Is fintech a fad, or the future?
Almost every other week, I get an invitation to attend a financial technology, or fintech, forum, either in the Kingdom or abroad. Is fintech a fad, or the long-term new flavor of the financial sector?
For a start, what actually is it and why is it important for all entrepreneurs to know about and understand? According to EY’s fintech Adoption Index, a third of consumers worldwide are using two or more fintech services, with 84 percent of customers saying they are aware of fintech (up 22 percent from the previous year). But users are often unaware that the financial services applications they use count as “fintech,” or may not know exactly what fintech and its accompanying jargon means.
Fintech stands for financial technologies, and in its broadest definition that’s exactly what it is: Technologies used and applied in the financial services sector, chiefly used by financial institutions themselves on the back end of their businesses. But more and more, fintech is coming to represent technologies that are disrupting traditional financial services, including mobile payments, money transfers, loans, fundraising, and asset management.
Now, we really should not assume that fintech is simply a fad or buzzword: The global fintech investments have grown dramatically in the past 11 years, increasing from $5.5 billion in 2005 to $100.2 billion in 2016.
And this increase is likely to continue, as Fintech touches not just the financial services sector but every business the financial services industry deals with. Fintech startups are small and agile, able to disrupt the lumbering behemoths that are traditional financial institutions and innovate quickly.
Fintech will support the facilitation of funding by creating new financing channels targeting various sectors. Also, it will create new investment channels and products. Facilitating funding and diversification of investment channels are important factors in achieving Saudi Vision 2030 which will encourage the creation of economic entities that will contribute to the economic depth and add value to the GDP and the national economy.
Last April, the Saudi Arabian Monetary Agency (SAMA) launched the Fintech Saudi Initiative to uphold the financial technology system and promote the Kingdom as a hub for financial technology.
Through this initiative, SAMA proposes the promotion of small-to-medium enterprises, diversify the local economy and create job opportunities. The initiative has a number of goals, most importantly the launching of the first version of the financial system in the Kingdom, educating individuals and inspiring them to develop their knowledge and skills in the field of technical finances, encouraging local banks, international financial technology companies, and partners to enact various events in the financial technology sector within the Kingdom.
Furthermore, there are ongoing discussions with other central banks in the UAE and Bahrain to coordinate the fintech activities of financial centers around the Gulf region. These coordinated efforts should attract international and domestic entrepreneurs, said Mishari Al-Assailan, acting head of fintech Saudi, the division of the Saudi Central Bank charged with growing the sector in the Kingdom.
I believe that for our country, Fintech could not have arrived on the scene at a better time. We are working to diversify our economy away from a dependence on fossil fuels, a task in which technology – and in particular fintech – could have a very significant role to play. Fintech is here to stay!
Basil M.K. Al-Ghalayini is the Chairman and CEO of BMG Financial Group.