One fifth of Middle East bank holders now use FinTech solutions

08 July 2020 Consultancy-me.com

A Deloitte survey across nine key markets in the Middle East has found that despite a growing willingness to adopt FinTech solutions, only just over 20% of banking services customers currently use FinTech tools. 

The Big Four accounting and advisory firm drew responses from both sides of the financial services market, surveying 1,500 bank customers and more than 50 financial services institutions that are on the digital cutting edge. Respondents spread across Saudi Arabia, UAE, Qatar, Kuwait, Bahrain, Oman, Egypt, Lebanon and Jordan.

What Deloitte found is a gap, which also represents an opportunity. Well over 80% of customers surveyed indicated a willingness to adopt FinTech, nearly two-thirds of whom believe in its potential to address their banking needs. So the market is ripe for a FinTech boom, but penetration and maturity remain remarkably low.

Of the 22% of customers using FinTech solutions/features, money transfers are the most popular

Deloitte reports that only 22% of banking customers in the Middle East have embraced FinTech, and only a quarter are even aware that they use FinTech solutions. Among the adopters, most use FinTech solutions only occasionally, with 20% reporting regular use. Money transfers and account aggregation are the primary uses of FinTech functions amongst most adopters.

Zooming in to individual markets, Saudi Arabia leads the way with a 40% adoption rate. Earlier this year, fellow Big Four firm KPMG reported that FinTech had made its way to the top of tech disruption in the Kingdom, to the extent that incumbent banking institutions are now seeing them as a threat.

The UAE follows, with a 34% adoption rate. FinTech companies in the country have been at the cutting edge for a number of years now, and the customer base is gradually catching up. Egypt and Qatar follow with 25% and 24% adoption rates respectively, while Kuwait, Bahrain, Oman, Jordan and Lebanon all have adoption rates well below 20%. 

Country-wise distribution of FinTech adopters

The main use cases

As mentioned, peer-to-peer money transfers and account aggregation are among the most popular uses of FinTech. Other applications vary across different markets in the region, depending on the level of FinTech maturity in the market and other unique circumstances.

For instance, customers in larger and more FinTech mature economies such as Saudi Arabia, UAE and Egypt are increasingly using FinTech for functions such as automated investment advice, connected automotive insurance and even crowdfunding. Even connected health – the use of FinTech to link to eHealth solutions, mostly around payments – is gaining traction in these markets.

Significant numbers in Saudi Arabia also use FinTech solutions for home insurance and peer-to-peer insurance, which have a significantly lower but still above average adoption rate in UAE and Egypt. Deloitte reports that peer-to-peer insurance is a particularly challenging segment to develop in Kuwait, Oman and Jordan, which explains the segment’s zero market penetration in these countries.

Reasons and motivation behind FinTech adoption

The younger ones

One factor that is common across all nine markets is that more than 80% of FinTech adoption takes place amongst the under-40 demographic. Most embrace FinTech for the ease and convenience that it can bring to banking. Other reasons include speedier transactions, enhanced user experience, cost savings and quality of service.

Customers that haven’t yet adopted FinTech solutions have much higher expectations from the technology. For them, FinTech will have to support their specific needs and offer personalised services to win their endorsement. Other demands include quicker and smoother banking experiences, a unique value proposition that banks cannot offer, and support with personal finance management.

Concerns around FinTech adoption

These high expectations are among the reasons that the 80% plus of the population in the Middle East that are open to FinTech solutions are yet to adopt them. Another set of reasons relates to concerns around the technology. Among these are considerations around personal and financial data security, as well as the cost or income threshold required to use FinTech services. Other concerns include a lack of understanding of FInTech solutions and services and the failure to understand the unique value that FInTech can bring.

Each of these concerns and expectations represents a concrete gap for FinTechs and financial institutions to fill. Despite having a market ripe for FinTech, the Middle East still draws only 1% of global FinTech funding, amounting to $45 billion. The market has the potential to soar in years to come, provided that consumer concerns and demands are understood.

Deloitte recommends that governments, FinTechs and banks in the region work together to make this happen. “The way forward for the Middle East FinTech ecosystem to reach its full potential goes through regulatory harmonisation and development of strategic partnership between banks and FinTechs,” concluded Anthony Yazitzis, a partner in Deloitte Middle East’s Financial Services and FinTech practice.