Low-cost global payments unicorn TransferWise is one of a number of fintech success stories to exploit the exciting opportunities emanating from the United Arab Emirates (UAE), which has set its sights on becoming the next financial services supercentre.
The British-made paytech opened a new office in UAE capital city Abu Dhabi last October, attracted by the territory’s exceptional global payments demand, fuelled by a populace made up of 90 per cent ex-pats.
Its flexible, legacy-free regulation, a cutting-edge sandbox environment and significant funding opportunities, bankrolled largely by Saudi’s super-rich, including its royal family, were no doubt also a draw.
Chris Kiew-Smith is head of technology for the Financial Services Regulatory Authority of Abu Dhabi, and there’s a clue to the state’s direction of travel in his job title: a tangible demonstration of the standalone regulator’s commitment to finding high-tech, new solutions for fast-tracking regulation to achieve Abu Dhabi’s ambitious economic goals.
Like many of those driving the UAE’s promising new financial ecosystem, Kiew-Smith brings expertise from elsewhere in the world, having cut his teeth with UK regulator the Financial Conduct Authority (FCA).
He explains that the attraction of companies like TransferWise is all part of the grand plan to seduce the best and brightest in the world with a greenfield fintech hub being built by the recently formed fintech growth catalyst Abu Dhabi Global Market (ADGM).
To grow its reputation as a leading global financial services centre, Abu Dhabi is balancing state-of-the-art development labs with eyewatering funding opportunities and its own, responsive, internationally recognised regulatory and legal framework, which is inspired by and compatible with other leading systems around the world.
“We are our own geographical jurisdiction, but we are also our own legal jurisdiction and the law of the ADGM financial centre is English common law,” says Kiew-Smith.
“So, whenever a case gets passed in England and Wales, it has automatic application here. The reason why this is very important is that many financial services are transacting in English law, as a longstanding and reliable legal basis on which to conduct financial services.
“From a big bank’s perspective, like Citibank, one of the Tier 1 banks offering full financial services here, one of the attractions is that there’s a lot of business to be had in the Middle East. Our legal basis – the judges we have are ex-UK Supreme Court judges – then makes things like counterparty risk, managing potential insolvency and making sure commercial contracts behave predictably, easier to manage.”
ADGM is billing itself as a gateway to emerging Middle East and North Africa (MENA) regional markets, which are characterised by young, digital-native populations with massive smartphone penetration and advanced telecommunications networks. And to attract fintechs from the West keen to access them, it’s dangling a $1.5billion funding ecosystem as bait.
Its website states that as ‘a centre of connectivity located halfway between the European and Asian markets’, Abu Dhabi is a ‘crossroads of the world where ADGM’s strategic partnerships with other regulators and the private sector underpin a vibrant fintech ecosystem’.
And the region has already notched up notable firsts, including the first fintech-focussed regulatory regime and a fintech RegLab which is the world’s second most active fintech sandbox after London. ADGM offers established fintech entities an enabling ecosystem with access to some
of the world’s most underserved markets, while startups can apply to be part of the RegLab, a controlled environment in which to develop innovative solutions.
Other homegrown and foreign fintechs that have benefitted from this fertile economic ground so far span segments from payments to digital banking. Among them are Ant Financial’s global payments pioneer WorldFirst and Malaysia’s digital Maybank Islamic. The most recent RegLab cohort included payments-initiating application programming interface (API) platform DAPI and dedicated loyalty and reward point online payment provider PointCheckout, both from the UAE. There’s also stablecoin provider Jibrel Network from Switzerland and Luxembourg’s eco-investment provider Ekofolio, testing market-ready sustainable finance and API economy solutions.
Meanwhile, two previous participants, UAE-founded startups, NOW Money, which provides mobile-based accountand payments services for the unbanked, and blockchain-based payment technology company Pyypl, successfully graduated from the RegLab programme to launch new marketplace solutions.
The desert state has flourished with fintechs, particularly over the last two years. The Dubai International Financial Centre (DIFC) is now home to 737 active financial firms, an 18 per cent increase since 2018, and 64 per cent since it was established five years ago. Its current market worth is estimated to be around $700billion.
As the newest world financial centre, ADGM’s self-contained offering is serving the needs of some of the globe’s wealthiest individuals outside of London and Switzerland. In addition to having its own regulator and courts system, it also boasts a registration bureau and will soon have its own exchange, facilitated by Singapore.
Kiew-Smith explains that the regulatory framework is supporting growth by offering the polar benefits of being new and unfettered by legacy, while led by individuals like him who have already done much of the hard work in older financial centres and can bring that knowledge and experience to MENA-specific opportunities. Its compatibility with other worldwide approaches makes it familiar for incoming companies, enabling them to hit the ground running while benefitting from its ability to move much more quickly and tackle new regulatory challenges early.
Richard Teng, CEO of the ADGM Financial Regulatory Authority, has said the RegLab is helping to find a crucial sweet spot between innovation and risk-managing regulation.
“It has been an instrumental platform for fintech startups to innovate, and for us as regulators to adapt, re-invent and update our requirements. Insights from the RegLab have enabled us to launch new regulatory frameworks for digital assets, digital banking and robo-advisory.,” he said. “As a smart digital international financial centre, ADGM will continue to support innovative business models that meet the need of a fast-evolving digital landscape and tap opportunities offered by the future economy.”
At the same time, ADGM is partner in and home to the recently launched global tech ecosystem, Hub 71, in which it has invested Dh100billion to enable it to drive tech transformation with input from capital providers, business enablers and strategic partners. The regional Mubadala Investment Company is leading this initiative, with influential partners like Microsoft and SoftBank Vision Fund.
ADGM’s website slogan is ‘Think Fintech. Think ADGM’. Not exactly catchy, but it seems to be doing the trick, with the ranks of challenger bank startups in the UAE now including Gulf International Bank’s standalone digital banking offering Meem; CBD, the Bank of Abu Dhabi’s digital-only banking proposition; the Clearly digital banking service; and digital banking offerings Halalah and E20.
Among this cohort of disruptors, TransferWise should feel right at home. Backed by investors including Peter Thiel and Richard Branson and now worth an estimated $3.4billion, TransferWise clearly recognised the opportunity represented by the UAE. After receiving its money services provider licence, its chief financial officer Matt Briers said: “The Middle East was always on our map because of the significant volumes that flow here, but also the costs of sending money.”
A total of Dh169.2billion was sent from the UAE last year, according to the Central Bank’s 2018 annual report, and global remittances totalled $689billion in 2018, according to World Bank figures. The global average cost for sending money in the second quarter of this year was 6.84 per cent, against a MENA average of 6.91 per cent, according to a June World Bank report. The United Nations Sustainable Development Goal target is to reduce that to three per cent by 2030. TransferWise’s platform will allow UAE users to transfer funds in dirham currency to accounts worldwide.
Kiew-Smith quantifies the scale of the opportunity. “Because Abu Dhabi is such a centre of wealth, rather than corporates, wealthy family offices and the royal family having to avail themselves of financial services abroad via Swiss private banks, the London Stock Exchange, asset managers across Europe, or investments in Asia. We wanted to offer it from Abu Dhabi.
“This is by far the wealthiest Emirate in the entire UAE, and that was the drive behind establishing ADGM.”
A fine opportunity indeed!