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How COVID-19 catalysed regional FinTech growth

Digital EconomyFinanceFinTech

An exception to the rule 

Across the Middle East, governments have begun to gradually reopen their economies following months of lockdown. For a region with a prominent shopping mall culture, and where – despite ongoing digitalisation efforts – cash for the most part has remained king, social distancing and quarantine measures have posed serious economic challenges for industries across the board. There was, however, a notable exception, characterised by an announcement from BenefitPay, the Kingdom of Bahrain’s national ewallet. According to BenefitPay, over March 2020 – when lockdowns across the region were coming into force – the e-wallet saw a staggering 1257% surge in transactions. 

Region-wide growth  

This phenomenon was not limited to BenefitPay, nor to Bahrain. Across the entire region, FinTech, ecommerce and online payment platforms were seeing near unprecedented increases in usage, even as other sectors were having to turn to government rescue packages to remain competitive. A recent survey by Mastercard found a 70% growth in the use of contactless payments across the Middle East and Africa as consumers sought to maintain social distancing measuresIn fact, this region-wide growth reflects global trends. According to a recent study by financial advisory firm deVere Group, the use of FinTech apps in Europe surged by 72% in just one week at the beginning of the crisis 

Market response 

Indeed, the pandemic has engendered a near unprecedented global surge in demand for digital financial services. Around the world, people are turning away from physical offerings to minimise the spread of infection. Those in quarantine, or just trying to maintain social distancing, for example, are unable to physically visit their local bank branch to open an account. They have been doing so online instead. The regional market is responding to this demand. New platforms, such as Dubai Store in the UAE, are emerging. Ecommerce platforms dominated the region’s funding announcements in May. Simultaneously, existing retailers are expanding to meet consumer needs. The Bahraini government has launched Bahrain’s first virtual mall, mall.bh, which aims at supporting commercial enterprises in the Kingdom to launch e-commerce services.  

Ongoing trajectory 

This near unprecedented FinTech growth carries a special significance for the region. As part of ongoing diversification efforts, GCC economies have long been laying the groundwork to encourage FinTech growth. Bahrain serves as a strong example, having invested considerable sums in building the requisite hard, soft and digital infrastructure for a dynamic and concentrated FinTech ecosystem. The Kingdom is home to the region’s first onshore FinTech regulatory sandbox, the region’s first hyperscale data centre and the region’s first and largest FinTech hub. It is owing to initiatives like these that MENA’s fast-growing FinTech sector is projected to be worth some US$ 2.5 billion by 2022. Yet this rapid growth has been hampered by a preference throughout the region for cash. A recent study by Google and Bain & Company found that while credit card penetration in the Middle East is on par with more established markets, around 62 per cent of online shoppers in MENA still prefer paying with cash on delivery – compared with less than five per cent in the UK and France. 

A silver lining 

It is this final hurdle that a global crisis has helped us overcome. Already lockdown and quarantine restrictions across the region are easing. Bahrain has reopened shopping malls and in Dubai restaurants are open again. However, with 400 million people predominately united by a common language and similar consumption habits, in MENA, a paradigm shift in consumer behaviour is likely to last. Consumer behaviour amongst the regions’ young, tech-savvy and fast-growing population was already moving decisively in the right direction even before the pandemic struck, with online payments penetration already at 76%. But COVID-19 has acted as a catalyst. And as economies begin to reopen and rebuild, the result will be increasingly digital.