What MENA banks must do to compete against fintechs | Inpay

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The rise of fintechs in the Middle East: What banks must do to keep competitive

6 minute read
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The ultimate guide for legacy banks in the Middle East and Northern Africa. Find out how to compete or collaborate with fintechs in order to maintain your valuable SME and retail customers.

The Middle East and Northern Africa (MENA) is an exciting region of growth and innovation. Internet penetration has grown steadily over the past few years thanks to increasing investment by internet service providers. Recently, the coronavirus pandemic has accelerated this trend even more, with people in the area viewing smartphones and reliable connections as a necessity. Currently, the Middle East’s internet penetration is among the highest in the world; Oman 92%, Morocco 70%, Qatar 99%, Turkey 74%, Jordan 67%, UAE 99%, Saudi Arabia 93%.

In addition, GSMA, the global mobile network operator organization, estimates that the Middle East and Northern Africa will witness the fastest mobile subscriber growth rate across the globe after Sub-Saharan Africa - growing to 459 million unique mobile subscribers by 2025, from 382 million in 2018. According to the World Bank, the mobile phone penetration in the Middle East is 75% in Qatar, 73% in the UAE, and 60% in Saudi Arabia.

Gulf SMEs boom post coronavirus

Since the beginning of time, the MENA region has been known for craft, entrepreneurship, and trade. Thousands of years later, the history of business remains deeply embedded in the region. Just 3 years ago, it was estimated that the small and medium enterprises (SMEs) sector in MENA is worth around $1 trillion per year.

Countries have rapidly responded with more legal and financial incentives to boost this sector, such as a higher number of bank loans with more favourable payment terms. Previously, SMEs encountered several obstacles due to limited access to credit and funding as traditional financial institutions required strong credit scores. But after fintechs started connecting small business owners with transformative tech and investors, this sector was upscaled.

Even though Covid-19 impacted the profits and funding of small businesses, it did not stop the development. Commercial registrations have seen triple-digit increases in recent months, with tender boards across the region awarding tens of millions of dollars in contracts to enterprises. Currently, 96% of the registered companies in the MENA region are SMEs. Analysts are now hailing the post coronavirus economy as an ‘era of start-up growth’ as governments focus on rebuilding their economies following months of reduced activity during the pandemic. It is expected more incentives to encourage financial institutions to lend to SMEs will follow, which makes many wonder if SMEs are the new gold rush for banks and financial institutions in MENA.

Today’s SMEs are international as standard. They buy supplies from one country, manufacture in another, and sell to many others. They are growing and will continue to grow further, which provides a fantastic opportunity for banks offering cross-border payment services.

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What SME growth means for legacy banks

These tremendous advances in technology and innovation in the region, combined with aggressive e-payment and cashless directives that governments are setting, mean that the digital payments market in the area is destined to boom. Consumers are more digital and more empowered than they have ever been before. They want the cheaper rate, the faster service, and the transparency that neo banks and fintechs offer for cross-border payments. Many legacy banks that cannot meet their customers’ expectations are losing their retail customers to fintechs.

How legacy banks can avoid being overtaken by fintechs

Across the world, neobanks and fintechs like Revolut, Monzo, and Wise have publicly announced they will be aggressively chasing small business customers instead of retail clients. Fintechs are transforming how financial services are delivered and have leapfrogged traditional banks by making lending easier, cheaper, and quicker to obtain. They also offer a high level of transparency when it comes to interest rates combined with high standard customer service and user experience. By running effective marketing campaigns and being inclusive in terms of being open for underserved markets like the middle east and underserved customers such as SMEs, they are at the forefront of financial services and have been growing at a rapid rate.

Traditional banks have for a while been concerned about fintechs taking over a large chunk of their market. For both consumers and SMEs, the conventional way of using SWIFT to send money is too slow, expensive, and non-transparent. Fintechs have increased customers’ expectations with their customer-focused mindset. Today’s consumers have more options, more knowledge and more power than before. Banking institutions that think ahead should instead see the fintechs as an opportunity to move ahead of the competition. Partnering up with them is an excellent opportunity for legacy banks to offer cross-border payments that are fast, cheap and reliable.

If you are interested in implementing a white-label solution that allows you to offer payments from the MENA region to the rest of the world you can learn more about our cross-border payouts offer here.

We make sending international payments to a network of more than 100 countries as simple and efficient as a local bank transfer. All of our services are managed via a single integration, reducing your costs and speeding up your cross-border payouts.

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