This January, the Dubai International Financial Centre (DIFC) launched FinTech Hive, an ambitious initiative aimed at establishing a financial technology hub in Dubai.

After consulting with major banks and key stakeholders, FinTech Hive unveiled its plans for a financial technology (fintech) services accelerator programme and issued a worldwide call for start-ups to take part. The team was astonished by the response.
Over the next few weeks, 200 applications were received from around the world. On 21 August, the 11 companies, including two from the UAE, that had been accepted onto the accelerator were announced. “We are still receiving requests now with barely one month left on the programme,” says FinTech Hive acting executive vice-president Raja al-Mazrouei.

FinTech Hive sits at the heart of Dubai’s drive to build a world-class fintech ecosystem that will establish the city as a major player in the emerging global fintech industry. The programme was launched following an intensive consultation process with international and local banks that identified key issues and gaps within the financial sector that could be bridged by fintech solutions. The products and services of the accelerator applicants were then matched against those gaps in order to focus on solutions suitable for the region.

Market ready

According to Al-Mazrouei, the 11 finalists, from the UAE, the US, Sweden, Singapore, India, the UK, Jordan and Azerbaijan, are growing companies that have demonstrated an existing proof of concept (POC) that can be developed into a fully-fledged, market-ready fintech solution by the end of the 12-week accelerator period. “We wanted to build an ecosystem that enables growth for fintechs, where they receive support from financial institutions who will coach them … help them achieve innovation fit for the region and develop technologies that banks can use,” says Al-Mazrouei.

The finalists include an artificial intelligence-based Arabic chat bot that can analyse and predict customer behaviour; a marketplace for private assets; a peer-to-peer Islamic lending platform; and a bluetooth payment system.

Working with the fintechs will provide input into the regulatory regime adopted by the Dubai Financial Services Authority (DFSA), which regulates business-to-business (B2B) but not business-to-consumer fintechs located in DIFC.

Testing ideas

An Innovation Testing Licence, the DFSA’s B2B licence, allows fintechs to develop and test concepts for nine to 12 months, or longer in exceptional cases, from within the DIFC without being subject to the regulatory requirements normally applied.
To obtain the licence, applicants are required to disclose technical information, including test plans, to enable regulators to see the full life cycle of a transaction. This includes how money is collected, deposited and transferred. “The process aims to ensure that if something goes wrong while a fintech solution is still in a test environment, they can roll back the transactions and apply the fix as needed,” says Al-Mazrouei.

Once a firm has met the outcomes detailed in the regulatory test plan and the full DFSA requirements, it will migrate to full authorisation. However, if a company fails the test plan, it will have to cease activities in the DIFC that need regulation.
Unlike its Abu Dhabi counterpart, DFSA has yet to come up with regulations for the trading of digital currencies such as bitcoin.

“They are definitely looking at it, but we don’t yet have a fixed timeline,” says Al-Mazrouei. “There is still a lot of work that needs to be done on the regulatory side … this is a new industry that is emerging.”

Despite this, Al-Mazrouei says Dubai has a progressive regulatory framework for fintechs. The applications received from countries such as the US and Singapore to participate in the accelerator programme prove that these companies believe they “can access the Middle East, Africa and South Asia market through a system like Fintech Hive.”

Al-Mazrouei is confident that the current regulations in the UAE will drive the acceptance of new fintech services and support banks in successfully reaching this segment of the consumer market that is changing overall behaviour towards financial services consumption.

Fintechs develop digital banking services from a millennial perspective, she says. “They go to banks and say ‘this is how you can access your customers’. Having both fintechs and banks engage in the whole customer due diligence process and agreeing to offer their services through one platform is good [for the consumer].”

Embedding the DIFC regulator in the accelerator programme can also give fintechs, which generally suffer from a lack of trust, greater credibility. “If you go as a fintech to any of these banks, they probably won’t open their doors to you … there is no regulation requiring banks to work with fintechs,” says Al-Mazrouei.

Working together

Banks involved in FinTech Hive, however, are keen to understand the disruption coming to the industry. They are prepared to embrace the changes, and are willing to open their internal IT systems to work with these technologies.
Their involvement is also crucial to the participants’ next step, which is to raise capital to support their growth plans.

“Having the banks on board will help eliminate investor risks,” Al-Mazrouei says. “They will not have to ask, ‘What if I invest in this technology and nobody wants to use it?’”

Like many Fintech advocates, Al-Mazrouei says the region will eventually become a cashless economy. “We can see that clearly now, but how far into the future [this will happen] I’m not sure. A completely cashless digital society will need lots of regulations and will have major political implications,” she concludes.

Accelerator programme benefits

Finalists are provided with rent-free office space at the FinTech Hive hub in DIFC. In addition, they receive free mentorship from partners that include Abu Dhabi Islamic Bank, Citi, Dubai Islamic Bank, Emirates Islamic, Emirates NBD, HSBC, Mashreq, Network International, RakBank, Standard Chartered and Visa. They also have access to technology partners that include IBM, Facebook and Yodli.

Guidance from regulators and pro-bono legal support is offered from the likes of Clyde & Company, Simmons & Simmons and Support Legal. As strategic partners, Accenture, Dubai Islamic Economy Development Centre and UAE Exchange provide input on business procedures, among others.