Are the pieces in place for the Gulf to lead in fintech?

Dalal Buhejji, Senior Manager, Business Development Financial Services, Bahrain EDBFintech has without a doubt arrived in the Gulf. Within a very short period of time, it has not only generated a great deal of excitement but also offered a promise of transformative change for the regional financial services sector. There is much anticipation about the ability of fintech innovation to trigger changes towards a more productivity-led growth model, envisioned by the Kingdom of Bahrain. However, many are also hoping that this change places Bahrain at the forefront of innovation in financial services in the MENA region.

Bahrain has been welcoming technological innovation as it helps cater to the many developmental needs and challenges the region is currently facing. Innovation can help boost market efficiency, reduce cost of regulation and help reinvent Islamic Finance to deliver broader sharia compliant solutions for consumers not just in the Gulf, but around the world.

But, how can this sudden burst of enthusiasm be channeled into sustainable change?

Let’s take a look at India first. India has made great strides in Fintech in just a short amount of time. Prime Minister Modi said in a speech last year “Financial inclusion has become a reality for 1.3 billion Indians. We are in an age of historic transition brought about by technology. From desktop to cloud, from Internet to social media, from IT Services to Internet of Things, we have come a long way in short time,". In my opinion, India has swiftly become one of the Fintech hubs of Asia, and if we play our cards right, I believe we can be in the running with India.

Just last December, the Bahrain Economic Development Board, the investment promotion arm of the Kingdom of Bahrain, and the Maharashtra government signed an MoU to provide a framework for co-operation to promote FinTech in their respective markets. The MoU will explore greater synergies between India and Bahrain in the Fintech space, and will also identify and explore innovative projects in areas such as payments, blockchain, eKYC, and other new technologies.

Bahrain has long been the home of finance in the GCC and has made good progress in terms of putting in place the right kind of digital infrastructure, and nurturing strong consumer preferences for digital interaction.Unlike in India, where there is a plethora of regulators in the Financial Services space, Bahrain has one consolidated regulator. The regulator, the Central Bank of Bahrain, also has a dedicated FinTech Unit which runs the region’s first onshore fintech sandbox.

The sandbox is a virtual space for companies to test their solutions, and an opportunity for expansion. This is where Bahrain’s small size is actually an advantage, as it is much easier to implement such an initiative in a smaller economy than it would be in a bigger one.

Today, though, it’s possible for thriving ecosystems to grow not just within cities or individual states, but across international borders.Bahrain’s business environment allows for 100 percent foreign ownership in most sectors, does not have any free-zone restrictions, and has a favourable tax regime, without any limitations on repatriation of capital, profits, or dividends.

When it comes to our countries – India and Bahrain – There are already thriving international partnerships that have been cultivated. Both are strong cash-driven economies, and we are seeing a strong push towards digitalisation from both governments. We like to call it “The Bahrain-India Business Corridor” and it is hugely productive, with the latest figures showing that the value of bilateral trade is over $1bn. What’s working to build this corridor is the vast and complex Indian market on the one hand, which has an insatiable appetite for a growing fintech landscape with involvement from other sectors ranging from pharma to auto to medicine. And a nimble and easy regulatory environment in Bahrain.

In my opinion, India has swiftly become one of the Fintech hubs of Asia, and if we play our cards right, I believe we can be in the running with India.

Technological change in recent years has delivered important new opportunities in this regard. A key case in point is Open Banking which allows third-party developers to access the data of financial institutions for the purpose of developing innovative solutions.For instance, India encouraged such developments through its Unified Payments Interface (UPI) system, which facilitates real-time inter-bank transactions. This payment system caused fintech to boom in India fairly rapidly.

In December 2018, the Central Bank of Bahrain released rules on open banking with a similar goal. The rules provide customer access to aggregated bank account information through a single platform. Payment initiation services allow licensed third parties to initiate payments and permit transfers through mobile applications.

Bahrain has also been a regional leader in introducing and supporting cloud computing. This in principle provides the framework for aggregated data storage and easier access. Cloud computing globally has served as a key enabler of the progress of artificial intelligence-based solutions.

But whatever the strides being made in artificial intelligence, as well as other areas, the financial services are still, at a fundamental level, designed by humans for humans. Driving this technological transformation will require high-quality talent. This is an area where Bahrain can compete on multiple levels. Home to a young population that is educated and tech-savvy, Bahrain is in a good position to develop a significant, dynamic local talent pool in this area.

Fintech is a fast-moving industry in a constant state of evolution. Ultimately success in it will depend on agility and responsiveness to changes as much as on the other enablers. While Bahrain is still at an early stage of its digital transformation, it has, within a short period of time, achieved the status of a regionally and globally recognised player in the fintech space. However, for this corridor to sustain, it would need scale, sustainability, innovation and disruption as key elements in the process. Regulators and players from both sides are just waking up to the immense possibilities that synergies between these two countries could bring.