Khalid Saad, Chief Executive Officer of Bahrain FinTech Bay, tells Swiss Arab Entrepreneurs about the evolving fintech industry in Bahrain and the Arabian Gulf region, the establishment of a sister company at Silicon Valley, and why investing in talent matters for the future of the region.
The number of financial technology start-ups established in Bahrain will grow 43% from around 70 currently to at least 100 by the end of 2019, buoyed by growing investment in the sector and a supportive legislative environment, according to the CEO of Bahrain FinTech Bay, Khalid Saad. In an exclusive interview for Swiss Arab Entrepreneurs, Saad revealed his end of year forecast for the fintech industry in Bahrain, estimating the total regional industry value at $2bn and predicting it will increase to $2.5bn in the next few years.
The ballpark figure of the number of fintechs in the Gulf is between 300-400 comprising companies that have spun off individual platforms and focusing on fintech, crypto asset operator platforms, blockchain, data analytics, and many more, Saad explained. However, the Middle East accounts for just 1% or less of total investment in fintech globally, which means there is an opportunity for investment in fintech to increase, he added.
“The reality is that the disruption is here. Fintech has been the phenomenon of disintermediation of the financial services sector that has been trickling down to other sectors since the global financial crisis. In Bahrain and the Gulf, this reality has become much more evident over the past few years, and we’ve been looking very closely at ensuring that the ecosystem in Bahrain is being built and that it’s ready for this disruption,” Saad said, adding that the small island kingdom, where Bahrain FinTech Bay is based, is only just at the beginning of its journey.
Regional fintech landscape
In neighbouring United Arab Emirates and Saudi Arabia, legislation has been gaining pace to support the development of the fintech industry, with the Saudi Central Bank recently announcing the start of a ‘sandbox’ regulatory environment that allows local and international fintech firms to test new digital solutions. Saad expects to see this trend accelerating into the near future and ascribes the rapid adoption and standardization of financial technologies and practices by traditional mainstream financial institutions to the massive disruption that fintech has created.
“There is general acceptance that the modus operandi is not the same anymore, and that we need to do business differently,” he says. “This is not just a temporary phenomenon or a fad but rather it’s a much wider play at hand and the financial institutions as we know them are going to fundamentally change. Big tech companies are already coming in and eating the pie of the traditional financial institutions, meaning that these institutions will need to adapt and figure out what they need to do to survive and maintain their share,” he warns.
Changing consumer habits of the new generation of millennials, whose way of thinking and doing business is very different than that of their predecessors, are another key driver for the adoption of fintech. “We are now moving from a product centric world to an experiential world where consumers want real time information, available at any time. I think the other theme that will really drive fintech developments in the region is financial inclusion, i.e. ensuring that the underbanked or the banked become part of this financial system through fintech. I think we can achieve that, and this is what will help drive development in the GCC for years to come,” Khalid explains.
Bahrain’s fintech milestones
Founded just about a year ago to support the development of a fintech industry in the MENA region, Bahrain Fintech Bay has played an instrumental role in facilitating the right regulatory environment and supporting the establishment of start-ups across different sectors in the kingdom. “We are pushing ahead with open banking which I think is a massive development and an absolute game changer. We’ve created a dedicated fintech and innovation unit within the Bahrain Central Bank. We managed to literally go from the idea of starting a sandbox to launching it in six months,” Khalid said. Currently, 28 companies, of which 10 are crypto-related firms, are operating in the regulatory sandbox in Bahrain, cutting across different sectors such as crowdfunding, blockchain, payments, challenger banks, open banking, and others.
“These are firms that came here because there is that regulatory environment which helps crypto currency activity, Khalid said. He added: “Significantly during the previous month, the Central Bank of Bahrain have pushed out the next crypto asset module license in Bahrain. We are also standardizing E-KYC so it becomes a national utility tool for the financial services at a country level.” The so called “electronic KYC” or “know-your-customer process” is used in banking as a paperless and electronic method of verifying the identity of customers.
Bahrain has one of the largest conventional financial sectors in the region and is one of the top two global hubs for Islamic finance behind Malaysia, which creates significant opportunities to innovate in the space of Islamic Finance. “The sector of Islamic Finance 1.0 era has been over for the last few decades. We are now moving into Islamic finance 2.0 that will be heavily reliant on technology,” Khalid says. As part of its initiative called the Global Islamic and Sustainable Fintech Centre, Bahrain Fintech Bay is raising a 100 million-dollar fintech fund which will ultimately tie in the ecosystem, Khalid adds.
Bahrain Fintech Bay: A global force
Outside of the region, Bahrain Fintech Bay is developing a sister platform in Silicon Valley which will be inaugurated in late March or April this year. The company also owns platforms in Detroit and Singapore. Khalid tells Swiss Arab Entrepreneurs: “The vision behind this investment is developing the ecosystem further and exposing our partners to innovative solutions and technologies. There is a lot going on in Silicon Valley so having a footprint there would enable us to meaningfully connect the platform here in Bahrain with that in Silicon Valley. Ultimately, if you have that footprint you become a global platform with relevance. As we celebrate one year since we were founded, that connectivity is absolutely key.”
Moving forward, talent development will be key to developing the fintech sector in the region, which is why Bahrain Fintech Bay launched the National Fintech Talent Program together with Tamkeen (The Bahraini Labour Fund) that aims to equip the next generation of talent with the skill set required to play a leadership role in fintech innovation. The company also has in place a strategic partnership with Georgetown University in the US alongside the Georgetown Professional Development Course in Fintech.
Khalid says that setting up a business in the kingdom is an easy and straightforward procedure, with the whole country acting as a free zone of a sort. If a company’s offering is in technology, they would need a normal commercial registration, and if a company is conducting some form of financial services that would need to be officially regulated by the Central Bank. There are two options, one is to apply for an existing license category or if they don’t fit in that category, they can apply to the regulatory sandbox. The same procedure applies to foreign companies. In Bahrain, any company that establishes a base will be treated as a local company, Khalid tells us.
“We are at a time when the ecosystem is growing stronger together. Bahrain is a small place – just like Singapore is a small place – but a company can come here, incubate, innovate, ideate, and test. I would need to be able to give companies the opportunity to expand into other markets because if they do that and they grow then everybody wins that’s why you need to establish partnerships with different jurisdictions. You’ve got to be competitive individually but it’s all about meaningful collaboration,” he concludes.
