine Learning, Artificial Neural Networks, and Deep Learning, AI holds immense promise for transforming the financial system. Rumors suggested in February 2024 that Microsoft-backed OpenAI was seeking $7 trillion to enhance AI infrastructure, potentially involving investment from the UAE. While awaiting official confirmation, the envisaged shift indicates: AI as a disruptive force in the financial landscape, offering a breakthrough. The massive financial commitment required for AI progress, notably in AI chip development. Potential investments from Gulf countries like Saudi Arabia and the UAE recognizing AI's revenue-generating potential beyond oil trading. By 2030, AI-generated economic value may account for 15% of these countries' GDPs. The strategic transformation of Gulf countries through the development of non-oil sectors via investment in AI technologies could be pivotal in the coming years. As the world witnessed various economic challenges, such as the 2008-2009 financial crisis and the COVID-19 pandemic lockdowns in 2020, the Gulf countries have remarkably demonstrated their economic resilience. The primary driver behind their rapid AI development is the strengthening of investment cooperation with Western nations and Asia, most notably China. By embracing a favorable regulatory landscape and implementing government strategies centered around AI, the region is gaining a competitive edge in the global market. AI is transforming the Gulf countries’ financial sector in several ways: Enhanced Customer Experience: Conversational AI-powered virtual assistants have an expanded range of functionality. They are becoming friends with clients, bringing in more emotions and empathy into the interaction. Fraud Detection and Prevention: AI algorithms have the capability to detect patterns and anomalies, aiding in fraud detection and prevention. This saves countless hours of manual reviews and makes the financial system more secure. Big Data and AI: AI models analyze big data to make informed decisions, enhancing credit scoring, loan underwriting, and risk assessment. AI and Stockbrokers: AI algorithms provide automated investment advice and handle trades. In the early months of 2024, it is evident that Gulf countries are quickly advancing on the AI track. Saudi Arabia Saudi Arabia's Ministry of Investment (MISA) is carrying out the National Technology Development Program (NTDP) with a strong focus on AI. The Ministry has succeeded in attracting Chinese entities interested in investing in AI development in Saudi Arabia. The Saudi Data and Artificial Intelligence Authority (SDAIA) is a special government body that released a statement in January 2024, in which it stated its commitment to facilitating the wide-spread adoption of the technology in Saudi Arabia. Monsha’at, Saudi Arabia's agency for enterprise development, is joining efforts to leverage AI. The agency has launched an AI-based platform – "Saudi AI". This platform is designed to aid local businesses in automating their processes and enhancing productivity. And we see results. Saudi Awwal Bank (SAB), headquartered in Riyadh, is broadening its collaboration with Mastercard in 2024. The bank is adopting Mastercard Gateway's Transaction Risk Management (TRM) technology, an AI-powered solution aimed at bolstering its fraud prevention mechanisms and facilitating secure digital transactions. SAB is set to utilize this AI technology to amplify its risk management capabilities and provide a more secure digital banking experience for its customers. Qatar Meanwhile, Qatar is charting its own course in AI, a strategy that will be realized through an increase in bi-directional investment flow. For instance, in February 2024, Qatar committed to investing nearly $11 billion in French technology startups and technology funds over the next six years, with a particular emphasis on the AI sector. On the governmental side, Qatar unveiled two significant initiatives at the Trade Tech Forum in Abu Dhabi in late February 2024, aimed at expediting the integration of technologies such as AI into the global financial web of transactions: Regulation 5.0 for the Future of TradeTech and the Trade-Sustain-AI Initiative. The Trade-Sustain-AI Initiative is poised to foster collaboration between Qatar and international structures, governmental bodies, and industry leaders to generate comprehensive reports that explore the intersection of AI, global financial communications, and sustainability. UAE The United Arab Emirates (UAE) is taking a bold step towards AI leadership. On February 27, 2024, its largest company by capitalization, International Holding Company (IHC), appointed an AI-powered Board Observer named "Aiden Insight." This decision, spearheaded by Sheikh Tahnoon bin Zayed Al Nahyan, who is both the chairman of IHC and the UAE's national security advisor, highlights the nation's top-level commitment to AI development. Aiden Insight is assigned with functions such as big data analysis, risk assessment, and compliance oversight, traditionally performed by human experts. This innovative member is the product of a collaboration between the Abu Dhabi based AI related company G42, Microsoft, and OpenAI. This further underscores the significant investment of Microsoft and other leading tech companies (collectively known as the 'Magnificent 7') in fostering AI innovation. On March 1, 2024, Microsoft unveiled its Copilot AI Chatbot designed specifically for finance professionals using Excel and Outlook, marking a significant milestone in AI application within the financial sector. The Seattle-based firm's stock soared 10.5% in just the first two months of 2024, helping it maintain its status as the world's most valuable company. The company's decision to create a special AI application tailor-made for the needs of financial specialists underscores how the proliferation of AI in finance is a key engine for creating corporate value. The UAE, like Qatar, advocates collaborative AI investment. Talks with the UK government led to a visit by Michelle Donelan, UK Secretary of Science, Innovation, and Technology, in late February 2024. She met with Omar Al Olama, UAE's Minister of State for AI, discussing a global coalition for responsible AI development. Foreseeing the AI surge, the UAE established the Mohamed bin Zayed University of Artificial Intelligence in 2019. Additionally, the country is actively educating its citizens through initiatives like a mass mobile text message campaign emphasizing the importance of AI for the future. This campaign, which included a link to a digital "journey" for further AI learning, attracted over 200,000 UAE residents by the end of February 2024. To accelerate research and development in AI and other emerging technologies, the UAE launched a $500 million program on February 13, 2024, as announced by the Advanced Technology Research Council at the World Governments Summit in Dubai. Moreover, the UAE's Artificial Intelligence Strategy 2031 is designed to establish the nation as a worldwide frontrunner in AI advancements. Oman Beyond the UAE, Oman is also exploring the AI landscape. In February 2024, the Oman Chamber of Commerce and Industry invited business owners to participate in a research study examining the impact of AI on Small and Medium-sized Enterprises (SMEs) within the context of Oman's Vision 2040. This study aims to analyze the potential benefits and challenges of AI adoption for SMEs, alongside strategies for leveraging AI technologies for their growth and development. The research will involve a survey of SME owners, industry experts, and academics. The Sultanate recognizes the pivotal role that AI plays in shaping the future and views AI as a powerful instrument to enhance competitiveness across various sectors. The Gulf countries' avid interest in AI indicates they are primed to become global pioneers in integrating AI into banking and finance. AI applications drive the relationship between technology, big data, and create value at both the corporate and whole economy levels. With major investments already underway in developing AI technology and infrastructure, the Gulf countries have laid the groundwork to drive innovation in AI applications for financial services. Their proximity to both Western tech expertise and Asian manufacturing hubs also provides strategic advantages for these countries to effectively leverage AI.

21.09.2024

Chapter 5

The Role of Digital Innovations in Banking Sector Development: The Case of Gulf Countries

Cutting-edge digital innovations create the necessary breeding ground for the further development of modern banking. They help retain a customer base and form effective strategies for expanding into international markets. The main driver of digital innovations in banking is the fintech sphere, which consists of startups. Fintech startups refresh the activities of traditional banks. Banks that engage in fintech innovations and deal with fintech companies can stay competitive in a rapidly changing environment, particularly in the 21st century, when data flows quickly and new technologies emerge at an accelerated pace. Open Banking Any modern technology applied in the banking sector facilitates process automation, reduces the cost of information acquisition and processing, and enables big data use. Additionally, technology allows banking to become ubiquitous, for example, through open banking APIs. With open banking, the banking sector can collaborate with other industries to improve the user experience and offer banking services in many of the places where customers are, such as online stores and telecommunications services. At the same time, open banking dramatically reduces entry barriers into traditional banking value chains. This increases competition for legacy banks, as more companies enter these value chains, and makes it easier for any business to adopt banking services in their existing digital channels. Consequently, any company can offer financial products in their channels, exposing consumers to banking services through many more channels. Open banking infrastructure thus paves the way for a more advanced, connected, open data economy. Various types of platforms can be used for open banking purposes, including B2C platforms that offer services for individual consumers and B2B platforms that provide technical services. In the UAE, the Central Bank of the UAE, the UAE Banking Federation, and Etihad Payments are among the key advocates for open banking. In Oman, the local central bank is overhauling the open banking framework. Qatar National Bank is driving an open banking platform for fintechs. In Saudi Arabia, dozens of entities operating in the regulatory sandbox of the Saudi Central Bank (SAMA) tested open banking approaches in recent years, and Arab National Bank became the first Saudi bank to receive an open banking license from SAMA. Virtual Worlds The fintech sphere introduces new competitors like neobanks, financial entities operating in virtual (digital) worlds, and harnesses the capabilities of digital banking. The evolution of virtual worlds and virtual goods (e.g., digital fashion items) creates a new avenue for demand and an opportunity to utilize digital worlds to enhance digital banking. This is driven by the need for new payment methods, digital communication channels, installment payments, and the use of cryptocurrencies and digital assets as financial tools. The emergence of non-fungible tokens (NFTs) bring additional value to digital worlds. By integrating innovations such as NFTs, cryptocurrencies, blockchain, and artificial intelligence, the digital world serves as a business model that bridges the gap between virtual and real worlds. The impact of technology implementation is most pronounced when discussing digital innovations led by fintech companies. Furthermore, the digitalization of banking operations facilitates financial institutions in engaging with their customers within virtual (digital) worlds. In 2022, Commercial Bank International distinguished itself as the first UAE bank to venture into the realm of virtual worlds. Concurrently, the Dubai Strategy was implemented with the objective of drawing over 1,000 companies specializing in blockchain and virtual worlds. On February 22, 2024, in conjunction with the celebration of Saudi Arabia's National Founding Day, the nation's government unveiled a comprehensive digital initiative known as the "Cultural Universe." We observe an increasing trend where more banks and fintech firms establish their presence in various virtual worlds. This trend is logical as sales of diverse products through virtual worlds rise, leading to intensified financial transactions within these environments. For instance, the growing online luxury goods market in Gulf countries will be complemented by transactions facilitated through the financial digital infrastructure of virtual worlds. Biometrics The fingerprint scans, facial recognition, even iris recognition – all step by step replacing the outdated PINs and signatures of the past. Banks around the world are embracing this technology, with the Middle East leading the charge. Back in 2014, Emirates National Bank in Dubai made waves with a pioneering program: fingerprint authentication for ATM transactions. Since then, we see a biometrics boom. Fingerprint scanners, facial recognition systems developed by various fintech companies, and banks are implementing it. By 2021, every key bank in the UAE was offering biometric authentication for their mobile apps. Fingerprint, facial, and even voice recognition – the future is here. And the trend keeps surging. Qatar and Oman are following suit, with similar widespread adoption happening right now. Gulf countries are making a world name for themselves in the field of iris recognition. Saudi National Bank (SNB) and Qatar National Bank (QNB) have already rolled out iris recognition capabilities in their ATMs. The Digital Personalization of Banking Services Digitization is the area where banks are investing most heavily at the moment. Banks are reducing the number of physical branches and redirecting investments into digital solutions. In this evolving landscape, smartphones have become an alternative to traditional bank branches. There was a 20% decline in bank branches across the UAE between 2017 and 2023, a trend also observed in Saudi Arabia, Qatar, and Oman, where mobile phone penetration exceeds 90%. In Saudi Arabia, the rise of digital-only banks, such as STC Pay, highlights the shift towards digital financial services for consumers. The Saudi Arabian Monetary Authority (SAMA) introduced licensing guidelines for digital-only banks in 2020, establishing minimum requirements for applicants. In Qatar, banks like Qatar Islamic Bank (QIB) have embraced digital transformation by offering advanced digital channels and solutions, particularly for small and medium enterprises (SMEs). The digitization remains a focal point of the Al-Dhameen program, realized by several Qatari banks, which provided credit guarantees. Oman's Bank Muscat is among the key players expanding their digital capabilities to meet changing customer needs. Lastly, the UAE stands out as a hub for digital banking innovation. Banks, such as Abu Dhabi Islamic Bank (ADIB), have excelled in blending personalized customer experiences with enhanced digital banking opportunities. Despite fewer physical branches, the importance of personalized services remains undiminished. Digitization accelerates the processing of client needs, yet the personal touch remains crucial. This is underscored by the adoption of bank video chats and visualization technologies, which elevate the level of personalization and human-like communication in digital banking services. As we witness in banks across the Gulf countries, the shift towards digital does not diminish the significance of personalized services. Indeed, the proliferation of bank video chats and visualization technologies not only preserves but enhances personalization, setting a new standard for how banks interact with their clients in a digital age. More Digitization, More Value-Added Services Banks have been among the most proactive entities in embracing digital technologies and creating practical applications. Digital innovations provide financial market participants with optimal opportunities to create value-added services. The digital transformation has led many banks to engage with digital transactions, digital signatures, digital wallets, and virtual service points, such as robotic service functions. Recent years have seen a shift from analog and face-to-face services to digital tools. Customers are seeking a financial institution that can handle all their needs via phone or computer, and fintech companies with their innovative solutions are making these clients' dreams a reality. Fintech companies prioritize customer experience when developing new products and services. Collaboration with fintech businesses allows banks to offer services that would be impractical for them to develop alone, yet these services attract new customer segments and aid in retaining the existing customer base. By integrating fintech solutions and applying cutting-edge digital innovations, banks remain competitive and move confidently into the future. Digitalization has thus played a crucial role in transforming the banking industry from a traditionally static institution with little competition into a dynamic landscape where the providers of the best experiences and services emerge as winners.

22.09.2024

Chapter 6

Gulf Countries' Crypto and Blockchain Ascendancy: A Showdown with the West

The dubious regulatory landscape for cryptocurrencies and blockchain in the USA has pushed global crypto firms to move to locations such as Gulf countries. In 2023, the volume of cryptocurrencies transacted in these countries rose by almost 50% on a yearly basis. At the forefront of this shift are the United Arab Emirates (UAE) and Saudi Arabia, both drawing crypto enterprises with their substantial populations and corresponding spending power. In terms of becoming a blockchain/crypto hub, whether it's due to regulatory steps to explore these innovations or because of more disposable income and openness to new developments in the financial realm, these factors seem to be attracting international businesses to relocate there. The UAE and Saudi Arabia are developed markets, and in this sense, they operate on the same playing field as Western countries. UAE In 2020, the Securities and Commodities Authority (SCA) released Act No. 23 on the Crypto Assets Activities Regulation (CAAR). This regulatory move embraces all aspects of crypto assets regulation within the UAE, including issuance, listing, and trading. Accordingly, Dubai, in compliance with Act No. 23 of the SCA, approved its own digital assets law, appointing the Virtual Assets Regulatory Authority (VARA) as the agency in charge of the sector. Some leading global crypto exchanges with operations in Dubai were granted a Virtual Asset Service Provider (VASP) license by VARA to trade cryptocurrencies. However, this regulation does not apply to the Dubai International Financial Centre (DIFC), as the free zone has its own financial services watchdog, the Dubai Financial Services Authority (DFSA). On March 8, 2024, the DIFC released what the regulator earmarked as the "world's first" digital assets legal document. It defines that the legal specifics of digital assets derive from the understanding of them as a property object. The document also establishes the rules for the transferring and dealing with digital assets. A number of already valid regulations will be updated via the implementation of the DIFC Amendment Law. A cryptocurrency license and registration with the DFSA are requirements for all crypto investors in the UAE. With the application of this permission, people in Dubai are able to sell and buy cryptocurrencies in accordance with the law. All crypto trades are registered with the DFSA as an investment. The appropriate declaration of crypto activities implies that the investor must maintain all relevant records. The gains on crypto investments are taxed, even if Dubai grants exemptions from taxes for some business activities. At last, another sign of rapid movement of UAE into the digital assets sphere was flashed by the Central Bank of UAE (CBUAE). On March 23, the regulator released its strategy “The Digital dirham” as one of the nine initiatives of the CBUAE’s programme to overhaul financial infrastructure. In the case of digital dirham CBUAE struck a deal with G42 Cloud and R3 companies. Saudi Arabia Currently, Saudi Arabia does not yet have a comprehensive regulatory framework for cryptocurrencies. The Saudi Arabian Monetary Authority (SAMA) has launched a regulatory sandbox specifically for testing blockchain-based financial services. Meanwhile, the UAE leads, together with Saudi Arabia, in crypto adoption among Gulf countries. The investors from both countries combined generated capital gains of more than $500 million from crypto ventures in 2023. In Saudi Arabia, most crypto investors use international platforms and accounts opened in foreign banks to trade crypto, since local banks are still undertaking a very cautious policy regarding any crypto buying and selling operations using local banking accounts. Qatar Currently, Qatar holds a ban on crypto trading, but the country supports digital ledger technology (DLT) and is trying to figure out a more nuanced approach to the regulation of digital assets. The Qatar Central Bank and the Qatar Financial Centre Authority (QFCA) have jointly unveiled the QFC Digital Assets Framework in October 2023, which seeks to regulate investment tokens representing underlying assets that are specified products under the current financial legal QFC framework. Key aspects of this framework include the introduction of legal guidelines regarding the issuance and circulation of investment tokens. These rules stipulate that any activities involving such tokens require authorization and supervision by the regulatory bodies. Moreover, the Digital Asset Regulations 2023 define what an accepted token is, revealing provisions for token transfer, ownership, and relevant rights, and establishing the scope of activities for approved token service providers in the QFC. As far as DLT is concerned, a number of Qatari governmental entities and private structures, especially in the banking sector and fintech sphere, are scaling up blockchain implementation. The QFCA has tested a typical framework of the local blockchain ecosystems last year and is following this path this year. Qatar demonstrates an open stance towards new innovations and is ready to further update its regulation of fintech companies, taking into account that a growing number of players in the industry leverage blockchain technology in their day-to-day operations. Oman In a move to bring crypto regulation to Oman, last year the country's Capital Market Authority (CMA) gathered comments from the public and businesses on its blueprint of a regulatory framework aimed at governing digital assets. The blueprint, which appeared on July 27, 2023, outlined a comprehensive regime for the digital (virtual) asset sector, including business requirements and the protection of market participants. The primary objective of this innovative framework is to create a robust and flexible system tailored for the vibrant digital assets industry. This framework encompasses a wide range of prudential measures and business conduct standards, alongside stringent regulations aimed at thwarting market manipulation. These regulations are reinforced by vigilant surveillance protocols and effective enforcement mechanisms, particularly concerning the issuance and management of digital assets. The blueprint included 26 questions, allowing key stakeholders and concerned parties to share their insights on regulatory and licensing rules for digital asset service providers, corporate governance, risk mitigation, and digital asset issuance. The beginning of 2024 has been marked with a number of practical developments in the relevant field. At the start of the year, Oman's Ministry of Housing and Urban Planning (MoHUP) announced its roadmap for 2024, which will encompass 130 initiatives, including DLT among many other proposals. The Oman MoHUP has a plan to develop a multi-level portal whose structure will be based on blockchain. Also in January 2024, the Oman Development Bank made its own way into the blockchain world by starting to transform its operations into a digital format utilizing blockchain for this purpose. On January 29, the Oman Sohar port free zone struck a deal with the encryption mining firm Green Data City to develop a $210 million data computing center, which will include data mining. The data mining center is aimed at performing blockchain data mining as well as cryptocurrency mining. The packet of documents includes a land lease contract featuring the development of a 45,000-square-meter site that will house 20,000 servers from key manufacturers of mining equipment. In February, another governmental body, the Ministry of Transport, Communications and Information Technology, joined the blockchain race and revealed the intent of piloting a Blockchain Land Transport eWay Bill. In March, the Oman-based fintech infrastructure provider Mamun Ventures announced that it would pour $1 million into digital asset startups operating in compliance with local traditions. Earlier, in December 2023, the UAE and Singapore-based Triterras, a fintech company focused on digital trade and supply chain finance, partnered with Mamun Ventures to join efforts in developing this sphere in Oman. The Unfolding Blockchain and Crypto Story Major US and European companies are relocating to the region as the Gulf countries embrace blockchain and crypto. The US could lead this tech but instead looks like it is missing its piece of the pie. Blockchain adoption is more visible in the region. In Dubai, exemplifying this trend, the UAE Pass application functions as a digital passport providing entry to a wide array of government services. The application's digital vault allows the user to store and share official documents digitally and is based on blockchain, as it securely records all necessary data and provides a higher level of transparency, traceability, and security of this system. Besides DIFC's movement in the blockchain direction, the same trend has appeared in the Dubai Multi Commodities Centre (DMCC) as well. A total of 2,692 new companies joined DMCC last year, bringing the total number of entities in DMCC to over 24,000, according to its 2023 Annual Report. Finally, DMCC is now home to 600 blockchain and crypto-related companies. Crypto mining is evolving in the region, and the Gulf countries' total Bitcoin hashrate accounts for 8% of the world's BTC hashrate. One of the breathtaking investments in this direction is Oman's crypto mining project launched in August 2023, with an investment budget of $1.1 billion. The abundance of energy and the development of a balanced regulatory landscape are key factors playing a role in attracting mining business activities to the Gulf countries. Moreover, the anticipation of Bitcoin halving in April, 2024 sparked migration of US miners to low-cost power countries. For cooling crypto mining equipment, the companies leverage the power of wasted flared gas combustion, and hydropower is also in play. This development underscores the Gulf countries' drive to take a leading part in the global trend towards green energy. It's worth mentioning that these mining entrepreneurs also bring the whole ecosystem of blockchain and crypto-related services to the hosting countries, giving a boost to these activities in the region.

24.09.2024

Chapter 7

Digital Payments and Financial Inclusion: The Case of Gulf Countries

Financial inclusion is one of the most popular talking points in today's global society, and this is also true for Gulf countries. The global volume of digital payments is on the rise, with each year more people gaining access to financial services through various devices. This surge is attributed to the proliferation of smartphones, increased internet penetration, and the emergence of fintech solutions. However, around 1.7 billion adults globally still do not have access to a bank account, yet they manage to find out ways to utilize financial services. How? They increasingly rely on non-banking financial solutions brought to life by fintech startups. Nevertheless, there are specific issues within this movement that must be addressed. Financial services are a central part of society, essential for everything from buying food to enjoying culture. Ensuring that everyone has access to and receives the right information about financial services is key to engaging more people in society. To achieve this, more information is needed on how individuals experiencing any form of financial exclusion perceive these issues and their opinions on various solutions. Different forms of exclusion exist in society, with homelessness being one prominent example. The rapid urban growth in Gulf countries has led to a housing crunch, especially for low-skilled workers. Oman stands out for its lower cost of living compared to other Gulf countries, but salary levels are still under pressure there. Nevertheless, the highest number of homeless people (in absolute figures) in the region is in Saudi Arabia - around 150,000 individuals. In Oman, this figure is about 4,000, in the UAE - 2,500, and in Qatar - 10,000. Homelessness is more common in low-income countries, yet it remains a significant issue in Gulf countries. Providing access to financial services, especially in a convenient digital form, is an important milestone to reduce overall homelessness and give homeless individuals the opportunity to improve their standard of living and, ultimately, transition from being homeless. The lack of a permanent address makes it difficult for the homeless to open a bank account and access banking services, including making payments. This underscores the importance of developing digital payments to enhance financial inclusion. However, homelessness is not the sole measure of exclusion. Some individuals have housing but face limitations in other ways, such as lacking access to financial and digital services or living in challenging economic conditions. Digital Inclusion Financial inclusion in the world with digital payments means the reach of digital inclusion. And this is also a case about motivation. Motivation and Technology Use Motivation is linked to the willingness to use digital technologies. Without motivation, technology use will not occur even if access and skills are present. Reasons for lacking motivation may include concerns about security, a perception that digital technologies do not add value, or a feeling of being able to manage well without them. Types of Motivation: • Instrumental motivation: Desiring to use digital technology to achieve a specific goal or task, such as finding information or submitting a job application online. • Social motivation: Wanting to connect with others through digital technology, like social media or online communities. • Hedonic motivation: Seeking enjoyment or entertainment through digital technology, such as playing video games or watching online videos. Evaluating Digital Skills and Tech Usage Digital skills involve how and why different groups use new technology, the impact of professional life on digital capabilities, and demographic differences in skill levels. Besides, having access to digital tools, possessing sufficient knowledge and skills to utilize digital services and products is crucial. The evaluation of usage refers to the actual use of technology, how often it occurs, the purpose, and the advantages and disadvantages for users. Financial Inclusion of Migrants Is in the Focus Financial inclusion concerns the native population and foreigners working in Gulf countries. Around 88% of the UAE's 9.59 million population are expatriates. And only about 60% of migrants have a bank account, compared to 94% of Emiratis. In Qatar migrants make up a staggering 94% of Qatar's 2.73 million population but just 55% of migrants have access to a bank account. Expat workers account for 89% of Oman's population but only 34% of migrants in Oman had a bank account. In Saudi Arabia migrant workers constitute about a third of the population of 37,4 million in 2024. And 72% of Saudi migrants lacked access to bank accounts. The relatively low access to the banking services for migrants led to the burst of the demand for neobanks, for fintech solutions in the sphere of digital payments. As a result, the combined total of outward remittances from the UAE, Qatar, Oman, and Saudi Arabia reached a huge sum, $73.5 billion, last year. The adoption of digital remittance channels, like C3Pay in UAE, has increased, offering a сomfortable way for migrants to send money back home. The UAE makes additional efforts to increase financial inclusion. For example, Emirates Digital Wallet LLC owns and runs klip - the all-in-one digital wallet. As its motto boldly states: “Think outside the bank. A digital wallet for everyone.” Digital Disparity: The Unseen Barrier To develop financial inclusion, it is necessary to drive the development of social media into a one-stop hub not only for interpersonal communication but also for financial services targeted at the people. Information and communication technologies can create not only information and communication benefits but also foster financial inclusion. This is achievable because the more people use the internet, the more they gain access to the global community of people alike, and thus access personal, lifestyle, and job opportunities. However, the key issue is the intuitive and understandable interface of financial services offered on top of classical social media. This is not only a convenient way to interact but also a crucial factor in ensuring that people grasp how these services work. It is important to focus on both access to technology itself, such as whether individuals have computers and/or smartphones at work and at home, and the ability to connect them, primarily through the internet. Personal smart gadgets must also be affordable for most people. Otherwise, we face the problem of digital divide. Don't Exclude Cash Addressing the digital divide is crucial for the future. However, the rapid movement into a cashless society can also have negative ramifications. In the Gulf countries, over 50% of consumers are projected to go fully cashless by the end of 2024. However, official data may not accurately reflect the real use of cash in Gulf countries. Cash is still an important financial tool for the elderly and for those who prefer to hoard cash, despite the lucrative financial opportunities to get investment returns. Moreover, there are still cases where the use of QR codes for payments can incur venue surcharges and payment-processing fees, making cash a more attractive option for some people. Cash is also an important part of the financial system because, in the case of problems with digital payment infrastructure (such as electricity outages or cyberattacks), cash remains an essential backup option for businesses to receive payments for goods and services. CBDC One way to enhance financial and digital inclusion is through Central Bank Digital Currency (CBDC). All Gulf countries are progressing in CBDC development, though at different paces. Among them, the UAE is making significant strides with a digital dirham strategy, involving R3 and G42 for infrastructure and technology. This strategy aims to improve both domestic and cross-border payments, financial inclusion, and targets both retail and wholesale use. Creating Digital Inclusion for All: A Key to Financial Inclusion Promoting digital inclusion for all is key to achieving financial inclusion. This involves ensuring that all individuals, particularly those facing various forms of exclusion, have access to and utilize information and communication technology, including reliable internet access, appropriate digital devices, digital skills education, technical support, and software. Digital financial services can also help reduce bureaucracy and lower costs, contributing to more inclusive and accessible financial systems for people across all social strata and locations. In the Gulf countries, financial inclusion is closely tied to digital inclusion, as banks are highly digitized. To access many banking services, citizens must navigate a digital landscape. In Oman, for example, the digital payment landscape is burgeoning. This is supported by the government's eOman strategy and the National Program for Enhancing Economic Diversification (Tanfeedh). The Central Bank of Oman has introduced the "Mobile Payment Clearing and Switching System" (MpClear), further promoting digital payments. All of these developments, coupled with many cashless stores in Gulf countries, further incentivize participation in the digital world. Moreover, with the rise of digital currencies and blockchain technology, finance is becoming increasingly decentralized and at long last accessible to everyone.

27.09.2024

Chapter 8

The Regulatory Environment of Fintech in the Persian Gulf Countries

The Case of the UAE, Saudi Arabia, Qatar, and Oman When a company or an entrepreneur starts considering initiating fintech activities in Gulf countries, the first step should be to understand the regulatory environment. This primarily involves understanding how to establish a business entity, obtain registration, and navigate the best tax conditions. Additionally, the willingness of local government and non-governmental bodies to support fintech startups in gaining a solid foothold is crucial. Each Gulf country has its unique specifics in this regard. Another important aspect is the swiftly changing regulatory landscape in Gulf countries, making it essential to be regularly updated in laws and regulations issues. UAE The UAE can be considered as the most attractive location for fintech activities in the region. In 2023, it joined the club of the top five hot world spots from the perspective of high net worth individuals seeking the most favorable climate (taken in a broad sense) for their settlement. A huge net inflow of HNWI to the UAE was tracked from India, the UK, and Russia. In most cases, the relocation of such people means bringing a huge amount of their investment capital to the accepting country. One of the hottest spots to apply these financial resources is fintech. The popular Golden Visa program enters its fourth year in 2024. This program allows property buyers with investments of at least 2 million AED to secure a coveted 10-year residency visa. Dubai also offers a 1-year Nomad Visa focused on bringing internet-based working people into the country. All businesses must register for corporate tax in the UAE, regardless of whether they conduct any activities or not. The only exception pertains to natural persons whose annual turnover falls below 1 million AED. Companies with sales up to 3 million AED may be treated as having no taxable income, provided they are registered and approved for this exemption by the Federal Tax Authority. Good news for fintech startups is that small businesses can benefit from tax relief exemptions until 2026. The UAE also offers a Free Zone regulatory regime for startups. However, for a Free Zone company to qualify for a 0% corporate tax (CT) rate, it must meet strict criteria, such as generating qualifying income from relevant activities. Fintech is among the sectors in which startups have a strong chance of being eligible for the 0% CT rate. However, there is a caveat. Fintech startups can only enjoy a 0% tax rate on the "qualifying income portion," while the remaining income will still be taxable at the standard 9% rate. Moreover, if a company opts for the 0% CT route, it cannot revert to the ordinary taxation system, where profits below 375,000 AED are taxed at 0%, and the 9% rate only applies to profits exceeding 375,000 AED. The UAE has relatively lenient capital movement regulations. A person only needs a valid local ID and a mobile app to open a bank account. Fintech startups, specifically neobanks operating within the UAE, can transfer money internationally, provided that the sender successfully completes KYC/AML procedures. Saudi Arabia Three legal paths await Saudi fintech startups: • Limited Liability Company (LLC): Popular but requires a local sponsor holding at least 30%, ideal for shared control but limiting foreign ownership. • Sole Proprietorship: Simplest option, but restricted to Saudi citizens. • Foreign Investment Company (FIC): This option allows 100% foreign ownership but restricts operational activities to specific sectors of the economy and requires conducting business within designated geographical territories. Although there is no statutory minimum capital requirement, in practice, the Ministry of Investment (MISA) often requires LLCs to have a capital of at least 500,000 SAR. Moreover, for some activities, including investment, the minimum threshold is significantly higher. The exact amount depends on the actual breakdown of ownership rights between local and foreign investors in fintech startups. It is essential to note that Saudi Arabia has no personal income tax. However, sales and other transactions are still taxed. The country has a "zakat" tax, which is a 2.5% tax on net worth, including cash, stocks, bonds, and real estate. An Islamic religious levy of 2.5% also applies to some digital businesses that exceed specific thresholds. While not strictly a tax, it is a cost consideration. Saudi Arabia applies CT at a rate of 50% to 85% if a business entity derives its cash stream from oil and gas extracting. However, businesses in the rest of the economy are subject to a standard 20% CT, which may be offset by tax holidays for a list of industries that includes some activities within the fintech realm, such as wealth and investment management services. The list of favorable activities is subject to change every year. Meanwhile, the government has expressed its intention to elaborate a digital tax on financial online transactions, but the preparatory work of the relevant legislation is still underway. Qatar In most cases, there is a need for a Qatari partner/sponsor to set up a fintech business in Qatar. A minimum of two shareholders is required. The Qatari shareholders will own at least 51% of the business entity. The Ministry of Commerce and Industry (MOCI) is a key governmental body for startups to consult regarding business onboarding issues. Now, individuals can establish a business in Qatar without the requirement of a Qatari sponsor. However, the company must demonstrate that it has secured a minimum commitment of 50 million Qatari riyals for financing purposes. With a Qatari partner or just a sponsor, one pays half of the tax. That's why many businessmen prefer the company to be fully Qatari-owned. In this case, the minimum investment is 200,000 Qatari riyals. Some fintech-minded people find their way in Qatar through participation in fintech grant programs arranged by local government bodies or classical banks. In the latter cases, when a bank provides incubation for a fintech startup, the foreign owners can retain 100% ownership rights in their business. Moreover, in some cases, banks can provide a fintech startup with a free office for 1 year. Qatari banks use their legal right to create special and very lucrative circumstances for promising fintech startups. It's strongly recommended to participate in various hackathons and similar events held by local banks to catch such business opportunities. There are a few entities like QBIC (Qatar Business Incubation Center), QSTP (Qatar Science & Technology Park), QFZ (Qatar Free Zones), and QFC (Qatar Financial Centre) (all are government-influenced and/or regulated) that assist fintech startups in adapting to the legal environment. Qatar's fiscal incentives, including a 10% corporate tax rate and a decade-long corporate tax exemption for select innovative enterprises, present an appealing proposition. Oman It's recommended to employ a multifaceted strategy when seeking the way to establish a fintech startup in Oman. Firstly, seek support from government programs designed to foster innovation and entrepreneurship. Networking with peers in similar fields is also crucial, as it opens doors to potential collaborations and provides insights into the local fintech landscape. Engaging with private and public incubators offers not only financial backing but also valuable guidance. Given the limited fintech news coverage in Oman, building connections within the fintech community becomes essential for staying informed and identifying potential collaborators. Being active in this community keeps one well-versed in local developments and key players, increasing the chances of success when establishing a fintech presence in Oman. The base corporate tax rate is 15%. However, fintech businesses may benefit from specific tax incentives and exemptions, depending on their exact activity and location. Moreover, small and medium enterprises (SMEs) with gross turnover not exceeding 100,000 OMR are taxed at a reduced rate of 3%. This last option is very attractive for fintech enterprises to establish themselves in Oman. Religious Tradition as the Foundation For fintech companies venturing into the Gulf region, understanding the legal landscape is crucial. Here, religious tradition forms the bedrock of the regulatory framework, shaping the rules of the game. Recognizing these nuances is key to a smooth and successful operation. Beyond Traditional Finance: Sharia-compliant Solutions While legacy bank loans and securities exist, Gulf fintechs are often receptive to alternative financing frameworks that adhere to Islamic principles (Sharia). For instance, Sukuk, Sharia-compliant financial instruments resembling bonds, offer a credible alternative to conventional interest-based debt financial products. Profit-Sharing Partnerships: Mudharabah The Mudharabah model provides a unique financing option. Here, the financial institution acts as a capital provider, while the fintech startup manages operations. Incomes are then shared according to a predetermined agreement between the financial institution and the entrepreneur. Mutual Support: Takaful (Islamic Insurance) Takaful (Islamic insurance) functions on the foundation of mutual assistance concept. Unlike conventional insurance, it's rooted in the concept of "tabarru'" (donation). Participants contribute to a shared pool, supporting each other financially during economic “rainy days”. This system operates similarly to other pooling agreements. Blockchain and Regulatory Considerations Fintech companies utilizing blockchain technology should be aware of potential restrictions. Regulations in the region may limit solutions perceived as similar to gambling. Beyond Regulations: The Power of Tradition Embracing local traditions fosters the adoption of digital financial services in the Gulf. Traditions hold significant weight, acting as key ideological drivers that shape future legislative changes. Understanding this unique business culture is paramount for fintech success in the region.

30.09.2024

Chapter 9

Cybersecurity and Data Protection: Global Challenge and Gulf Countries

On April 24, U.S. President Joe Biden signed a law aimed at TikTok, requiring its parent company ByteDance to sell its interests or face a U.S. ban within a year. ByteDance opposes this, claiming it infringes on the free speech of 170 million U.S. TikTok users and plans to legally challenge it. This highlights the growing concerns over data protection, potentially straining U.S.-China relations, with the handling of user data by TikTok at the center of the issue. The question remains contentious: is it possible to create a barrier between U.S. users' data and data collected and analyzed at the heart of TikTok in China? Is it practically feasible and meaningful? Is the U.S. government justified in its pursuit to protect American personal data? All these questions are vital for any country in the world dealing with similar issues: data protection and cybersecurity. Gulf countries are also paying considerable attention to this matter. Internet of Finance The Internet has created a sense of convergence in information flows. Social media has become integrated into finance as platforms where people spend significant time sharing personal information. The concept of open banking is rooted in the principle of ubiquitous information flow. The increasing immersion of humanity in the vast information landscape results in extensive data accumulation whenever individuals connect to the Internet. Consequently, the Internet has evolved into the Internet of Money or Internet of Finance, making data protection and cybersecurity critical concerns for investors and financial services users. Data protection practices and cybersecurity risk management are now essential components of any country's business environment, with artificial intelligence (AI) technologies playing a leading role in this realm. AI and Oil For Gulf countries like Qatar, Saudi Arabia, the U.A.E., and Oman, the strategic application of AI to monitor cybersecurity risks is a naturally sustainable practice, given their abundant oil resources. This is due to the significant energy requirements of AI technologies, with the latest generation chips consuming 700 Watts per hour, exceeding the power consumption of a typical 4-person household. Modern neural networks rely on millions of such chips. It is foreseeable that in the next two years, the West may face challenges in meeting the escalating energy demands of AI. While solar, hydro, and wind energy sources are viable options, the rapid advancement of AI technology suggests a resurgence in oil consumption. Gulf countries are poised to play a pivotal role in driving AI innovation. The Escalating Dangers of Cybercrime in the Digital Era In today's digital era, data's expansion serves as both a boon and a bane for individuals. While it streamlines processes and enhances efficiency, it simultaneously opens the door to potential financial jeopardy due to cybercrime. The adeptness of cybercriminals in harnessing the vast pools of digital information to illicitly access personal financial assets marks a grave concern for personal economic security. The surge in economic crime poses a multifaceted threat, leading not only to severe financial repercussions for individuals but also tarnishing the reputations of nations and financial bodies. Particularly at risk is the banking sector, which has seen a pivot from conventional physical thefts to intricate cyber intrusions over the last decade. This shift, propelled by the digital transformation of banking operations, renders digital monetary assets and sensitive data increasingly vulnerable to cyber incursions. The cyber threat landscape is primarily navigated by two adversarial entities: criminal syndicates and government-backed operatives. The former usually aims at financial institutions to pilfer funds, pilfer data, or execute fraudulent schemes. Among their tactics, ransomware is prevalent, effectively holding a bank's operational systems hostage in exchange for payment. Conversely, state-sponsored entities seek data that could furnish a competitive edge to national interests. AI and Cybersecurity Financial entities today grapple with a spectrum of cyber threats, from DDoS attacks and phishing scams to malware viruses. The evolving sophistication of cybercriminal acts necessitate a detailed comprehension of the primary vectors of cyber threats. Such insight is pivotal in formulating robust cybersecurity strategies, thereby safeguarding against the operational and reputational damage wrought by these digital hazards. This makes it more difficult to detect and prevent such crimes using traditional methods. This has created a need for more innovative solutions. By using advanced algorithms, AI can quickly and efficiently identify anomalous behavior, such as suspicious transactions, making it possible to detect these types of crimes. In recent two years, AI is used to address such threats in Gulf banks. Among other things, they have invested large sums of money to develop customer service tools such as chatbots and efficient credit assessment tools. In addition, they have begun to apply AI to strengthen and streamline cybersecurity. By applying AI in cybersecurity work, banks can detect threats faster and more accurately to counteract cyberattacks. Meanwhile, cybercriminals also have access to AI technology. This results in new types of attacks and threats, leading to new challenges for the banking sector of Gulf countries. Gulf banks compete with each other, and by maintaining an effective cybersecurity system, one can help ensure the usability of products and customer confidence. To outpace cybercriminals, local banks are keen to use neural networks. Machine Learning Algorithms The use of Machine Learning (ML) algorithms is a powerful solution for managing the increasing complexity in network traffic and security-related events. These algorithms have the capacity to analyze and understand users' network activities, identify malicious web traffic, and detect unusual behavior that may indicate attacks. Through careful exploration and testing of various ML options, the most suitable architecture for the task and data can be identified, enabling effective learning and the ability to capture relevant patterns and features. In this way, an efficient method can be created to detect network intrusions. Experimentation and development of AI models based on ML are crucial to addressing current threats and maintaining an up-to-date level of protection. Data quality is also a crucial factor for training AI models and benefiting from their analytical capacity. Banks handle large amounts of data of various types, making maintaining high quality a challenge. Furthermore, banks need AI specialists with relevant expertise. Cybersecurity Risk Management and Recommended Measures Gulf banks' cybersecurity risk management is based on five key points: • Confidentiality: prevents unauthorized disclosure of information. • Integrity: prevents unauthorized alteration of information. • Availability: prevents unauthorized withholding of information. • Traceability: activities within a system should be traceable to a user. • Non-repudiation: prevents data sent or received from being denied. The most recommended measures for banks' clients in the region are: • Software Updates: Keeping systems updated minimizes the risk of known vulnerabilities. • Antivirus: To protect against malicious software that can steal login credentials. • Backup: To minimize the risk of losing essential information. • Passwords: Passwords should be complex, changed regularly, and kept confidential to maintain effectiveness. • Education: All individuals in contact with computer systems should be educated in cybersecurity to maintain a good standard. The Legal Framework In data protection, Gulf banks follow the spirit of GDPR - General Data Protection Regulation. On the 25th of May 2018, the GDPR was introduced by the European Union. This legal construction is the world's largest of its kind, impacting not only entrepreneurs within the EU but all financial businesses worldwide that target EU citizens. Since Gulf countries are keen to attract more wealthy investors from the EU, the local regulators created legal frameworks similar to GDPR to a familiar degree. In the U.A.E., the Personal Data Protection Law (PDPL) that came into effect on 2 January 2022 became the milestone in developing the legislation in accordance with new tech development and the pace of digitalization of life. On 7 September 2023, Riyadh formally published the amended local Personal Data Protection Law (PDPL). Saudi business entities have until 14 September 2024 to adjust their practices to become compliant with the PDPL. More Information, More Risks: IoT Devices Move into Focus Gulf banks look ahead. They know they must provide comprehensive data protection and cybersecurity risk mitigation for users. These risks deepen as the Internet of Finance gains access to more personal information of bank users, via social media for example, which has become a strong concern for policymakers worldwide. But technology continues advancing. A new challenge to address is the Internet of Things (IoT). The number of connected IoT devices has risen dramatically. Gulf banks have the right technological and organizational foundations in place to secure their IoT devices. In addition to the technological framework, it's equally important to ensure staff undergo adequate training and stay informed about optimal cybersecurity practices related to IoT systems employed in the financial sphere. Considering the human element is essential because a lack of awareness can create security vulnerabilities that cybercriminals could potentially exploit.

01.10.2024

Chapter 10

Fintech and Banking Sector Development in Gulf Countries: New Frontiers

The environment of higher inflation and higher key rates in the U.S. and eurozone casts a shadow over the banking sector of Gulf countries. Dollar liquidity is tight for an unknown period of time, and the financial sphere of the region must cope with this reality. Increased Liquidity Recent data show that Gulf banks have increased their assets. The Central Bank of the UAE has taken a decisive step, injecting local currency into the financial system. This initiative has led to a remarkable increase of 32.5% in the regulator's assets, elevating them to AED 747.6 billion by the conclusion of winter 2024. As a direct consequence of this liquidity injection, local banks have seized the opportunity to expand their lending activities. This expansion has driven a substantial 12% year-on-year increase in the sector's total gross assets, culminating in a staggering AED 4.2 trillion as of February 2024. Lending growth among banks is outpacing deposits, indicating that the banking sphere relies more on additional liquidity in local currency. A similar situation can be observed in other regional countries. Saudi banks extended their credit loans up to SAR 2.67 trillion in March 2024, demonstrating an 11% year-on-year growth. This uptrend goes in hand with a rise in the assets of the Saudi Arabian Monetary Authority, nearing SAR 1.85 trillion during the same period. Within Saudi Arabia, real estate financing experienced a notable surge of 27% in March 2024, marking the most fascinating performance since the summer of 2023, with figures reaching SAR 275.2 billion. Almost every fourth Saudi Riyal in all loans provided by local banks went into the real estate sector. The balance of Qatari banks also showed significant growth, by 5.6% to QR 1.99 trillion in March 2024, primarily due to new projects in the real estate sphere. In Oman, local banks’ loan operations expanded by 2.7%, up to OMR 30.6 billion at the end of winter 2024. The expanding real estate sector, coupled with the active monetary policy of the local central bank, enabled this outcome, with credit extended to construction firms exceeding the overall growth rate of loans. A significant increase in the assets of central banks in the region indicates a proactive monetary strategy designed to supply liquidity, even amidst the quantitative tightening in the U.S. and eurozone. Nonetheless, these measures must be judiciously controlled to avoid problems such as inflation or asset bubbles. The Banks' Risk of Focusing on the Real Estate Sector Local regulators need to monitor the growth of Gulf bank assets to ensure that lending and investment practices are sustainable, and that banks maintain sufficient capital and liquidity buffers to withstand potential economic shocks. As we can see, the main area of lending operations in Gulf countries is mortgages, as banks heavily invest in the real estate sector. However, problems in the commercial real estate market in the leading world economy, the U.S., can create depressive pressure on this market in Gulf countries. U.S. commercial real estate prices fell 7.5% year-on-year. Commercial real estate values by category since the 2022 peak: Multifamily: almost -27%; Office: about -19%. Commercial real estate loans account for about 30% of total assets for U.S. regional banks. Exchange-traded funds (ETFs) oriented toward the stock of U.S. regional banks showed a negative return, on average -4% year-to-date for the first four months of 2024. In May 2024, the stocks of small regional banks in the U.S. experienced a significant decline in comparison to the stocks of larger banks, marking their lowest point since November 2009. Concerns among investors in the U.S. are growing, as they begin to lose confidence in the performance of local small banks. This is a bad omen since such small institutions play a crucial role in driving fintech innovations at the regional level and in moving toward raising financial inclusion. The downward trend in commercial real estate prices in the U.S. shows a dramatic shift not only in the leading world economy but everywhere. People are working more remotely, transacting more online, and this is putting the demand for offline stores and office premises on a track of resilient decline. Gulf banks have been accustomed to investing in the real estate sector, but they have to swiftly refocus their investments to avoid falling into the same problematic situation as U.S. regional banks. The Diversification of Investments: Fintech, AI and Data-Centers Fintech, artificial intelligence, and data centers are currently in the spotlight for investments. Gulf countries are pursuing strategies to create special investment funds aimed at actively participating in the aforementioned spheres. In 2023, Saudi Arabian startups attracted $2.6 billion, with the majority of this financing (about 55%) coming mostly through domestic investment programs. In 2024, Saudi Arabia's Public Investment Fund is striving to extend their investment facilities aimed at investing in AI-related projects, including those in the finance sphere, with up to $40 billion. The specific interest in AI is connected with the trend toward the development of banking-as-a-service. The Startup Qatar Investment Program, managed by Qatar Development Bank, operates a $100 million investment structure. The program is primed to release up to $500,000 for new startups in the country, and up to $5 million for seasoned entrepreneurs. These investment vehicles aimed at the development of fintech startups underscore the need for special structures to promote digitization. In this case, the Gulf region has chosen its specific path. European fintech startups tend to rely on risk-averse bank loans for funding, while U.S. fintech small businesses leverage financing opportunities provided by risk-seeking venture funds and rely heavily on financing provided via the stock market, with bank loans as only a third option. In contrast, Gulf startups tend to rely on financing provided via local incentive programs and state-sponsored investment vehicles. Indeed, we witness how the state industrial policy in Gulf countries focuses on driving innovations through fintech startups with significant support from central banks, state investment programs, and state-backed funding. Government policies in the region also focus on onboarding foreign talents and capital by creating an attractive business climate through relevant amendments to immigration laws and other regulatory statutes. In this direction, Gulf countries are poised to create more competition for European and U.S. labor and capital markets. Central Banks' Partnership with Fintech In their pursuit to feed the market with liquidity, central banks of the region came to the conclusion of the need for the development of digital financial channels in their economies. In this case, collaboration with fintech has become an important step forward. For example, in April 2024, the National Bank of Oman struck a direct deal with one of the local fintech startups to play a role as a custodian bank for this enterprise. This contract underscores the trend when central banks start playing a more important role in the digitization of financial processes, including the movement into the design and development of central bank digital currencies (CBDCs). This case only shows that in the movement into a more diversified and decentralized world of finance, the role of centralized institutions is important. The central banks are enhancing their potential in driving financial innovations by extending cooperation between themselves. Thus, in May 2024, the central banks of Qatar and Saudi Arabia penned a partnership agreement aimed at deepening the exchange of practical experience in driving digital innovations in the financial sphere. The Fintech Transformation: Disrupting Traditional Banking In the past, brick-and-mortar banks ruled financial lives. From saving to getting loans, they called the shots. Now, fintech is cracking this monopoly. The 2008 world financial crisis, COVID-19, and the 2023 U.S. regional banking drama all fueled a fintech firestorm. These tech-savvy finance companies are on a tear, wielding serious power and changing how we handle our money. These transformative moments have reshaped consumer financial needs, driving individuals to seek alternative solutions beyond the conventional banking realm. The trust in traditional banks also decreased significantly during these key points in recent global financial history. This shift enabled new generations of financial companies to emerge, resulting in increased competition for the legacy banks. The Most Promising Fintech Trends in Years to Come In the coming years, the competition and collaboration between legacy financial institutions and fintech startups in the Middle East will be fostered and guided by regulators in the Gulf countries. The key sphere to watch is the digital payments sector, which will preserve its role as the most prominent part of fintech. Concepts such as embedded finance and open banking, which allow more people and businesses to access this sector, will be in demand. Financial robo-advising is going to strengthen its power despite the ongoing discussion that AI-driven financial advice can be more effective than investment recommendations provided by humans. Automated financial advisors, more often AI-based, differ somewhat from human investment advisors. They offer a personalized and low-cost service. In comparison to human investment advisors, they vary in terms of skills and cannot be influenced by emotions, biases, and specific interests. Meanwhile, human investment specialists can build higher trust with consumers by reducing perceived uncertainty and anxiety and showing empathy for clients. In the years to come, the paramount concern for banks and fintech companies will be the ever-looming danger of data breaches. They will dedicate their efforts towards devising effective strategies to tackle these risks head-on. Although financial technology has made remarkable strides, the undeniable importance of human connection persists. The all-new fintech can bring more comfort in doing business in the investment sphere, but even the high-end advanced AI advisor won't make up for human emotions and interaction. However, it can help make the investment journey more exciting.

05.10.2024

Chapter 11

How to Be Successful in Fintech in the World of AI?

The accelerated development of digitalization has created new needs and demands, with customers expecting access to fintech services and other digital innovations that have emerged in society. Furthermore, the evolution of modern, constantly changing digitalization has made companies increasingly dependent on fintech to sustain their growth. In the banking sector, digitalization has led to the emergence of more fintech companies that provide innovative financial instruments with customer-tailored solutions. The advent of Artificial Intelligence (AI) in human socioeconomic life has many implications actively discussed in various media. One significant implication is that the widespread use of AI makes it increasingly difficult for any business to find and exploit market imperfections. This trend will likely cause the operating margins of all businesses to trend toward zero as opportunities to effectively leverage market asymmetries diminish. The financial sector, including banks, will be among the first industries to confront this new reality of zero returns on their activities. In this context, fintech faces a new challenge: to reinvent the role of financial and investment entrepreneurship in an era dominated by AI. This shift eliminates the need for traditional marketing and marketplaces since the market arbitrage utilized by various businesses will vanish. Financial AI assistants represent a new generation—the AI generation—with AI influencers becoming integral to AI-driven marketing aimed at interacting with these assistants rather than with people. AI's Impact on Finance As individuals increasingly rely on AI assistants for decision-making (including selecting banks for deposits or choosing brokers), marketing must focus on influencing the decisions made by these AI systems. AI-Word of Mouth (AI-WOM) is gaining traction as one of the most powerful tools for promoting fintech products and services. The AI transformation challenges not only the jobs of millions but also the role of fiat money, whose primary function has been to facilitate communication between the job market and the market for goods and services. As a result, humanity stands on the brink of achieving perfect markets, leading to a strong demand for innovative ideas on reinventing the payments sphere. To succeed in fintech requires a deep understanding of this evolving landscape. We must recognize that AI does not merely solve problems; it also creates new ones. Fintech is at the forefront of transforming the payments sector through the invention of new value systems on the blockchain. The rise of reputation, authenticity, recognition, and popularity tokens will become widespread. These new tokens will reflect shifts in values driven by AI development and will support the increasing role of smart contracts, which will automate all processes that can be automated. The new fintech vision must acknowledge that services enabling the automation of various banking processes will be in high demand over the next three years, prior to the arrival of Artificial General Intelligence (AGI). AGI will be capable of performing any intellectual task that a human can do, completing the automation of banking tasks. Following this, within two years, Artificial Superintelligence (ASI) is likely to become a reality, surpassing human intellect in every domain, including tasks that may not yet exist. The Gulf's Opportunity in the AI-Driven Fintech Landscape For Gulf countries, there is a historic opportunity to emerge as leaders in this new world. AI and energy are intrinsically linked. Elon Musk's team invested $3 billion in a data center to train xAI's Grok. However, further investments on the world level will be necessary. On September 19th, Microsoft, BlackRock, and the UAE announced the formation of GAIIP – the Global Artificial Intelligence Infrastructure Investment Partnership. This partnership aims to invest $100 billion in data centers and power infrastructure primarily within the United States, with some funds allocated for data center construction in U.S. partner countries. Gulf countries can choose their role in this digital movement into the AI world by leveraging their robust fintech sector and vast energy resources. While they depend on semiconductor supplies from China and the West, local fintech companies demonstrate potential as serious competitors to their peers in China, the U.S., and Europe. The establishment of the Artificial Intelligence and Advanced Technology Council (AIATC) in January under the initiative of UAE President Sheikh Mohamed bin Zayed Al Nahyan indicates Abu Dhabi's intention to play an active role in the burgeoning AI landscape. The AIATC is set to serve as a coordination center for all efforts in this direction, including developing local fintech startups. The key motto for any new fintech startup must be its ability to solve not only existing issues in finance more effectively but also to anticipate future problems and be technically prepared to address them efficiently. This perspective centers on the client. The development of financial AI assistants is a leading approach to achieving this goal since these assistants (or AI robots) possess an inherent capability for continuous self-improvement. From an operational standpoint, AI enables fintech to automate startup activities, creating an environment where production costs for goods and services are reduced. Ultimately, it significantly enhances data gathering and processing efficiency, including big data analytics. The same benefits apply to banks if they adopt this approach. For AI assistants' learning, access to human experience is crucial. Therefore, Human-in-the-Loop Reinforcement Learning (HITLRL), combined with data gathered from Internet of Things (IoT) sensors, is expected to become a mainstream approach for fintech startups over the next three years. HITLRL is projected to deliver an average operating margin of 90%, surpassing any other fintech activity in the software creation sector. Successful fintech startups are expanding their teams by hiring AI Strategists and AI Data Integrity Facilitators. Their immediate task is to upgrade the Massive Multitask Language Understanding (MMLU) framework to effectively evaluate large language models (LLMs) in their output related to financial and investment decisions. Comprehensive Digital Literacy (CDL) is an essential skill for success in the financial sector today. It requires a 360-degree digital approach where the fintech startup team demonstrates genuine empathy for clients' pain points and is ready to collaborate on a journey to fulfill their dreams. CDL also encompasses technical knowledge and cognitive flexibility. First principles thinking, which involves deconstructing complex problems into their most fundamental elements, is particularly valuable in fintech management. The modern fintech environment is constantly evolving. Various startups take different paths, but the future is becoming increasingly clear. Each day brings us closer to a point where fintech startup founders will be ready to delegate entire operating processes to AI. The rising influence of AI is not coincidental. Consider the macroeconomic landscape of the U.S. The Federal Reserve announced its sixth policy decision for 2024 on September 18th, reducing the benchmark interest rate by 50 basis points (bps). In the last 35 years, there have only been four instances where the regulator implemented such a drastic rate reduction of 50 bps or more, all occurring during looming or ongoing recessions. Decoding Fintech 4.0: Navigating the AI Frontier Effectively, from September 19th, 2024, the fourth phase of fintech evolution — the AI-driven phase of Fintech 4.0 — commenced. This isn't just an incremental change; it's a fundamental shift, comparable to the impact of the internet or the smartphone. AI is slated to reformulate communications with money and financial instruments, from the rise of AI-powered assistants to the emergence of decentralized autonomous organizations (DAOs) managing finances. Why? The U.S. and a significant part of the global economy must reinvent themselves. Rising debt levels, budget deficits, and a negative balance of external trade have created complex problems that humanity cannot solve by continuing on the same technological path. AI, as a catalyst for many innovations (including blockchain, smart contracts, IoT, etc), provides a way forward and will lead many aspects of human endeavor in the future, including the development of AI-driven monetary policy in response to an almost ineffective classical monetary approach with unpredictable and unstable results. The initial reaction of financial markets to the Fed's September decision was a downward movement in the S&P 500, Nasdaq Composite, and Dow Jones indexes. Interest rates were lowered; however, yields on many bonds did not decrease. This serves as one of many signals that the Fed may have begun to lose its influence on financial markets. This is not an end but rather a doorway to a new world where fintech strategists will have more time to invent new innovative solutions. What will be the next big thing after AI? By practicing strategic thinking and combining deep experience in classical banking with engagement in effective AI-driven fintech solutions, it becomes easier to look beyond the horizon and anticipate what tomorrow may bring.

07.10.2024

Chapter 12

The Persian Gulf Economies Watch as Saudi Bets on FinTech

The Persian Gulf countries are witnessing Saudi Arabia's strategic shift away from its traditional oil-based economy towards a new focus on financial technology (FinTech). In the last quarter of 2023, its economic growth rate was 1.5%, a deceleration from the preceding quarter. The expansion was primarily fueled by the non-oil sector, which saw a 2.6% jump, in contrast to the oil sector that experienced a decline of 2.1% due to reduced production. Overall GDP growth for Saudi Arabia in 2023 was approximately 2.3%, a slight increase from the 2.1% seen in 2022. Factors contributing to this growth include increased government expenditures and investments, as well as a resurgence in the nation's non-oil industries. Saudi Vision 2030 This strategic shift to FinTech is a central pillar of Saudi Arabia's Vision 2030 initiative. The Kingdom aims to leverage FinTech as a vehicle for economic diversification and to enhance financial inclusion, with a target of extending financial services to 80% of adults by the end of the decade. A noteworthy player in this burgeoning sector is AlJazira Bank, one of the emerging neobanks. Meanwhile, peer-to-peer (P2P) lending is gaining momentum, with the Saudi Arabian Monetary Authority (SAMA) projecting the P2P lending market to reach a valuation of $1.2 billion this year. The International Monetary Fund (IMF) anticipates moderate growth for Saudi Arabia over the medium term, primarily driven by the non-oil sector. Despite the potential for reduced GDP growth during the transition, Riyadh remains committed to transforming its economy. This commitment is evident in the growing contribution of the digital economy to the Kingdom's GDP, now accounting for 15%. In its 2023 Global Competitiveness Report, the World Economic Forum (WEF) ranked Saudi Arabia 17th out of 64 countries in global competitiveness, underscoring the nation's significant progress. Digital Infrastructure Fuels Saudi Arabia's FinTech Push Central to this economic transformation is the advancement of digital infrastructure. The Saudi government is actively engaged in projects to expand fiber optic networks, underwriting up to 40% of the costs from state funds. These efforts have significantly enhanced network speed and connectivity, allowing over 3.5 million households to access optical fiber broadband services—more than a twofold increase from five years earlier. The reimagined economic framework of the Kingdom also encompasses the creation of Smart Cities, which are fundamentally dependent on cutting-edge FinTech solutions such as artificial intelligence (AI), biometrics, blockchain, and more. In alignment with Vision 2030, the work is underway to roll out and evolve 5 use cases of 5G/Internet of Things (IoT) technologies at Khobar Corniche, in collaboration with the Sharqia Development Authority (SDA), the Eastern Region Municipality, and STC Solutions. These projects aim to generate investment opportunities, drive the demand for modern tech use cases in Smart Cities, and promote the adoption of 5G networks and IoT technologies. The government is progressing the "Stimulating Growth of Smart Home Market'' program by implementing 14 initiatives designed to model smart home technology. These initiatives will include the integration of AI assistants within smart homes to empower residents with enhanced financial decision-making capabilities in their daily lives. Additionally, the digitization of state services is ongoing, with 335 government services already available on the Absher platform. This trend of digitization is prevalent not just in government technology (Govtech) but also in the financial sector. This trend extends to the financial sector, with mobile banking users expected to reach 22.7 million this year, representing over 60% of the population (37.4 million as of January, 2024). Major banks (including Samba Bank, Al Rajhi Bank, and Riyad Bank) offer mobile apps, while digital wallets like Saudi Pay and STC Pay boast millions of users. Funding, Grants, and Incubators: Saudi Arabia's Multifaceted Support for FinTech On the government's part, substantial efforts towards FinTech development are underway. The Ministry of Communications and Information Technology (MCIT) operates the Center of Digital Entrepreneurship (CODE), which hosts Tech Champions, manages accelerator and incubator programs, and collaborates with other ministerial bodies and private entities. CODE also organizes the Blockchain Challenge, fostering innovation in blockchain applications across smart contracts, supply chains, and the creative industries. To bolster the FinTech ecosystem, the Saudi Capital Market Authority (CMA) introduced the Financial Technology Experimental Permit (FinTech ExPermit). As of early 2024, the Kingdom has granted licenses to 13 FinTech companies, with an additional 15 enterprises participating in the FinTech Lab established in 2018. Beyond CODE and FinTech ExPermit, the government's "Tech Pioneers" program prioritizes FinTech development too. Targeting FinTech entrepreneurs, the "Tech Pioneers" program provides crucial tools and support, covering technological, administrative, and financial issues. Launched to fuel FinTech innovation, it empowers entrepreneurs and local companies, aiming to establish the Kingdom as a tech hub and achieve Vision 2030 goals. The program's second batch saw 10 winning projects, with the top three receiving 60,000 SAR each. Additionally, 12 new projects evaluated by Riyadh Techstars Accelerator were showcased. The Saudi government is intent on fostering the integration of small and medium-sized enterprises (SMEs) into the dynamic FinTech ecosystem. This led to the inauguration of the National Technology Development Program (NTDP), backed by a substantial $660 million budget, designed to stimulate the growth of startups and SMEs, attract investments, forge strategic partnerships, and draw in global talent and research and development into the Kingdom. The NTDP encompasses various initiatives, including an SME loan guarantee scheme to bolster the confidence between tech companies and financial institutions, as well as other measures to improve access to finance, enabling local tech firms to scale their operations. In its quest for international collaboration, the NTDP aims to attract foreign investment and enterprises to Saudi Arabia. The Kingdom's sovereign wealth fund, the Public Investment Fund (PIF), announced a partnership in 2023 with China’s eWTP Capital to create the Saudi Chinese eWTP Arabia Capital Fund. With a capital of $400 million, the fund's mission is to support technological startups within Saudi Arabia. Private FinTech Startups See Investment Surge A significant turning point in the development of Saudi Arabia's FinTech landscape occurred in the fourth quarter of 2022, when venture capital investments in Saudi FinTech startups surged to $987 million. This figure not only doubled the total investments made in 2020, 2021, and the first three quarters of 2022 combined but also established a record for FinTech funding by venture capitalists within the Persian Gulf region, surpassing Bahrain, Iran, Iraq, Kuwait, Oman, Qatar, and the United Arab Emirates. The PIF plays a pivotal role in funding private FinTech initiatives too. In December 2023, Sanabil Investments, a PIF subsidiary, along with SNB Capital, led a Series C funding round for Tamara, a "buy now, pay later" (BNPL) platform. Tamara garnered $340 million in investments, propelling it to unicorn status with a valuation of $1 billion. As Saudi Arabia's first homegrown unicorn, Tamara boasts over 10 million users across Saudi Arabia, the UAE, and Kuwait, offering various innovative financial services. Another FinTech startup, Soum, established in 2021, at the end of 2023 secured $18 million in a series A funding round aimed at integrating advanced financial technologies into its marketplace. Soum is poised to expand its services beyond Saudi Arabia, with the United Arab Emirates as its first target for regional growth. The Case of Saudi Arabia for other Persian Gulf Countries For decades, Persian Gulf nations have relied on oil and gas exports as their economic lifeblood. However, Saudi Arabia's recent pivot towards FinTech investments, seeking a more balanced and innovative economy, is attracting keen attention from its neighbors. This shift is further fueled by external pressures: • Security challenges: Heightened security concerns in the Red Sea logistics threaten traditional oil and gas export routes, pushing for diversification. • The Green Agenda: Western energy importers' active promotion of sustainability compels exporting nations to rethink their economic policies. On January 30th, 2024, a significant decision was made: Saudi Aramco, the world's largest oil company, abandoned plans to raise its oil output capacity to 13 million barrels per day (mb/d) by 2027. This clearly indicates a strategic shift in the oil strategy of the whole country. One can expect increased investments in FinTech from various Saudi companies including Saudi Aramco. Notably, in June 2020, through its Saudi Aramco Entrepreneurship Ventures arm, Aramco poured $25 million in Wahed, an Islamic FinTech startup offering an online investment platform. This project also received funding from UAE's BECO Capital in 2020, and in 2023 Wahed expanded its services to the UAE. These developments signal a clear intention: Saudi Arabia is shifting gears, moving away from oil dependence and embracing FinTech innovation as a key driver of future economic growth and prosperity. This focus sets an example for other Gulf countries to follow, demonstrating that diversification and embracing new financial technologies are crucial for sustainable development in the 21st century.

09.10.2024

Chapter 13

UAE Fintech: Innovations in Finance and Beyond

The United Arab Emirates (UAE) is a country on the Arabian Peninsula along the southern coast of the Persian Gulf, consisting of seven emirates. The emirates of Dubai and Abu Dhabi each have their free trade zones, fueling fintech dynamism through specialized regulations and oversight. The Dubai Financial Services Authority (DFSA) regulates financial activities in the Dubai International Financial Centre (DIFC), while the Financial Services Regulatory Authority (FSRA) oversees financial activities in the Abu Dhabi market. Staying updated on fintech legal decisions is crucial. For this purpose, it is advisable to regularly check the media announcements published on the ADGM website and the news section of the DFSA site. In the RegTech sector, Meerana is a notable startup that offers an Artificial Intelligence (AI)-driven legal application, dubbed Hi Legal, to its clients. Instant Payments Unlock of E-commerce Huge Potential In the fall of 2023, Aani Instant Payments (IP) was launched by the Central bank of UAE (CBUAE) and run by AI Etihad Payments, the regulator’s arm. Aani becomes a bedrock for new innovative ideas. In July this year Mashreq bank started offering application programming interface (API) based IP solution to its clients in the business sphere, integrated with Aani. At the start of this program the high limit of payments was set at AED 50,000. Another case. Foloosi develops software and APIs aimed to facilitate the management of transactions (including payments) for the business with any scale of its operating activities. Instant payments are a key to the development of e-commerce in the B2B as well as in B2C segment. The intention of CBUAE to go forward on the path of introducing digital dirham is also a promising sign in this direction. With the situation when almost all adults in the country have access to the Internet, the digital transformation of the financial sphere has a bright future. Moreover, currently 95 out of every 100 adults in UAE have smartphones so they can load banking and fintech applications. Fintech companies are enhancing the e-commerce experience, making it an exciting journey for consumers. One example is Designhubz, a software-as-a-service system that integrates 3D and augmented reality innovations to bring customer’s experience with online shopping to a new level. APIs Development and Its Importance In today's digitalized society, application programming interfaces (APIs) play a central role in how systems and applications communicate and integrate with each other. APIs function as messengers, enabling data exchange and functionality in an efficient and well defined manner, facilitating the deployment of complex systems. To enable this data exchange, integration engines act as intermediaries, serving as a platform that links different systems together. Information transfer between systems that use different programming languages, operating systems, and data formats requires some form of bridging, which is achieved through integration engines. Information exchange can also occur between different companies and between different machines. Communication between various devices and machines without human intervention, known as Machine-to-Machine (M2M), enables the automation of processes across different industries. Thus, APIs galvanize the development of the whole economy since they operate not only in the banking sector but also play an important role in extracting the highest value from the information and communication in industries such as insurance, logistics, and others. Fintech Companies in the UAE: A Great Track of Success There is a boom in fintech activities in the UAE. They work with technologies such as big data, biometrics, cloud computing, AI, robotics, 3D printing, IoT, Web 3.0, blockchain, shared economy, and digital worlds. In the digital age, information is a key element. The fintech business understands the value of data, making it natural for more platforms to offer troves of market information. The Yalla Compare application is one of them in the UAE. Since 2011 (before 2014, it was known as “Compare It 4 Me”), it has provided comparison services in the region, helping users find and compare financial products (insurance, bank deposits, credits, etc.) from various local and international banks and financial institutions. Data is also important for financial market players, and the Lune Technologies startup offers an AI-driven analytics system. Investment and Payments Sphere Investment sphere attracts many fintech initiatives in the UAE. Baraka, the service founded in 2021, provides access to the market of more than 6,000 U.S. stocks and exchange-traded funds (ETFs). Fintech fills the gap in UAE when one speaks about financing. For example, Beehive is a peer-to-peer (P2P) lending platform providing financing to small and medium-sized enterprises (SMEs). SHUAA Capital is a platform for asset management and investment banking activities. In the first quarter of this year, it made an impressive operating income of 5 million AED versus the loss of minus 14 million AED reported for the first three months of the previous year. In this sphere, one can mention the Xare startup that promotes the shared economy approach in the financial sphere, in the credit and debit cards sector in particular. Another interesting case is Appro, a banking onboarding platform that streamlines the client onboarding process by enabling instant approvals and processing without the need for documentation or manual intervention. Through its provision of an AI-powered digital financing system to SMEs situated in the UAE, eFunder has facilitated their growth, and some of their clients managed to double their turnover on the horizon in half a year. Fintech: Beyond Finance The impact of fintech startups in the UAE extends beyond the financial sector, significantly influencing various industries, including health and insurance. HealthTech Innovations In the realm of HealthTech, several startups are making notable advancements. P4ML is boosting care delivery for patients with rare diseases through its analytical capabilities. Another player, Predictiv, offers an AI-driven system that creates tailored digital twins for predictive and preventive healthcare. Additionally, Udenz leverages AI for dental diagnostics and practice management, while Doctoori Connect empowers individuals to take control of their health through its comprehensive healthcare system. Intersection of HealthTech and InsurTech At the intersection of HealthTech and InsurTech, Wellx stands out as a prevention-focused digital health insurance startup, promoting proactive health management. Meanwhile, Aura startup enhances the customer experience by opening up opportunities for companies to offer contextually personalized insurance packages at checkout. Financing the Health Sector The health industry, like any other sector, requires robust financing solutions. For the last six years, Klaim has helped healthcare providers effectively address the challenge of finding working capital. Real Estate and Fintech In the real estate sector, Baytukum is a crowdfunding system that enables people to co-own properties with investments starting as low as AED 5,000. Meanwhile, Keyper simplifies the rental experience in Dubai by enabling tenants to make hassle-free monthly rent payments while simultaneously offering landlords the benefit of upfront payment, thereby optimizing the overall rental process. ESG Agenda in Fintech In the area of environmental, social, and governance (ESG) initiatives, The Waste Lab is a startup focused on diverting food waste from landfills through innovative, nature-based repurposing solutions. Rebound offers a global trading framework that allows buyers and sellers to trade recycled plastic in a comfortable way. Additionally, ACX provides an exchange platform designed for the modernized transaction of environmental assets. Ecology Fintech startups in the UAE are making a profound impact on ecological sustainability. Just three cases. Aya leverages the power of Web3 technology and crowdfunding platforms to make a valuable footprint in the sphere of climate finance by connecting investors directly with climate-related projects. Circa Biotech is pioneering sustainable aviation fuel by transforming food waste into clean energy through industrial insect farming. Their innovative approach addresses two urgent global challenges: food waste and climate change. HeroGo is disrupting the grocery industry with a subscription model that cuts food waste and consumer expenses. By optimizing food supply chains, HeroGo is making a tangible impact on both environmental sustainability and consumer affordability. The UAE is more than just a fintech hub; it's a hotbed for innovation. The country's fintech ecosystem is driving positive change through a range of business initiatives that reshape classical industries and infuse innovation into various sectors. These companies are not just focused on profits but are engineering a more sustainable future.

20.10.2024

Chapter 14

Saudi Arabia’s Fintech Challenge Plays a Crucial Role in Resolving Tensions Between Israel and Iran

The tensions between Israel and Iran are a long-standing issue, and the world is eager to find peaceful solutions to this challenging situation. A hub of strategic importance, the Gulf region comprises major nations wielding considerable military strength and political authority. The overwhelming reliance on oil in Gulf economies is a given, but this represents merely a single facet of a multifaceted landscape. Saudi Arabia asserts its preeminence in oil production, reliably holding a position among the world's top three producers, in company with the United States and Russia. This stature serves to reinforce Saudi Arabia's pivotal function in guiding the trajectory of energy markets and shaping the course of global economic currents. Its exports have accounted for approximately 90% of its revenue from oil sales for years, making its budget highly sensitive to fluctuations in export revenues. When oil prices drop, the budget deficit begins to escalate. Money Flows More into Banks than into Energy Companies Simultaneously, consider the stock market. In the third quarter of 2024, trading in shares of local banks dominated the entire stock market. Each seventh Saudi Riyal (SAR) invested in this market was allocated to banking stocks, compared to less than one-tenth of SAR invested in energy-related company stocks. There is a growing belief among investors that Saudi Arabia's banking sector holds significant potential to drive economic diversification and resilience. This sentiment is reflected in increased interest and investment in the sector. Meanwhile, the Kingdom faced challenges in the oil market during the latter part of 2024. Declining oil prices and geopolitical conundrum in the Gulf region made it difficult for Saudi Arabia, as a leading OPEC producer, to coordinate production levels with other member states. The attacks by Yemeni Houthi rebels on various oil tankers in the Red Sea, along with rising tensions between Iran and Israel, present also challenges for U.S. decision-making amid political pressures from Democrats seeking to counter Republican-backed Donald Trump. Additionally, two years of negative GDP dynamics in Germany — Europe’s largest economy — combined with a struggling real estate sector in China and an overall steep deceleration of Chinese GDP growth create an extremely uncertain outlook for the oil market. In this case, it is very reasonable that investors in Saudi Arabia intensively look at the financial sector. Saudi Arabia Moves Along the Same Way as BRICS+ Does Saudi Arabia has recently taken several significant steps in its economic and foreign policy. The dissolution of the dollar swap arrangement with the US by Saudi Arabia hints at an emerging trend of currency diversification in global trade. In recent years, the Saudi monetary authority has been methodically expanding its gold reserves, with an average increase of 5 tons each month. Despite an offer to join the BRICS+ alliance in 2023, Saudi Arabia remains in deliberation about its economic alignments as of 2024. Saudi Arabia’s steps show very interesting developments. This country has been, for decades, a cornerstone of the world petrodollar system, but these recent steps could weaken this system. The rapid financial progress of Saudi Arabia is obvious. Its own payments network, also known as Mada, enables the use of cards from various issuers in one system. It comprises Point of Sale (PoS) terminals and bank cash machines in one system. BRICS+ is developing its own BRICS Pay system from scratch, but Mada is a ready solution that has the potential to be scaled up on the global scene. Mada was initiated by the local Ministry of Finance and received support from the Saudi central banking regulatory body. But we also see brilliant payment solutions from Saudi-based fintech companies such as Geidea. Geidea combined all various payment methods into one application. We all know how developed bank applications are, but we also see a rise in fintech solutions for vendors, where banks from one side and fintech companies from the other bring together businesses and customers. The Digitalization of Fiat Money This story inevitably leads to the issue of the digitalization of fiat money. In October 2024, Saudi Arabia enthusiastically agreed to start testing the use of the digital yuan (e-CNY). This is truly a "fintech step" in the realm of external trade. Earlier, Saudi Arabia started using the yuan, but the digital yuan is another story. It’s about how a key oil producer in the world starts relying not just on banking infrastructure but on the opportunities of blockchain. It has shown that while ordinary currency transactions can take 2-7 days to fulfill, with the digital yuan, it usually takes only one day. The shortening of financial transaction times is not just about hours and days, but about money saved. The use of the digital yuan in external trade has only bolstered Saudi Arabia's strategic decision to leverage the power of digital finance. The local fintech landscape is now in the spotlight for regulators and institutional investors alike. In fact, local fintech offers the same innovative solutions in the payments sphere as the People’s Bank of China does with its digital yuan. This means that the Saudi economy can receive an enormous boost from the implementation of blockchain and artificial intelligence (AI), which will offset any oil price volatility. For the region, this development is very promising. In fact, the fintech challenge is leading to the inevitable transformation of all economies in the Middle East, and it is bringing changes in politics too. Any fintech startup in the region, by its very existence, declares one important truth: there is a need for a peaceful environment in the Middle East and the concerted efforts of regulators and investors from several countries to effectively leverage highly transformative innovations such as blockchain and AI. Any severe discrepancies in the oil market in this region become a headache for all countries in the Middle East as they try to fix them. All these countries need investments and energy to onboard critically important innovations. In this case, one of the most powerful players becomes Saudi banking sector, which have a proven record of fostering fintech. Peace in the region stipulates a robust oil supply and, at the same time, unleashes a flood of investments aimed at connecting burgeoning AI data centers with energy power. AI and blockchain also unlock the potential of alternative payment networks. Fintech Stays in Focus In this regard, it is important to underscore the ubiquitous nature of new fintech solutions. Just look at the Dubai-based but decentralized credit rating system, Synnax. It receives support from TON Ventures and operates as an app for the Telegram messenger. Its goal is to reach almost 1 billion Telegram users, and this startup is also targeting the Saudi Arabian market. While French authorities try to “tame” Telegram and investigate Pavel Durov, the founder of Telegram, the platform has already become fertile ground for new digital solutions. This truly shows how the Internet is evolving into the Internet of Digital Finance with wide outreach. It’s worth mentioning that AI and blockchain in Saudi Arabia go hand in hand with the development of autonomous systems, not only in the financial sphere. The rise of autonomous systems means unlocking the true potential of AI and blockchain, and, of course, fintech startups play a pivotal role in galvanizing this process. For example, in 2024, the Saudi-based fintech startup Channels had an outreach to more than 400 self-service machines. Fintech goes along the entire value chain. For instance, the Saudi-based startup Yamm deals with processes that occur after payments. In one place, Yamm helps businesses and their customers resolve issues related to paperwork and logistics, bringing these processes into the digital realm. Banks and Fintech in Saudi Arabia Look in the Same Direction A deep look into Saudi Arabia's banking and fintech landscape has proven the thesis that both sides are moving in the same direction, and big banks need to heed the steps of smaller fintech startups. The digitization of the financial sphere is key to making the entire economy more effective, not only in Saudi Arabia but in all countries in the region. It is also important to stress that digitalization allows us to deeply understand customers — not only their rational motives but their emotional ones. The successful digitalization of finance through collaboration between banks and fintech actualizes the value of customers’ emotions. We are increasingly dealing with the Emotional Economy as the Internet of Digital Finance leads us to the Internet of Emotions. In this regard, Saudi Arabia's success in implementing blockchain and AI through fintech solutions is crucial. It demonstrates to Iran and Israel a potential path towards resolving their long-standing conflict, driven by the economic imperative that this conflict must be resolved swiftly. Smart contracts, as a new symbol of smart decisions, create a trend toward more nuanced, effective, emotionally correct, and strategic decisions — not only in the economy but in politics as well. It will become more evident in the near future that the Middle East will find a strategic peaceful balance among countries with various interests, further expanding the achievements of AI and blockchain.

27.10.2024

Chapter 15

Sustaining Innovation: Oman's Approach to Fintech, Banking and Power Supply

In recent years, Oman has made a significant leap forward in its movement to adopt innovations. From the regulatory side, in February 2023, the Personal Data Protection Law became effective, aiming to establish a legal framework for fintech startups on how to handle data. From this point forward, companies must onboard a person on their staff who will be responsible for data protection and handle necessary communications with Omani regulatory bodies. Breaking this law can result in a fine of up to $1.3 million. Regulatory Framework Overhaul The Personal Data Protection Law enhances the power of the Electronic Transactions Law, which underwent an overhaul in 2021 to increase the effectiveness of protecting digital banking operations. More changes are to come. Four years after the Central Bank of Oman (CBO) introduced the Cyber Security Framework for local banks, the regulator streamlined its approach to cybersecurity this year. This move aligns with modern changes in the digitization of the financial sphere and strengthens its capability to be receptive to complaints from participants 24/7. The CBO is undertaking this initiative in conjunction with the Information Technology Authority (ITA), a special body established by the Omani government to raise awareness about cybersecurity issues among participants in the financial sphere and regulate the Information and Communication Technology sector. All regulations will appear in the near future on the National Data Governance Framework, which will serve as a one-stop source for all such information. The 2024 annual report of the Ministry of Transport, Communications, and Information Technology provides evidence that digitization is highly welcomed at the highest level. In 2024, the Ministry completed the first stage of deploying a National Open Data Platform. Officials reached the fourth stage in developing Manjam Labs, a project aimed at simplifying access to government services. The Ministry is rapidly moving toward launching an online digital hub for all state electronic services. Financial Transactions One of the key areas for future fintech development is financial transactions. In the second half of 2023, the number of transactions signed electronically in Oman rose by 12%, and the number of transactions processed via the digital identification procedure jumped by 25% in annual terms. Digital transactions are on the rise in Oman, mostly due to the local National Electronic Payment System (NEPS). Almost 90 out of 100 people working in Oman are foreigners, and they need comfortable means to provide their families in their homeland with a financial lifeline. The volume of outbound money flows from this social group is about $500 million each month, and only a third of them have an account in local banks. The gap is being filled by various fintech startups not only from Oman but also from other Gulf countries. This year, Qatari Ooredoo Fintech, with more than 156 million subscribers, is going to extend its activities to Oman with a chat-like wallet app aimed at handling all hassles with payments and money transfers in more than 200 countries worldwide. Meanwhile, CBO is also making efforts in this area. In June 2024, CBO joined the real-time AFAQ Payments System after the central banks of the UAE, Saudi Arabia, Bahrain, and Kuwait took the same step. This system allows transactions in the Gulf region using the currencies of the regional countries. Bank Muscat, Oman's largest bank, and BankDhofar are among the first Omani banks to start actively using the capabilities of this system. With these banks, the total entities operating within the framework of the AFAQ Payments System will rise to 67, and this figure is slated to increase further. Finance and Banking for Fintech The understanding of fintech's important role as a linchpin for further development of the financial sphere is visible in the Omani banking sector. Banks are adopting new financial innovations with eagerness. Moreover, Bank Muscat allocated $390 million to a special investment vehicle to support the introduction of fintech throughout the Omani banking sector. Competition among Omani banks is intense. Sohar International significantly expanded the possibilities of its banking app in 2023-2024. Users now have access to services beyond the financial market, such as booking hotels, airline tickets, and purchasing gift vouchers. This year, Sohar International's high progress in implementing fintech in its customer interactions was highly appreciated when the bank won the award for the best mobile banking application in the country. This award was given by World Business Outlook Annual Awards, and the ceremony was held in Singapore. Last year, The Global Economics (UK) underscored Sohar International's outstanding development on its path to becoming a digital bank. The bank is eager to prove this status and this year streamlined its digital voice communications with clients. BankDhofar is another bank that has heavily invested in its efforts to become a digital bank. Its Entertainer Mobile Application is also a hub for various services that can be easily booked and paid for digitally. BankDhofar has also introduced a women-exclusive credit card in Oman, offering tailored perks and benefits. Customers can earn rewards on both local and international purchases. In June 2024, Oman Arab Bank (OAB) launched Direct Debit, a new automated payment service. Customers can set up direct debits via the OAB mobile app or internet banking, avoiding branch visits and manual payment management. The service processes payments automatically from authorized accounts on scheduled dates, replacing the need for checks. OAB's commitment to innovation includes 24/7 access to banking solutions through digital channels. The case of the Zumr fintech startup is also symbolic. Zumr operates in the field of Rotating Savings and Credit Associations (ROSCAs). The development of this startup was fostered through participation in the accelerator program run by the CBO with assistance from Omantel. In April 2024, Zumr reached another milestone when it partnered with the National Bank of Oman (NBO) to provide custodial services. Meanwhile, NBO runs its own accelerator program for fintech startups. One of the regular features of this program is the Fintech Accelerator Hackathon. The last one was scheduled for August 30 to September 1, 2024, at the NBO headquarters. Fintech and Energy in the Focus Oman's trajectory of economic development shows how it's possible and reasonable to combine the strategy to secure energy exploration and propel fintech. So, on one side, we see how, in accordance with Oman Vision 2040, in May, a number of Omani companies, including the leading telecommunications company Omantel, Iqaa Group, Oman Data Park, and energy giant OQ, struck partnership deals worth a little less than $100 million with prominent tech companies such as Amazon, Microsoft, and Google. These negotiations touched a vast landscape of innovations, including artificial intelligence (AI), cloud tech, and the issue of data center development. In August 2024, Omantel announced it was close to opening a new data center in Salalah. This data center will also offer its services to prominent US tech companies. Oman also became one of the key countries in the region hosting Bitcoin mining facilities. Last year, Exahertz, a Muscat-based startup, and Oman's Authority for Public Services Regulations announced a joint investment initiative to bring in about $1.1 billion to develop Bitcoin mining activities in the country. From the other side, the development of data centers and crypto mining activities in Oman demands more energy. This stipulates that Oman has to invest in the core of its economy, energy-related activities, to fulfill its goal of being more innovative. In the coming three years, the rise in demand for energy will exceed 1,600 MW. For example, the new cloud data center (an initiative of United Projects Achievements), Exahertz crypto mining activities in Sohar Freezone, and the Green Data City crypto-mining project in Salalah would account for 400 MW of the forecasted rise in power demand. Oman is making a significant effort to boost investment into the energy sector since it is equivalent to supporting the development of digital innovations, particularly fintech. In August 2024, investment funds Hodler Investments and Gewan Holding committed to bringing in $500 million to fulfill an initiative dedicated to the development of energy infrastructure necessary to drive further digital innovations. Meanwhile, OQ initiated at the same time a project to build a strategic fuel reserve facility in Dhofar with an investment of $124 million. Oman is busy constructing such reserve facilities, and one new location for the construction of relevant facilities is situated in the Musandam Governorate. As Oman navigates the delicate balance between energy exploration and technological advancement, its commitment to innovation shines through. The nation's strategic investments in both sectors, exemplified by partnerships with global tech giants and the construction of critical infrastructure, outline the course Oman has taken in its development.

01.11.2024

Chapter 16

Qatar Raises Fintech Stake in the Gulf Region

Qatar is set to play a significant role in the development of fintech among Gulf countries. The efforts of the Qatari government to create a more favorable business climate have taken effect. In June 2024, the pace of opening new businesses in the country was the highest since last fall. Overall business optimism has risen to the maximum in more than the last one and a half years. Currently, the average sum of expenses to kick off a startup in Qatar is about 75,000 QAR. Another option is buying an existing Qatari fintech startup, which can be advisable in some cases since it reduces the cost to enter the local market. Anyway, for foreign entrepreneurs, experience in a similar fintech niche would make things easier. In the past, it was mandatory for any company in Qatar with foreign owners to have a Qatari partner. However, there have been recent developments in Qatar indicating that non-Qatari investors may be allowed to own up to 100% of the capital in some companies, depending on specific circumstances and approvals. Among Qatari fintech startups, one can mention Karty, Qcash, and Dibsy, which provide payment solutions. Spendwisor works in the niche of Buy Now Pay Later (BNPL). Beema and Seib Insurance operate in the field of InsurTech. Qatar Fintech Hub The financial services providers have taken the lead in Qatar's economic innovative development, showing the best results for the last seven years. Over the last year, new fintech companies attracted about $700,000 in total each day. The fintech landscape features over 200 companies, and half of them came into existence through support from the Qatar Fintech Hub (QFTH). QFTH is a hotspot for fintech entrepreneurial ideas and has been performing its mission for the last eight years. QFTH's Incubation and Acceleration Program has proven its apparent dedication to fostering innovation. This is evident through their pre-seed investments surpassing $9 million, supporting 70 fintech startups hailing from 28 various countries. In the coming five years, QFTH is going to support at least 10 new fintech startups each year via participation in pre-seed investment rounds. On August 17, QFTH finished accepting applications for this Program, wave №6. This wave number is evident proof that the Program is successful and creates a proper buzz among fintech startups in the country. QFTH supports fintech initiatives that focus not only on development inside Qatar but also those that try to do their best in both Qatar and external markets. The Qatari market is not very large. So, it is important to make a fintech product international. In this case, the average period for a fintech startup to break even is about 15 months, with a far shorter period for online trading solutions (six months). This is logical since online trade is booming in Qatar, and the digitization of the payments sphere has become a key catalyst. Therefore, this year the revenue of Qatari digital commerce providers will exceed $8.5 billion. QFTH also cooperates with the VISA Everywhere Initiative (VEI). This year, QFTH was proud to announce TESS Payments as the winner of the VEI, Qatar & Kuwait 2024. TESS Payments, a Qatari FinTech success story, has secured the Payment Service Provider license from the QCB. Since 2017, TESS Payments has been a provider of payment processing services in Qatar. The Government and Private Support of Innovations The Qatari government has set national goals to develop AI, Blockchain, and AgriTech. For the AI sector's development, Doha allocates $2.4 billion in investments, the same amount of funding for AI development that the Canadian government allocates in its country. Qatar is keen to increase the government’s support in the digital sphere by almost 3.5 times by 2026 compared with 2022. The robust budget situation facilitates this. From April to June, the coffers received a budget surplus of $710 million in dollar terms. Currently, 68.8% of all budget income comes from the Qatari oil sector, but this share is diminishing. Doha is keen to develop fintech as the breeding ground for innovations, bearing in mind the need to widen the budget income streams coming from the non-oil part of its economy. The key government agency that communicates with startups is the Ministry of Communications and Information Technology (MCIT). The Doha office of the Ministry is open to applications from foreign entrepreneurs to launch their operations locally. The Ministry deals with registration issues, providing the necessary contacts in the government and business circles, in particular. The Qatar Business Incubation Center (QBIC) is a structure that coaches entrepreneurs on how they can establish their business in the country. One of their leading programs is named the “Lean Startup Program.” It lasts 11 weeks, during which entrepreneurs can deeply learn all the details of how to open a company in Qatar. This program is very popular, and the 18th wave of its implementation has been scheduled for October this year. Through various government initiatives, a fintech startup, under some circumstances, can get access to free office space and apply for financial support in the sum of 100,000 Qatari Riyals (QAR). Many fintech startups are advised to be registered in the Qatar Financial Centre (QFC), functioning under the auspices of the Qatari government and whose rules are the same as those in economic zones. Under the framework of QFC, there is a hotspot for fintech startups, such as the QFC Digital Assets Lab, fully regulated by the local central bank. Many entrepreneurs willing to deal with digital assets and cryptocurrencies, in particular, feel comfortable developing their business in this Lab. For example, on July 10, one more company, DMZ Finance, arrived at this Lab. On the business side, some private funds specialize in financing startups and fintech companies, in particular. In 2024, these will include Dlala Holding and MBK Holding. On the venture side, Doha Tech Angels and Rasmal Ventures play an active role. In August, Rasmal Ventures launched a $100 million fund with a goal to support about 25 local startups driving innovation implementation. DLT in Qatar: The View of the Qatar Central Bank The Qatar Central Bank (QCB) and all regulators in the country saw the pros and cons of crypto through the activities of various fintech startups in the Lab. From the start of this observation, the regulators took a very conservative stance and banned all Bitcoin contracts to buy and sell in the country. But in 2023, they started to seriously think about how to use blockchain and crypto innovations for the sake of economic development. So, they worked out a draft for the regulation of investment digital assets with backing in the form of real assets. This year, QFC revealed that the Center joined the local central bank in its efforts to create comprehensive regulation rules for all digital assets. This work is currently underway and is slated to be finalized in the coming months. The QCB has already completed a large part of its job and introduced its Distributed Ledger Technology (DLT) manual on July 22. The regulator asks business structures to inform it about their application of DLT and is ready to give a “green light” to permissioned DLT networks. This refers to a network where updates or validations are exclusively performed by authorized users adhering to predefined governance rules. In essence, special permissions are required to read, access, or modify information within the network. As the QCB states, “Currently, QCB would not permit Permissionless DLT networks.” But it’s important to see that the word “currently” points to the possibility of a change in the regulator’s stance in the future. When a startup considers using DLT, it must check whether such a distributed ledger supports regulated financial products or processes. The company needs to evaluate all risks associated with the use of DLT. For example, when an organization outsources any activity related to the development, provision, use, or implementation of a DLT system, it must conduct regular due diligence on the outsourcing service provider. This due diligence should cover aspects like identity, legal status, activities, and financial position. Furthermore, prior consent from the QCB must be obtained before engaging in such outsourcing arrangements. Qatar and India: Fintech Brings Countries Closer The cooperation between Qatar and India is a clear case of how fintech brings countries closer. On July 11, the National Payments Corporation of India International entered into an agreement with Qatar National Bank regarding the functioning of the Indian Unified Payments Interface (UPI) QR-based system of payments in Qatar. Half a year earlier, Qatar signaled that it would explore investing in Indian startups. Both events are connected. The UPI localization in Qatar will unleash not only the potential of Indian tourism into this Gulf country but will also foster cooperation between Indian and Qatari fintech teams. Over half of the Indian tourists intending to visit Gulf countries are expected to choose the UAE this year. However, the introduction of the UPI system in Qatar is set to heighten the rivalry among these Gulf nations, particularly with the UPI system's expansion to the UAE in July.

03.11.2024

The Afterword

When the whispers first reached my ears – the audacious ambition of the Gulf Cooperation Council (GCC) nations to plant a flag as a global fintech powerhouse – I confess, I was intrigued. It wasn’t just another business plan; it was a high-stakes gamble, a potential seismic shift in the very foundations of finance. The further I probed, the more I realized this wasn’t mere pie-in-the-sky dreaming; it was a tangible force, taking shape before our eyes. What truly enthralled me was the raw, almost defiant, commitment to innovation. They weren't simply adopting the leftovers of other tech hubs; they were forging their own path, developing entirely new tools. Think AI that actually understands and anticipates individual needs, moving beyond generic advice. Imagine supply chains transparently woven together with blockchain, creating a trust that was previously unimaginable. The possibilities, honestly, feel limitless. And fueled by governments throwing their full weight – and the region's considerable resources – behind this movement, the acceleration is palpable. But what really sets the GCC apart isn't just the money; it's the thinking. They're strategically weaving emerging tech – AI, blockchain, the Internet of Things – not just to streamline classical banking methods, but to diversify their entire economic engine. In this era of digital tidal waves, it’s that kind of forward-thinking that’s a matter of survival, not just progress. Now, the United Arab Emirates, particularly, has truly stepped into the limelight, claiming its place as a legitimate global fintech hub. Dubai has become a magnet. It's pulling in not just the usual tech hopefuls, but also the established financial giants. Whether it's new ways to pay for your coffee or intricate AI algorithms that can navigate the complexities of the financial markets, Dubai is where the future of fintech is being written, in real time. And as we look to the horizon, 2024 stands as a defining moment — a turning point in the global flow of wealth. The UAE ascended to a new pinnacle, becoming a beacon for high-net-worth and ultra-high-net-worth individuals, surpassing even the United States as the premier destination for the world’s most affluent. This extraordinary migration of capital and talent underscores a profound truth: the region’s economic strength is no longer emerging — it is firmly established, commanding recognition and reshaping the dynamics of global wealth. These aren’t just vacationers; they're potential investors. And winning them over, keeping them engaged, demands not just good returns; it takes a nuanced approach, an almost intuitive understanding of their unique needs, and an ability to craft portfolios that speak to their specific ambitions. I’ve spent years in the thick of it, leading banks and brokerages, navigating the labyrinth of high-net-worth client management. It’s far more than just numbers; it’s a craft, a dance between deep market knowledge, a sharp eye on risk, and a genuine understanding of the human psyche. But now, by integrating those years of insight with these incredibly innovative fintech tools, one can unlock investment strategies that were once impossible. It’s about creating not just wealth, but opportunity, a chance for both the GCC and its clients to truly shape the future of finance. And that's a future I'm incredibly excited to be a part of. Konstantin Tserazov Corporate Strategy Advisor

10.11.2024

The List of Books for Thoughtful Reading

1. Bank 4.0: Banking Everywhere, Never at a Bank by Brett King Publisher: Wiley, 2018 2. The Innovation Ultimatum: Six Strategic Technologies That Will Reshape Every Business in the 2020s by Steve Brown Publisher: Wiley, 2020 3. The Future is Faster Than You Think by Peter H. Diamandis and Steven Kotler Publisher: Simon & Schuster, 2020 4. The PayTech Book: The Future of Payments edited by Anish Kapoor and A. M. K. Ranjan Publisher: Wiley, 2019 5. Advances in Financial Machine Learning by Marcos Lopez de Prado Publisher: Wiley, 2018 6. The STO Financial Revolution by William Mougayar Publisher: Mougayar Advisors LLC, 2019 7. The Internet of Money by Andreas M. Antonopoulos Publisher: CreateSpace Independent Publishing Platform, 2016 8. Fintech in a Flash by Paolo Sironi Publisher: Wiley, 2020 9. Fintech Founders by Agustín Rubini Publisher: Harriman House, 2019 10. Fintech Galaxy: Trends and Technologies Shaping the Future of Finance in the Middle East by Sarah Alsharyani Publisher: Gulf Press, 2023 11. Islamic Fintech: Financial Inclusion in the Middle East by Omar Al-Marri Publisher: Middle East FinTech Publishers, 2022 12. Cloud and Fintech: Strategies for GCC Transformation by Ahmed Al-Fadli Publisher: Tech Gulf Press, 2023 13. Blockchain in the Gulf: Emerging Fintech and Policy Impacts by Yasmeen Al-Harbi Publisher: ArabTech Publishing, 2021 14. Digital Payments and Transformation in the Arab World by Farah Al-Mutairi Publisher: Digital Arabia Press, 2023