Fintech

Unlocking the full potential of Fintech: challenges, opportunities and a way forward

Published

11 months ago

2 June, 2024

Unlocking the full potential of Fintech: challenges, opportunities and a way forward

By Ali Bailoun, Visa Regional General Manager for Saudi Arabia, Bahrain and Oman

The GCC has seen rapid growth in its digital economy, spurred by a combination of government initiatives, regulatory support and growing adoption of digital payments.

Fintech is also driving this transformation with innovative technologies that extend the benefits of digital commerce to consumers and businesses. Through fintech, more consumers can enjoy seamless and personalized financial experiences, businesses access a wider range of financial services, and the economy benefits from greater financial inclusion and innovation.

Governments have been in the driving seat of this transformation. The Central Bank of Saudi Arabia (SAMA), the Central Bank of Bahrain and the Central Bank of Oman, for example, offer enabling and well-regulated environments for fintechs through sandboxes, fintech hubs and more.

In 2021, SAMA introduced guidelines for licensing digital-only banks, which have helped create a vibrant digital banking scene in Saudi Arabia. These include STC Pay, recently transformed into STC Bank, a fully digital bank; urpay digital wallet, launched by Al Rajhi Bank subsidiary Neoleap; D360, serving disadvantaged segments such as young people, SMEs and B2B; Meem and Vision Bank, which offer banking services for consumers and businesses; and many others.

SAMA also published detailed Buy Now, Pay Later (BNPL) guidelines in December 2023, setting out licensing requirements, minimum capital thresholds and consumer protection measures. Open Banking is being rapidly adopted across the region, with Bahrain first introducing a regulatory framework, followed by Saudi Arabia last year, and the UAE expected to reveal its own Open Banking rules soon.

The growing demand for alternative financial solutions, combined with an increasingly favorable regulatory environment, is fueling financing and fundraising opportunities for fintech companies. As a result of such efforts, Saudi Arabia, the United Arab Emirates and Bahrain have emerged as regional, if not global, fintech hubs. In fact, in 2023, the UAE claimed 54 deals and investments worth $1.3 billion, while Saudi Arabia raised nearly $1 billion from local and global investors. The GCC region has seen companies such as Tabby, Tamara and Andalusia Labs reach unicorn status.

Emerging technologies such as artificial intelligence and blockchain, part of the Web3 revolution, represent an opportunity: AI alone, for example, has the potential to deliver up to $150 billion in real-world value in the GCC.

Saudi Arabia and the United Arab Emirates are at the forefront of use cases for these technologies in gaming, transportation, payments and more. The Saudi government in 2019 established the Saudi Data and Artificial Intelligence Authority (SDAIA) to serve as a national body overseeing research, innovation and operations in the field of data and artificial intelligence. Between the AI hardware and its integration into the education system, Saudi Arabia has also committed over $100 billion to ensure the Kingdom stays ahead of the AI wave.

However, fintechs continue to face challenges that have the potential to undermine their growth and limit the value they are able to bring to individuals and economies. Our recent research in the GCC has identified emerging trends that the broader ecosystem needs to address to maximize the potential that fintechs have to offer consumers, businesses and the wider economy.

A significant obstacle is the global competition for tech talent. High demand for skilled professionals, combined with the relatively high cost of living, makes talent acquisition expensive, potentially hindering the growth of fintechs. In Saudi Arabia, as part of Vision 2030, the government is investing heavily in training in digital and technology skills to increase the local talent pool.

Access to underlying payment systems, previously exclusive to banks and exchange firms, is another trend shaping the fintech landscape. This access opens up multiple revenue streams for fintechs, including fees, free float, foreign exchange and data. As a result, payments have become a major area of focus for many fintechs, with large digital wallets emerging from telcos. The market sees diversified offerings – from BNPL solutions, to personal finance and virtual assets – which have ushered in an era of financial innovation.

The cross-border nature of many fintech deals also presents unique challenges. With business interests often spanning multiple MENA geographies, fintechs must navigate a complex web of country-specific licensing and regulations – an opportunity for the region’s regulatory players to engage with ecosystem stakeholders.

Finally, there is a growing trend of fintechs seeking industry players for more mentorship, infrastructure support and investment. This highlights the importance of the private sector contributing more to government efforts to foster a supportive ecosystem for fintechs to thrive. Visa, for example, has supported local fintechs with several programs, the latest of which is the 2024 Saudi Arabia, Bahrain and Oman edition of the Visa Everywhere Initiative (VEI), so that fintech startups can showcase their solutions on a global stage for the possibility of securing funding to help them with development and operational costs.

Fintechs have the potential to deliver even broader social benefits to the markets in which they operate, particularly when it comes to providing financial services to those who have traditionally been disadvantaged and helping businesses in their digital transformation. This is why it is so important to support fintechs on their growth journey. We have a promising future ahead of everyone, everywhere, but we will only be able to achieve it through close collaboration and cooperation.

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Unlocking the full potential of Fintech: challenges, opportunities and a way forward

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We are the editorial team of FinCrypt, where seriousness meets clarity in cryptocurrency analysis. With a robust team of finance and blockchain technology experts, we are dedicated to meticulously exploring complex crypto markets with detailed assessments and an unbiased approach. Our mission is to democratize access to knowledge of emerging financial technologies, ensuring they are understandable and accessible to all. In every article on FinCrypt, we strive to provide content that not only educates, but also empowers our readers, facilitating their integration into the financial digital age.

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Fintech

US Agencies Request Information on Bank-Fintech Dealings

Published

9 months ago

30 July, 2024

FinCrypt Staff

Federal banking regulators have issued a statement reminding banks of the potential risks associated with third-party arrangements to provide bank deposit products and services.

The agencies support responsible innovation and banks that engage in these arrangements in a safe and fair manner and in compliance with applicable law. While these arrangements may offer benefits, supervisory experience has identified a number of safety and soundness, compliance, and consumer concerns with the management of these arrangements. The statement details potential risks and provides examples of effective risk management practices for these arrangements. Additionally, the statement reminds banks of existing legal requirements, guidance, and related resources and provides insights that the agencies have gained through their oversight. The statement does not establish new supervisory expectations.

Separately, the agencies requested additional information on a broad range of arrangements between banks and fintechs, including for deposit, payment, and lending products and services. The agencies are seeking input on the nature and implications of arrangements between banks and fintechs and effective risk management practices.

The agencies are considering whether to take additional steps to ensure that banks effectively manage the risks associated with these different types of arrangements.

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Fintech

What changes in financial regulation have impacted the development of financial technology?

Published

9 months ago

30 July, 2024

FinCrypt Staff

Exploring the complex landscape of global financial regulation, we gather insights from leading fintech leaders, including CEOs and finance experts. From the game-changing impact of PSD2 to the significant role of GDPR in data security, explore the four key regulatory changes that have reshaped fintech development, answering the question: “What changes in financial regulation have impacted fintech development?”

PSD2 revolutionizes access to financial technology
GDPR Improves Fintech Data Privacy
Regulatory Sandboxes Drive Fintech Innovation
GDPR Impacts Fintech Data Security

PSD2 revolutionizes access to financial technology

When it comes to regulatory impact on fintech development, nothing comes close to PSD2. This EU regulation has created a new level playing field for market players of all sizes, from fintech startups to established banks. It has had a ripple effect on other markets around the world, inspiring similar regulatory frameworks and driving global innovation in fintech.

The Payment Services Directive (PSD2), the EU law in force since 2018, has revolutionized the fintech industry by requiring banks to provide third-party payment providers (TPPs) with access to payment services and customer account information via open APIs. This has democratized access to financial data, fostering the development of personalized financial instruments and seamless payment solutions. Advanced security measures such as Strong Customer Authentication (SCA) have increased consumer trust, pushing both fintech companies and traditional banks to innovate and collaborate more effectively, resulting in a dynamic and consumer-friendly financial ecosystem.

The impact of PSD2 has extended beyond the EU, inspiring similar regulations around the world. Countries such as the UK, Australia and Canada have launched their own open banking initiatives, spurred by the benefits seen in the EU. PSD2 has highlighted the benefits of open banking, also prompting US financial institutions and fintech companies to explore similar initiatives voluntarily.

This has led to a global wave of fintech innovation, with financial institutions and fintech companies offering more integrated, personalized and secure services. The EU’s leadership in open banking through PSD2 has set a global standard, promoting regulatory harmonization and fostering an interconnected and innovative global financial ecosystem.

Looking ahead, the EU’s PSD3 proposals and Financial Data Access (FIDA) regulations promise to further advance open banking. PSD3 aims to refine and build on PSD2, with a focus on improving transaction security, fraud prevention, and integration between banks and TPPs. FIDA will expand data sharing beyond payment accounts to include areas such as insurance and investments, paving the way for more comprehensive financial products and services.

These developments are set to further enhance connectivity, efficiency and innovation in financial services, cementing open banking as a key component of the global financial infrastructure.

Sebastian Malczyk

General Manager, Technology and Product Consultant Fintech, Insurtech, Miquido

GDPR Improves Fintech Data Privacy

Privacy and data protection have been taken to another level by the General Data Protection Regulation (GDPR), forcing fintech companies to tighten their data management. In compliance with the GDPR, organizations must ensure that personal data is processed fairly, transparently, and securely.

This has led to increased innovation in fintech towards technologies such as encryption and anonymization for data protection. GDPR was described as a top priority in the data protection strategies of 92% of US-based companies surveyed by PwC.

Arid Islam

Financial Expert, Sterlinx Global

Regulatory Sandboxes Drive Fintech Innovation

Since the UK’s Financial Conduct Authority (FCA) pioneered sandbox regulatory frameworks in 2016 to enable fintech startups to explore new products and services, similar frameworks have been introduced in other countries.

This has reduced the “crippling effect on innovation” caused by a “one size fits all” regulatory approach, which would also require machines to be built to complete regulatory compliance before any testing. Successful applications within sandboxes give regulators the confidence to move forward and address gaps in laws, regulations, or supervisory approaches. This has led to widespread adoption of new technologies and business models and helped channel private sector dynamism, while keeping consumers protected and imposing appropriate regulatory requirements.

George Blandford

Co-founder, UK Linkology

GDPR Impacts Fintech Data Security

A big change in financial regulations that has had a real impact on fintech is the 2018 EU General Data Protection Regulation (GDPR). I have seen how GDPR has pushed us to focus more on user privacy and data security.

GDPR means we have to handle personal data much more carefully. At Leverage, we have had to step up our game to meet these new rules. We have improved our data encryption and started doing regular security audits. It was a little tricky at first, but it has made our systems much more secure.

For example, we’ve added features that give users more control over their data, like simple consent tools and clear privacy notices. These changes have helped us comply with GDPR and made our customers feel more confident in how we handle their information.

I believe that GDPR has made fintech companies, including us at Leverage, more transparent and secure. It has helped build trust with our users, showing them that we take data protection seriously.

Dr. Rhett Stubbendeck

CEO & Co-Founder, Leverage Planning

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Fintech

M2P Fintech About to Raise $80M

Published

9 months ago

30 July, 2024

FinCrypt Staff

Application Programming Interface (API) Infrastructure Platform M2P Financial Technology has reached the final round to raise $80 million, at a valuation of $900 million.

Specifically, M2P Fintech, formerly known as Yap, is closing a new funding round involving new and existing investors, according to entrackr.com. The India-based company, which last raised funding two and a half years ago, previously secured $56 million in a round led by Insight Partners, earning a post-money valuation of $650 million.

A source indicated that M2P Fintech is ready to raise $80 million in this new funding round, led by a new investor. Existing backers, including Insight Partners, are also expected to participate. The new funding is expected to go toward enhancing the company’s technology infrastructure and driving growth in domestic and international markets.

What does M2P Fintech do?

M2P Fintech’s API platform enables businesses to provide branded financial services through partnerships with fintech companies while maintaining regulatory compliance. In addition to its operations in India, the company is active in Nepal, UAE, Australia, New Zealand, Philippines, Bahrain, Egypt, and many other countries.

Another source revealed that M2P Fintech’s valuation in this funding round is expected to be between USD 880 million and USD 900 million (post-money). The company has reportedly received a term sheet and the deal is expected to be publicly announced soon. The Tiger Global-backed company has acquired six companies to date, including Goals101, Syntizen, and BSG ITSOFT, to enhance its service offerings.

According to TheKredible, Beenext is the company’s largest shareholder with over 13% ownership, while the co-founders collectively own 34% of the company. Although M2P Fintech has yet to release its FY24 financials, it has reported a significant increase in operating revenue. However, this growth has also been accompanied by a substantial increase in losses.

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Fintech

Scottish financial technology firm Aveni secures £11m to expand AI offering

Published

9 months ago

30 July, 2024

FinCrypt Staff

Aveni, Investment Management, AI, NLP, UK

By Gloria Methri

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To come
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Artificial intelligence Financial Technology Aveni has announced one of the largest Series A investments in a Scottish company this year, amounting to £11 million. The investment is led by Puma Private Equity with participation from Par Equity, Lloyds Banking Group and Nationwide.

Aveni combines AI expertise with extensive financial services experience to create large language models (LLMs) and AI products designed specifically for the financial services industry. It is trusted by some of the UK’s leading financial services firms. It has seen significant business growth over the past two years through its conformity and productivity solutions, Aveni Detect and Aveni Assist.

This investment will enable Aveni to build on the success of its existing products, further consolidate its presence in the sector and introduce advanced technologies through FinLLM, a large-scale language model specifically for financial services.

FinLLM is being developed in partnership with new investors Lloyds Banking Group and Nationwide. It is a large, industry-aligned language model that aims to set the standard for transparent, responsible and ethical adoption of generative AI in UK financial services.

Following the investment, the team developing the FinLLM will be based at the Edinburgh Futures Institute, in a state-of-the-art facility.

Joseph Twigg, CEO of Aveniexplained, “The financial services industry doesn’t need AI models that can quote Shakespeare; it needs AI models that deliver transparency, trust, and most importantly, fairness. The way to achieve this is to develop small, highly tuned language models, trained on financial services data, and reviewed by financial services experts for specific financial services use cases. Generative AI is the most significant technological evolution of our generation, and we are in the early stages of adoption. This represents a significant opportunity for Aveni and our partners. The goal with FinLLM is to set a new standard for the controlled, responsible, and ethical adoption of generative AI, outperforming all other generic models in our select financial services use cases.”