Analysis conducted by Bloomberg Intelligence based on a roundtable discussion with Dubai Islamic Economy Development Centre (DIEDC) found that banks in the United Arab Emirates need to streamline their core banking processes before engaging with fintech players.

The analysis highlights five key areas for the UAE’s fintech outlook:

1. Call for joint effort to fill MENA funding gap: Access to capital is a challenge for Gulf startups. In Bloomberg Intelligence’s view, UAE banks could set up innovation funds to help startups grow from the seed stage to the scaling stage and align strategic interest. The venture capital arms of Santander, Barclays and ING as well as insurers like Baloise and MunichRe set up special funds to invest minority stakes in fintechs.
2. Digital savvy UAE banks to gain share, others may consolidate: In order to gain market share, UAE banks need to innovate and build flexible operations to create conditions for fintech growth. This entails high spending which may lead smaller lenders to consolidate as larger peers invest in revamping their legacy systems.
3. Digitization of core processes facilitates fintech: the UAE’s digital transformation is largely focused on enhancing the customer experience. Lenders need to digitize their core processes as legacy IT systems are a hurdle to connecting platforms and creating an open banking framework. A potential large revenue pool available from digitalizing core banking operation could make business to business (B2B) solutions a target for startups.
4. No passporting challenges consumer solutions to scale: The need for passporting across Gulf countries is key for fintech business to consumer (B2C) oriented solutions to achieve scale and attract private investors’ interest.
5. Guidance needed on fintech engagement: A set of industry standards and collaboration toolkit that help fintech firms reach a successful engagement with banks, while banks providing a clear definition of what’s required and needed could be developed in line with the U.K. onboarding guidance “PAS 201:2018”.

Backed by a one billion-dirham ($272.3 million) digital investment budget, Emirates NBD is the first Gulf lender to adopt an open banking API, a step toward true engagement with fintech companies. Other banks may follow suit, which would give fintech companies the chance to work closely with banks to drive innovation, but this will come at a cost. Upgrading banks’ infrastructure, scalability, and alignment among players in the ecosystem are key to the UAE’s fintech outlook.

The roundtable took place at Nasdaq Dubai, and was attended by major players in the UAE fintech space.

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