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Crypto, digital payments among top 2022 trends for GCC financial services sector

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Global management consultancy Oliver Wyman predicts that some of the top trends that are set to shape the Middle East’s financial services sector throughout 2022 include cryptocurrencies, digital payments and Banking as a Service (BaaS).

The consultancy group shared its predictions in a statement that was released on Wednesday.

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According to Mathieu Vasseux, Partner and Head of India, Middle East and Africa (IMEA) Financial Services and KSA Market Leader at Oliver Wyman, the region’s financial services sector is currently undergoing a radical transformation and is set to witness some major developments this year.

Digital Payments & Cryptocurrencies

The firm predicts an increased interest in payments across the spectrum of banking incumbents, FinTech disruptors and regional central banks due to a range of factors.

Cryptocurrency. (Unsplash, Maxim Hopman)
Cryptocurrency. (Unsplash, Maxim Hopman)

In a statement, the consultancy group said that the superior economics of these approaches are a gateway to full banking relationships to compete with technology disruptors. Saudi Arabia’s "STC Pay" and "UrPay" by Al Rajhi Bank - the world’s biggest Islamic Bank - are good examples of this competition playing out.

Payments are also a key pillar of enhanced government services and regulatory supervision.

A good example of this would be Project Aber, an initiative launched by the central banks of Saudi Arabia and the United Arab Emirates to explore the viability of a cryptocurrency as an instrument of domestic and cross-border settlement between the two countries. This move could essentially transform interbank transactions and reserve management.

“We also foresee growing adoption of cryptocurrencies and a wider push on Central Bank Digital Currencies (CBDCs), along with broader blockchain applications,” the statement read.

In December 2021, Global cryptocurrency exchange Binance and Dubai World Trade Centre signed a Memorandum of Understanding to develop the broader virtual asset ecosystem within the UAE.

Binance was also then awarded in-principle approval as a Crypto-Asset Provider in Bahrain.

Finance as an Ecosystem and Banking as a Service (BaaS)

The financial services industry has been undergoing a rapid transformation.

Oliver Wyman predicts that the sector will experience continued digitalization across banking, insurance and asset management.

The firm has been supporting leading banks and insurers on their journey to BaaS, which allows non-banks (e.g. brands) to embed financial services into its customer experience by selecting capabilities offered by banks in a modular way and is often delivered through an app.

Financial ecosystems are emerging with multiple partnerships, such as when payment processing platform Stripe entered the UAE market in 2021 and had 13,000 merchants expressing interest in joining their platform for payments and adjacent services.

‘Pillar of Fortitude’ by renowned artist Helidon Xhixha, at the Gate District 6 (Podium Level) at DIFC, in Dubai. (File photo: Supplied)
‘Pillar of Fortitude’ by renowned artist Helidon Xhixha, at the Gate District 6 (Podium Level) at DIFC, in Dubai. (File photo: Supplied)

The firm added that the sector is also witnessing consolidation via large mergers between banks and restructuring in most markets. Rapid financial service modularization, which has been disrupted by new entrant FinTech firms, like Tamara, a startup that follows the “Buy Now Pay Later” model, raising a record $110 million Series A round in Saudi Arabia. This shows that there is a need for incumbents to integrate and co-exist with other market established FinTechs.

Fiscal consolidation

The global consultancy also foresees fiscal consolidation at a national level in 2022.

For instance, Saudi Arabia has diversified revenues and optimized expenditure, enabling a potential 2.5 percent budget surplus this year.

Fiscal management and tax compliance are now being enabled by Artificial Intelligence (AI), advanced Big Data analytics and predictive algorithms, the Oliver Wyman press release stated.

The launch of e-invoicing, such as Fatura, would simplify the business process for companies and enable stronger tax compliance and real-time economic analytics at a transaction level in Saudi Arabia.

Saudi Arabia's capital Riyadh. (Twitter)
Saudi Arabia's capital Riyadh. (Twitter)

The firm expects companies in the sector to embrace the possibilities of e-invoicing for macro-economic, fiscal and social transformation.

“We also see more diversified government funding models in 2022, with sophisticated debt issuance, including Green Bonds and optimized reserve management, along with more focus put on managing and effectively deploying sovereign wealth,” the statement read.

“We also foresee an increased focus on ESG-friendly government investing and policies, both at SWF and bank lending level. In parallel, budget priorities are being refocused to enable long-term growth and resilience,” the statement added.

Oliver Wyman has a strong presence in the GCC region and across the globe, with offices in 29 countries worldwide.

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