The UAE’s fintech industry is booming. Peter Tavener, COO of peer-to-peer lending platform, Beehive, examines the path from startup to scaleup and the key considerations for lasting success
According to the UAE Ministry of Economy, the country's fintech industry is worth $2.5 billion and leads the Middle East and North Africa market. It is also expected to grow 12 per cent annually up to 2026, based on a report from Mordor Intelligence.
With such huge opportunity, entrepreneurs are, unsurprisingly, rushing to innovate, ideate and launch the next era-defining fintech venture.
But, as many startups discover, the growth cycle is filled with challenges. Securing funding, understanding regulations and recruiting strong leadership are essential yet often overlooked steps that must be carefully navigated in order to survive.
Understand the target market
Here at Beehive, we connect businesses seeking fast and affordable finance with investors who can help to fund their growth. We launched in 2014 and were the MENA region's first peer-to-peer (P2P) lending platform to be regulated by the Dubai Financial Services Authority (DFSA).
In the last eight years, we have observed several key factors that enable fintech startups to grow and scale successfully.
The first and most important is product. Does the startup have a product that people genuinely want, and does it have a market that is big enough to grow into? Often entrepreneurs launch an idea without considering whether there is a wider market for the product.
If the market is particularly small, it's harder to secure funding. It's also more difficult to recruit senior talent and to expand beyond the initial launch phase, as the limited growth potential makes the company less attractive to investors and future employees.
Company owners must understand, in detail, who their target audience is, how big their audience is – both nationally and regionally – and why that audience needs their product. Moreover, how does their offering differ to other startups, whether a digital bank that serves freelancers and sole traders, or a credit rating company that uses more accurate scoring systems than traditional banks?
And, if they are first to market, how can they ensure that future startups don't copy their idea and poach their hard-won customers? Startups must have detailed, well-researched answers to all these questions, not just for their own clarity, but to build interest and trust among potential investors, future c-suite employees and prospective customers.
Next is timing. If a startup has a solid product, it must then consider whether the market is ready to use it. The fintech market took off in the UAE around five years ago, in 2017 and 2018. We launched three to four years prior, which in hindsight was too early as the local VC ecosystem and understanding of fintech was less developed.
That made attracting investment harder, although we secured two rounds of funding led by Western angel investors who understood the industry's huge growth potential.
While the local VC community also saw major opportunities in the industry, it was still deciding which specific areas it wanted to invest in. As a result, we were unable to secure VC funding which impacted our ability to scale as quickly as planned.
There are, of course, benefits to launching early. First movers can often establish their product as the industry standard. They can connect with customers first and build brand awareness and loyalty. They can also negotiate premium contracts with key suppliers and hire the most talented employees.
The key for entrepreneurs is to weigh up the pros and cons, know the target market and understand the local fintech ecosystem. In short, they must do their research – and do it thoroughly.
From growth to profitability
After timing, startups must consider their overall business and revenue model. How can the product be monetised and, more specifically, how will the company become profitable when it scales?
Lending platforms and P2P lending solutions, such as Beehive, are gaining momentum, globally and in the Middle East. They allow small and medium-sized businesses to borrow money from a pool of investors without the involvement of traditional lenders, such as banks. Investors earn attractive returns with monthly repayments, while small businesses have access to fast, flexible, and low-cost finance. The business model allows fintech platforms to earn a fee on each funding request.
Digital wallets are another popular business model. A combination of a simple account and a payment gateway, e-wallets allow users to pay for goods and services using preloaded virtual money.
At the heart of the revenue model is customers making contactless payments for a small fee, which is charged to merchants in the form of a merchant discount rate (MDR). These payment platforms also generate income from the sale of third-party financial services to their customers.
A good fintech example is BitOasis, the crypto exchange and wallet, which launched in Dubai in 2014. BitOasis led the charge in crypto in the region and has built a promising scalable business.
There are many other successful business and revenue models operating in the region, from open banking platforms such as Tarabut Gateway to payment services providers like NOW Money, both founded in Dubai in 2017 and 2015, respectively.
Like those before them, new startups must carefully consider how to transition from the early growth phase to the all-important money-making phase in order to scale successfully.
Strong leadership is key
Another critical factor is leadership. To scale successfully, startups must have a solid management team in place, one that is diverse, passionate, experienced and supportive of one another. This is incredibly important, particularly for startups hoping to secure seed and, later, series A funding.
A good team with a less than perfect product can always pivot and improve its offering. A weak team with a strong product may never be able to launch that product properly or make it successful. For this reason, the top three or four management positions, and even the next four or five supporting positions, are key to the decision-making process for early-stage investors.
When seeking investment, startups should also choose potential VC funds or angel investors carefully. The most successful partnerships are not just about cash injections, but access to experienced leadership, valuable contacts and other less tangible, but hugely beneficial services.
Finally, understanding and conforming to regulation is vital. From day one, startups must have a solid grasp not only of their regulatory requirements and the ease of becoming regulated, but also whether the relevant regulation even exists.
If it doesn't, companies may find themselves unable to progress because they can't launch their product properly, if at all.
When a startup is finally regulated, it must understand that regulatory bodies work to a very high standard and that it must meet those standards if it is to be taken seriously.
Fintech opportunities in the UAE
Open banking – the system of providing third-party access to financial data through the use of application programming interfaces, or APIs – represents one of the sector's biggest growth opportunities in the UAE.
A small number of fintech startups, including Tarabut Gateway and Lean Technologies, have already raised significant investment in this area and there is demand from banks and regulators for open banking to grow further. This is largely because it improves the end-user experience by offering a faster service and more tailored products.
Currently, there is demand for two types of open banking fintech: first, those that bolt onto banks and financial institutions and manage their open banking for them, in essence enabling institutions to work through a third-party mechanism; and, second, those that utilise open banking to conduct a credit assessment and make a decision on a loan faster and more efficiently than traditional banks.
The whole concept of open banking is to enable financial institutions to offer more products to more people, more quickly. Moving forwards, we expect to see a surge in the number of open banking startups.
Startups that support cryptocurrencies, decentralised finance and the wider blockchain are also worth watching. It will be interesting to see whether these really take off and whether there are any meaningful real-life use cases. My guess is, we will, particularly following the launch of the Dubai Virtual Assets Regulation Law in March.
This advanced legal framework will regulate the cybercurrency market and promote business growth through cybercurrency payments. It will also help to protect investors in cyber money.
Embedded finance is another exciting area. Apple Pay has been so successful that we could well see rival products emerge in the Middle East in the next two to three years.
The UAE as a fintech hub
The UAE has emerged as the region's leading fintech hub. Dubai International Financial Centre and Abu Dhabi Global Market are breeding grounds for startups and the wider fintech sector, offering regulation and an entire ecosystem of government support. This covers everything from access to potential investors to enrolment in dedicated accelerator programmes.
Dubai in particular is a magnet for entrepreneurs. It has a breadth and depth of VC funds that were missing 10 years ago and the biggest talent pool in the Middle East. With a huge expatriate population, the city is home to millions of people from around the world, people who made a conscious decision to leave their home country and live overseas. That in itself screams a community that is prepared to think big and take professional risks.
The size of the market here is also very healthy. It's not overwhelmingly large, but it's big enough to build a solid product, test and refine it, and then, when it's 80 per cent ready, roll it out to other markets.
Dubai and the wider UAE has done incredibly well to grow the fintech industry to the size it has in the time it has. Now, the real litmus test is whether the country can produce a truly unique fintech startup, not a carbon copy of a successful fintech from another part of the world, but a company whose entire concept has been germinated here.
And, beyond that, can the UAE produce a truly global brand? Can it create a huge unicorn with a 30- or 40-billion-dollar valuation, a unicorn that starts in this country, expands properly and takes on businesses in the West?
In my opinion, absolutely. So rich is the talent pool and so supportive and agile is the UAE government that it's not a matter of if, but when. And that's incredibly exciting.