The Middle East (MENA) is a blossoming region in fintech, especially when it comes to banking technologies. And as far as untapped potential goes, the MENA region is perfectly poised to become the next bubbling hub of digital banking innovation.
Significant changes are happening in the Middle East banking sector, driven by digital transformation. As it stands, the fintech sector in the Middle East amassed a 30% compounded annual growth rate (CAGR) in the past year, and the predicted capital funding will reach 2 billion USD by the end of 2022. Digital channels are crucial in providing comprehensive banking services, facilitating online interactions, and enhancing user experience.
Want to explore the current state and future prospects of digital banking in the Middle East? Continue reading to find out more about the potential of neobanks in different MENA countries.
A deep overview of digital banking in the Middle East
The digital banking Middle East scene has lagged behind Europe and North America due to the slower adoption rate of modern banking standards. Online banking is now emerging as a key component of modern banking solutions in the Middle East, providing users with 24/7 access to their accounts and facilitating fund transfers. Apart from that, ideological incompatibility in terms of religion can also stifle innovation by discouraging investors from venturing into the Middle Eastern market.
However, with foreigner-friendly initiatives like financial-free zones appearing in the region, fintech companies can now operate freely with international standards, fostering faster innovation.
But the situation differs in individual countries in the Middle East. So, let’s explore the digital banking scenario in specific Middle Eastern nations. We’ve narrowed down this overview to four Gulf Cooperation Council (GCC) countries.
Saudi Arabia digital banking
The first local digital bank in Saudi Arabia is Saudi Telecom Bank (STC Bank) — the rebranded version of the old bank with a capital of 660 million USD. Following in STC Bank’s footsteps is real estate company Abdulrahman Saad Al Rashid & Sons (ARTAR), a local digital bank established with a license to launch a digital business development bank with a 400 million USD capital fund.
According to KPMG, the fintech market in the Kingdom of Saudi Arabia grew 147% from 2018 to 2020, and is expected to grow by a further 55% before 2033, which highlights the promise of digital banking in Saudi Arabia. Net interest income is a critical component of the revenue model for digital banks in Saudi Arabia.
Digital banks in Saudi Arabia offer financial services through online and mobile platforms, providing a wide range of innovative financial products and services. This has led to a convenient and accessible banking experience due to lower operational costs and advanced technology.
Currently, the Saudi Arabian Monetary Authority (SAMA) relies on a regulatory sandbox to support fintech initiatives within the Kingdom. In line with the Saudi Vision 2030, this sandbox has since accepted over 20 fintech solutions after stringent regulatory evaluations to determine their eligibility. Saudi Arabia’s digital banking has seen high adoption rates among businesses and individuals, driven by enhanced mobile banking services, AI-driven customer support, and seamless online transactions.
Other prominent digital banks in Saudi Arabia include D360 Bank (440 million USD capital). Liv (UAE) has also extended its operations into the Kingdom of Saudi Arabia. The regulatory framework and requirements for establishing a Saudi digital bank are set by SAMA, emphasizing the need for specific expertise, financial capabilities, and a comprehensive business plan.
United Arab Emirates
The UAE has become one of the fastest-growing economic and technological hubs, owing to the National Innovation Strategy. Other initiatives like the Artificial Intelligence Strategy 2031 and Emirates Blockchain Strategy 2021 have also accelerated investments in technological advancements, especially in the banking and finance sector.
And most importantly, the establishment of over 40 financial free zones across the seven Emirates has also encouraged innovation in digital banking in UAE. According to the provisions of these new financial zones, foreigners can own neobanks in UAE under English common law without needing the services of a Local Service Agent.
In essence, you can build and launch a new digital bank in UAE while maintaining international banking regulatory standards. The two principal regulators in the Emirates are the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM).
Zand is the first digital bank in UAE to provide retail and corporate services as part of its customer-centric remodeling. Legacy banks like Emirates NBD, Mashreq, and the Commercial Bank of Dubai have also led the way in adopting digital banking solutions. Some of the best digital banks in the UAE include Liv, NOW, Rise, and Neo.
Qatar
According to IPSOS, over 94% of bank customers in Qatar have used at least one form of digital banking channel.
Source: IPSOS
The Qatar Central Bank (QCB) has increased investments in the financial sector in order to compete with its neighbors. And since Qatar has over 75% smartphone penetration, most banks are switching to mobile banking services to address customer needs.
Besides, Qatar Islamic Bank (QIB) recently launched a video banking service available on the QIB Mobile App, making it the first digital bank to use this feature in Qatar.
Other banks that provide mobile banking services in Qatar include:
- Doha Bank
- Commercial Bank of Qatar (CBQ)
- Dukhan Bank
- Ahli Bank
- HSBC Qatar
Bahrain
As part of the nationwide initiative to move from its oil dependence, Bahrain has been working on the Economic Vision 2030 to focus on competitiveness and sustainability.
In line with this vision, the Kingdom of Bahrain has launched meem, the first Shariah-compliant digital bank under the digital arm of the Gulf Internation Bank (GIB). Another noteworthy Bahrain-based digital bank is Bank ABC — a banking platform that enables customers to use multiple channels 24/7.
The National Bank of Bahrain has also launched a Digital Banking Challenge to encourage young innovators to build core banking solutions that rely on emerging tech trends. The Bahrain Fintech Bay will also participate in this program, providing mentorship and support at different stages.
Digital Banking Services
Digital banking services in Saudi Arabia have revolutionized the way individuals and businesses manage their finances. With the rise of digital banks, customers can now access a wide range of financial services online, including account management, bill payments, and instant money transfers.
These services enable customers to track their expenses, monitor their accounts, and receive personalized financial advice, all from the convenience of their digital devices. Additionally, digital banks offer competitive fees, innovative features, and a user-friendly interface, making it easier for customers to manage their finances on the go. This shift towards digital banking has not only enhanced the customer experience but also increased the efficiency and accessibility of banking services in Saudi Arabia.
Types of digital banks in the Middle East
Here are the digital bank categories you can find in Middle Eastern countries:
Challenger banks
Traditional banks create digital banking applications as subsidiaries. For instance, ila Bank is a digital mobile banking platform that belongs to Bank ABC. This challenger bank stands out for its use of Fatema — a digital assistant for improving the customer experience with the bank.
Digital-only banks
Some banks have only digital platforms without any physical locations. They offer in-app services and standard account handling operations for customers. Liv, meem, and Mashreq Bank’s Neo are some banks that provide only digital services.
Standalone financial platforms
Hala started as a mobile wallet for conducting digital transactions before shifting operations to POS and card services. Hala is not a full-scale digital bank yet, but the company is considering adopting a suite of banking services soon. Other platforms like Xpence provide bookkeeping, expense management, and virtual card services online.
Regulatory Framework
The Saudi Central Bank (SAMA) has established a comprehensive regulatory framework to ensure the security and stability of digital banking operations in Saudi Arabia. This framework includes detailed guidelines for digital banks, payment service providers, and other fintech companies operating within the kingdom.
SAMA’s regulations are designed to promote financial inclusion, protect consumer rights, and prevent money laundering and terrorist financing. By setting these standards, SAMA supports the growth of digital banking while ensuring that customers are protected and the financial sector remains stable. This regulatory environment fosters innovation and trust, encouraging more players to enter the digital banking space in Saudi Arabia.
Financial Inclusion
Digital banking has played a significant role in promoting financial inclusion in Saudi Arabia. The rise of digital banks has made financial services more accessible to individuals and businesses that were previously underserved. Digital banks have simplified the process of opening bank accounts, accessing credit, and making payments, thereby enabling a broader segment of the population to participate in the financial system.
This increased accessibility has been particularly beneficial for the unbanked population, helping to reduce poverty and promote economic growth. The Saudi government has also launched initiatives like the Financial Sector Development Program, which aims to increase access to financial services for all segments of society. Through these efforts, digital banking is driving financial inclusion and contributing to the overall development of the financial sector in Saudi Arabia.
The future of digital banking in the Middle East
Digital banking holds a lot of promise in the Middle East. According to the Milken Institute, over 465 fintech companies are currently available in the region, (as of April 2022) compared to just 30 in 2017. This rapid increase aligns with less-strict regulations and more investment in banking innovation.
Also, the speed of innovation hinges on the 70% average internet penetration rate in the Middle East region, which ranks fourth worldwide. As a result, more people are creating digital banking accounts.
Besides, the adoption of crypto will also change the rate at which fintech companies build and implement digital wallet software and DeFi exchanges. With platforms like Moyasar and CBPay leading the way, other digital wallet platforms will surface in the MENA market over the coming years.
And most importantly, the sheer importance of becoming viable competitors on the global stage will drive GCC countries in the Middle East to invest more in fintech solutions and digital banks.
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