The financial sector the world over and specifically in the UAE is being transformed by trends like crypto, web3, and blockchain. The common thread running through this revolution is the growing dominance of digital technology.
According to a study by Mordor Intelligence, the UAE fintech market is currently pegged at USD 39.3 billion and is expected to register a CAGR of more than 15%. The COVID-19 pandemic has accelerated the acceptance and integration of technology in the finance sector globally and reached widespread proliferation across the UAE.
As a result of the UAE government’s concerted efforts to digitize services in the financial domain, more than 134 fintech businesses currently employ more than 2,000 people in the country. With 80 fintech start-ups, Dubai has emerged as one of the region's biggest financial technology hubs. With a fast-growing digital economy and several innovative initiatives, the UAE provides the right climate for start-ups to thrive in the financial sector.
Development of Advanced Technologies Driving UAE Market.
According to a 2022 KPMG report, banks in the Middle East have adopted a range of digital technologies including AI, blockchain, Artificial Intelligence as well as machine learning. The application of these technologies is not just limited to customer-facing scenarios, but also stretches to other areas such as corporate governance, risk management and regulatory compliance.
Banks and insurance firms are tapping into machine learning to transform their customer interaction. Also noteworthy is the advent of tech-savvy integrated payment providers with platforms that can add the extra component of payments to business management systems.
Let’s take a look at some prominent trends that will punctuate the financial landscape of UAE.
1. Central bank digital currencies (CBDCs)
Central bank digital currencies (CBDCs) are essentially digital versions of existing currencies and hold tremendous potential in facilitating international trade and cross-border payments. Some of their most tangible benefits include saving of handling costs and expediting trade across different time zones by simplifying complex financial systems. The Central Bank of the UAE (CBUAE) is gearing up to roll out digital currency for domestic and cross-border trade. Even as several major economies including the UK, China and Russia are set to adopt digital currency, CBCDs are still in the incubatory stage and will be closely developed and monitored by regulatory agencies.
2. Stablecoins
Stablecoins are crypto currencies pegged to real-world assets such as gold or flat currencies and come with the stability of fiat currency or asset. Unlike crypto currencies like Bitcoin, the value of stablecoins remains steady in accordance with the flat currency that backs them. Given this unique benefit, their use for money transfers is likely to go up. This will also open up acceptance for crypto in mainstream payments.
According to a Crypto regulatory report by PWC, the United Arab Emirates (UAE) has completed its crypto regulation and the Central Bank of the UAE is expected to soon convey its stance on permitted virtual asset operations.
3. Decentralized Finance (DeFi)
Decentralized finance popularly known as DeFi is being recognized as an emerging finance domain for trading and exchanging assets. By definition, DeFi is a blockchain-enabled independent financial network facilitating peer-to-peer trading. What distinguishes it from a centralized financial system is a lack of central governing authority. It works autonomously and helps in conducting financial transactions such as lending and borrowing from anywhere with internet connectivity. DeFi is emerging as a cost-effective option as it eliminates intermediaries such as banks and financial institutions. However, the lack of regulatory frameworks poses risks and how financial institutions in the UAE integrate this new technology will determine its success in the region.
4. Non-fungible Tokens (NFTs)
Non-fungible tokens (NFTs) are unique digital identifiers that exist on a blockchain and cannot be copied or substituted. They can be traded for money, crypto currencies and other NFTs.
Thanks to innovative policies and an overall conducive environment, NFTs in the UAE are slated to grow by 45% on an annual basis as per a market intelligence report. Moreover, several innovative NFT marketplaces have emerged in the UAE and they have been facilitating NFT trade and pushing the transaction value and volume.
The Future is Digital
The financial sector in the UAE is geared up for a major overhaul in the coming months with several new policies pushing for digitization. The Central Bank of the UAE (CBUAE) is leading the digital transformation in the country’s financial services sector and has launched a comprehensive Financial Infrastructure Transformation (FIT) programme. The first stage of this programme will include an instant payments platform, an innovation hub and a central bank digital currency (CBDC) for domestic and cross-border uses.
Further Innovations in blockchain technology and open banking are expected to catalyse the development of financial services in the UAE. New emerging trends to watch out for include Neobanks that offer streamlined digital-only services at attractive rates and are posing a challenge to traditional banks.
Should you need any help My Best CFO Team is always happy to help.
Stay up to date with us!
Commentaires