What Can FinTech Learn From The UAE's Rise As The Next Hotspot?
The United Arab Emirates (UAE) is shaping up to be the world's next FinTech hub, and this should not come as a surprise. Initiatives like the Dubai International Financial Centre (DIFC) and Abu Dhabi Global Market (ADGM) have boosted foreign direct investments (FDI) in the financial sector. In fact, according to UAE government records, the region ranks second globally in terms of FDI. Many of these FDIs are from FinTech startups performing incredibly well.
For example, the UAE FinTech market is projected to reach $3.56 billion in 2025 and $6.43 billion by 2030, growing at a CAGR of 12.56%. In comparison, the United Kingdom FinTech market is expanding at a CAGR of 10%. The difference between the markets is clear, but there's more.
As the CEO of a tech company that creates FinTech solutions, I have closely followed innovations in the financial services sector over the years. Providing FinTech solutions to clients in the MENA region has given me more profound insights into the regulatory framework.
In this article, I'll discuss what the UAE is doing right and highlight some critical lessons tech professionals can learn from their example.
The UAE has a strategic advantage in FinTech, with massive innovations like generative AI and blockchain transforming financial operations. UAE FinTech startups like Warburg AI are already transforming financial transactions by focusing on innovating cryptocurrencies. Many such startups are looking to transform the FinTech market in the UAE, and these startups and enterprises are gaining more traction.
Alongside the AI boom, FinTech companies in the UAE are taking advantage of the regulatory haven established by the local government. Arif Amiri, the chief executive at the Dubai International Financial Centre, states, 'By giving FinTechs in the UAE a holistic, dynamic ecosystem with an independent regulatory and English Common Law judicial system and global financial exchange, start-ups can be better equipped to promote their innovative solutions and expansion plans to investors.'
The cost of starting a business in the UAE is lower than in other hubs like London, which is a primary reason FinTech companies are thriving there. Startup costs in the UAE are reduced due to the availability of free zones, such as the DIFC and ADGM. Furthermore, licensing costs in the UAE range from AED 10,000 to AED 50,000, while in London, they can vary from £1,500 to over £5,000. Additionally, FinTech businesses in London must navigate complex regulations imposed by the Financial Conduct Authority (FCA), which raises their overall expenses. The UAE also offers a 0% corporate tax rate for eligible businesses in free zones.
For those outside the UAE, there's still a lot to learn. For example, if your FinTech company provides specific financial services recognized by the local government, it might also be eligible for VAT exemptions.
The regulatory framework in the UAE mandates that multiple licenses be obtained for your FinTech business, supervised by ADGM, DIFC and the Central Bank of the UAE. ADGM issues the Financial Services Permission (FSP) permits. It also provides category 3 and 4 licenses for FinTech companies with a minimum capital requirement of USD 10,000. At the same time, DIFC provides an Innovation Testing License (ITL), which generally takes 5 to 15 weeks for approval.
The Central Bank of the UAE regulates key financial services such as payments and cryptocurrency activities. Therefore, you need to obtain a license from the Central Bank to facilitate transactions on your platform.
However, if you are not based in the UAE, regulatory compliance and licensing laws can differ. This is why it's crucial to identify the applicable laws and licensing guidelines specific to your business location. For example, in the U.S., you must submit AML/KYC compliance documents to FinCEN.
The UAE government is implementing essential initiatives, such as integrating the AANI payment systems with India's UPI. This enables cross-border payments and assists FinTech startups in providing financial services across the Asian subcontinent.
Apart from government initiatives, private players in the UAE are also making progress in facilitating cross-border payments. A recent collaboration between e& Enterprise and PayPal is one such initiative that will support FinTech businesses in the UAE over the next three years.
Moreover, startups can also take advantage of the emergence of the GCC RTGS (Gulf Cooperation Council Real Time Gross Settlement System, also known as the Afaq Payment System).
For businesses outside of MENA countries, overcoming the challenges of cross-border payments can be challenging. However, if you are one such business, you can implement specific systems to enable real-time cross-border settlements. You can also add multiple payment methods like ACH, wire transfers and digital wallets to ensure seamless payments.
The UAE's strong investment and funding ecosystem creates more opportunities for startups. In 2024, "the UAE led the region with $1.1 billion raised across 207 startups, followed by Saudi Arabia ($700 million in 186 deals). Startups can use the UAE's funding ecosystem to secure funds and innovate rapidly. This supportive environment for startups is already helping the UAE's FinTech sector grow.
There has been a notable shift among global investors, and the UAE has reaped the benefits. For example, significant investors like Kevin O'Leary have already relocated to the UAE. This shift is expected to heighten the investment appetite for startups.
Even if you aren't ready to move your FinTech operations to the UAE, there are other ways of improving financial services. A key aspect that tech professionals need to follow is local regulatory frameworks. Each region has different regulatory frameworks, and proper compliance can lead to more secure financial operations.
So, invest in innovation, collaborate with local government authorities and enhance compliance.
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