This is an excerpt from The Future of Fintech in the Middle East 2023 report.
Alongside Dubai and Bahrain, Saudi Arabia has repeatedly been highlighted as a digital banking leader in the Middle East, with 76% of banking customers using online or mobile applications. According to McKinsey, top Saudi digital banking offerings include
loyalty programmes (53%), mobile discount coupons (51%) and virtual prepaid debit cards (50%). Gartner also highlights that banking and security firms will invest $12 billion into technology over the next 10 years, important to note due to recent launches
of public cloud data centres in the region. However, the Middle East market has been a cloud laggard in comparison to other regions. While the area is known to play catch up quite efficiently, recent developments could accelerate this drive and put the Middle
East back on the cloud map.
Digital transformation has become a formidable, yet necessary task – particularly for legacy players in the fintech industry, but neobanks and challenger banks need to ensure they keep pace with everchanging technology trends in order to meet the needs of
the underserved or unbanked. Digital upstarts that provide branch-less digital and mobile application functionality, budgeting and saving tools, quicker and easier loan approval for businesses, low-cost international transfers and ATM withdrawals can serve
a range of underserved consumers, from the expat community to the migrant worker.
To achieve this, financial services providers either need to be born in the cloud or place cloud connectivity at the centre of their infrastructure innovation. While most neobanks and challenger banks were well equipped when lockdowns and social distancing
was implemented across the Middle East, the Covid-19 pandemic increased interest in the cloud and paved the way for rapid implementation of the technology.
Financial services providers – banks and fintech firms - need to be able to pivot, fail and expand at the speed of need, but also, generate revenue and become profitable, particularly because investment is directed into companies that can transition from
proof of concept to mass-market growth. Fintech companies have proved that mass-market growth is achievable and are now providing other financial service entrants with a blueprint of how to scale exponentially.
Unburdened by traditional banking technology and physical branch networks, Middle Eastern neobanks and challenger banks are flourishing within the startup industry by offering digital alternatives. Furthermore, with a high millennial population, these offerings
are highly anticipated, especially as these institutions are considering cultural differences and launching community-based digital banks, rather than focusing on the individual.
Regional cloud providers still have opportunity to succeed across the Middle East
In addition to the impact of the pandemic, government spending on smart city and public administration projects as well as increased access to data centre and managed service providers have contributed to the Middle East’s growing use of cloud. While regional
technology vendors and fintech companies are looking to expand to meet the demand for cloud services, global cloud providers such as Microsoft Azure, Amazon Web Services, Oracle, and IBM have set up across the Middle East and are supporting the likes of Alibaba
and SAP.
Regional cloud providers still have opportunity to succeed across the Middle East In addition to the impact of the pandemic, government spending on smart city and public administration projects as well as increased access to data centre and managed service
providers have contributed to the Middle East’s growing use of cloud. While regional technology vendors and fintech companies are looking to expand to meet the demand for cloud services, global cloud providers such as Microsoft Azure, Amazon Web Services,
Oracle, and IBM have set up across the Middle East and are supporting the likes of Alibaba and SAP.
Jayesh Patel, CEO of Wio Bank, added that there are still opportunities for local and regional cloud providers to succeed. “The growth and adoption of cloud computing in the future will be driven by data privacy and security, which will play a significant
role. As countries continue to adopt more AI technologies and keep up with the digital revolution, citizen privacy is becoming an increasingly critical issue. This presents an opportunity for local and regional cloud providers to better serve their customers.
“The long-term cost benefits of running on the cloud still need to be clearly understood, which is another opportunity for local and regional cloud providers to provide more cost-effective services. However, as the needs of businesses differ, they will opt
for different providers. More scalable global companies might prefer global players, but companies with more consumer data or those that require more localisation might prefer local reputable players who understand the local landscape better."
Cloud regulation could support cloud computing across Middle Eastern borders
The cloud’s affordable processing power and extensive data storage options is a necessary option for the developing nations across the Middle East. However, challenges persist for both banks and fintech firms such as the time and subsequent downtime needed
when migrating to the cloud, security enhancements required for cloud to be efficient, as well as the legality of cloud use across borders.
In some cases, hosting data outside of national borders is prohibited and in future, regulation may be needed before innovation can occur at scale. Steps are being taken in the right direction. For example, initiatives like Bahrain’s cloud-first policy,
the UAE Vision 2021, Saudi Arabia’s Vision 2030, and the New Kuwait Vision 2035 encourage governments to utilise cloud. In addition to this, 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.
In Khan’s view, “regulation can support cross-border cloud computing in the Middle East by harmonising data protection laws, ensuring data privacy, and promoting open standards for interoperability. The UAE's National Program for AI and Digital Transformation,
for example, works to set regulations to encourage digital transformation in the country.”
Patel has a similar perspective and advises that “regulations should ensure that the cloud infrastructure is up to par and always available to the required standards. Secondly, clear, and consistent guidelines can reduce barriers to entry for cloud service
providers, foster competition, and promote innovation. However, one of the most critical areas where regulators can help is with data privacy. Regulatory frameworks can ensure the security and privacy of data, which is vital for building trust in cloud computing
solutions.”
He continues: “As more countries develop regulations around data privacy, hosting data locally becomes critical. This situation could result in data being hosted in every country or creating partnerships where data is located in one or two countries. Regulators
will need to collaborate with regional counterparts to develop a viable commercial model that enables data to be resident regionally as well as locally in some cases."
IT talent and skills availability is a major obstacle for cloud adoption across the Middle East
According to IDC, the Gulf’s lack of IT talent and skills availability is a major challenge for 45% of organisations when it comes to cloud management. Dhriti Nath, product manager, NOW Money states that the lack of IT talent and skills availability can
be a major challenge for organisations when it comes to cloud management. “It can lead to inefficiencies, security risks, and an inability to take full advantage of the benefits of cloud technology. To address this challenge, organisations may need to invest
in training and development programmes or consider partnering with third-party service providers with the necessary expertise to manage their cloud environments.”
Patel adds that there is a global surge in demand for qualified IT talent. “However, the UAE has invested heavily in building its technology talent pool. We have two sources of talent: locally grown talent that is emerging from the universities in the region,
and those who are attracted to the UAE's favorable social, entrepreneurial, and commercial opportunities. While the global demand for technology talent is high, the UAE has done a good job of building talent organically and creating an environment that attracts
global talent to the country. I believe that investing in local talent development, providing training opportunities, and creating an environment for growth at workplaces, is critical to building a sustainable digital economy in the UAE.