kuwait city

While Kuwait’s fintech sector remains tiny compared with its Gulf neighbours, the country has taken big strides towards licensing new digital banks. John Everington reports. 

Fintech has become an increasingly important buzzword for governments across the Middle East in recent years — and in the six-strong Gulf Co-operation Council (GCC) in particular — as part of efforts to embrace innovation and diversify away from an over-reliance on oil revenues.

The development of Kuwait’s fintech sector has hitherto been more modest than that of other regional centres, such as Bahrain and Dubai and Abu Dhabi in the United Arab Emirates, reflecting both the country’s lower prominence as a financial centre compared with its neighbours and its unique political system, which makes the passage of new laws and regulations more challenging than elsewhere. As such, Kuwait ranks at the bottom of the region as a fintech destination.

kuwait fintech table

Yet the country’s fintech scene is far from dormant, producing a handful of successful start-ups in recent years without the fanfare of other regional centres. And while local regulations to encourage digital financial service players have recently trailed those in other jurisdictions, new regulations on digital banking from the Central Bank of Kuwait (CBK) introduced in February may herald a new dawn for the local fintech scene.

“The new regulations issued have been a game-changer for both digital banking and the fintech landscape in Kuwait in general,” says Houssam Itani, EY’s Middle East and north Africa (MENA) banking and capital markets advisory leader. “I think we’re going to see an accelerated push and more regulations to come within other fintech verticals.”

Sandboxes in the desert

The past 10 years have seen a frenzy of activity across the GCC’s financial centres in the fintech space. The Dubai International Financial Centre (DIFC) launched its FinTech Hive accelerator programme in 2017, with Bahrain’s FinTech Bay incubator and Abu Dhabi Global Market’s Regulatory Sandbox launching in 2018.

Kuwait followed suit that same year, with the CBK announcing its own regulatory sandbox framework in partnership with local banks, enabling participants to test new services with relaxed regulatory and licensing requirements. Today, four companies are listed as having ‘graduated’ from the sandbox on the CBK’s website: electronic know-your-customer solutions provider FRM Tech Labs; money exchange services aggregator Xent; buy-now-pay-later provider Taly; and open-banking company Spare. Such activity, however, pales in comparison with Kuwait’s regional rivals, with the DIFC’s FinTech Hive graduating 44 companies in 2021 alone.

In findexable’s Global Fintech Index for 2021, Kuwait was ranked 238th out of 264 centres worldwide and in last place in the MENA region (see table). The country’s fintech challenges run parallel with its perception as a financial centre; Kuwait ranked 108th in Long Finance’s Global Financial Centres Index for 2021, again lower than any other centre in the GCC.

Beyond its formal programmes, however, Kuwait has seen the birth of a number of successful fintech start-ups. These include payments providers Tap, MyFatoorah and UPayments — which ironically graduated from the Qatar FinTech Hub accelerator programme in 2020 — as well as digital financial services aggregator FinFirst.

Perhaps the most interesting activity in the fintech space outside of the country’s banks has come from the country’s three telcos, Zain, Ooredoo and STC.

“Zain, in particular, has done a fantastic job — not just engaging with fintechs, but also venturing into the financial services space themselves,” says Mr Itani.

Active as a telco in seven countries in the Middle East and Africa, Kuwait-headquartered Zain has launched financial services of various descriptions across its footprint, including micro-loans in Saudi Arabia, and digital wallets in Iraq and Jordan, with a view to launching services in Kuwait, Bahrain and Sudan this year.

The operator claims its digital financial services customer base has grown from 372,000 at end 2019 to 1.54 million in December 2021.

“Zain views the opportunities presented by the digital economy in the Middle East as brimming with potential, as digital capabilities offer greater levels of innovation and direct positive impact on economic and social development,” the operator’s vice-chairman and group CEO, Bader Al-Kharafi, said last year.

“One area we are keen on fostering is innovation in the fintech space and becoming a telco-led challenger bank.”

Digital banking dawn

Kuwait is set to be one of the first countries where such an aspiration becomes a reality for Zain. While Kuwait’s fintech credentials may fall short of its rivals, the country has made solid progress on its digital banking licensing regime, placing it alongside the likes of Bahrain and Saudi Arabia, and arguably ahead of the UAE, which, while having witnessed the launch of its first digital only banks, has yet to issue a formal licensing programme for new entrants.

Ahead of the publication of formal regulations, the CBK signalled its support for digital banking in the country some years ago, announcing that it would convert the local banking licence of Ahli United Bank (AUB) into a digital-only licence, as part of the latter’s acquisition by Kuwait Finance House (KFH).

“One of the conditions on KFH is to maintain their licence of AUB in Kuwait,” CBK governor Mohammad Al-Hashel told The Banker in 2020. “So, we still have competition among the Islamic banks and, at the same time, we want to change it to a digital bank.” 

Yet, although the KFH and AUB boards agreed to the combining of the two entities in September 2019, the deal was formally delayed in April 2020 following the start of the coronavirus pandemic, with no further updates to the process announced as of time of publication.

The CBK issued new regulations for the establishment of digital-only banks on its website on February 2, “after benchmarking regulatory approaches of 25 central banks studying use cases from 40 digital bank business models”. The central bank has given interested parties until June 30 to submit applications for the new licences, with a decision on licensing to be made by the end of the year.

While the CBK did not respond to questions about the number of applicants received, Zain and Ooredoo are understood to both be seeking a digital banking licence.

Kuwaiti logistics giant Agility was one of the first companies in the country to express an interest in acquiring a new licence, even before the publication of licensing guidelines by the CBK, following reports in the local press last year.

“As part of the company’s ongoing focus on digital initiatives, [it] considers various opportunities available that help the company to achieve its interests and the interests of its shareholders,” the company said in a statement. “Agility has requested a licence to establish a digital bank, but there is nothing material at the moment.”

While the entrance of new players will oblige traditional lenders to increase investments on their digital offerings, the business models of the country’s larger incumbents are unlikely to be adversely affected.

“Given the set of opportunities to cater to, the focus of traditional banks will remain on the more profitable core banking and ability to digitise the services through digital banks, while non-banks may focus more on non-core banking aspects like remittances, foreign exchange and investments,” says Ali H Khalil, CEO of investment bank Kuwait Financial Centre.

Ahead of the award of the country’s first digital banking licences, Kuwait’s largest lender the National Bank of Kuwait (NBK) has taken a leaf out of the playbook of Gulf lenders such as Dubai’s Emirates NBD and Gulf International Bank by launching its own standalone digital lender ‘Weyay’ in November 2021, targeting young and digitally savvy Kuwaiti customers, in a bid to pre-empt the impact of new entrants.

Sulaiman Al-Marzouq, NBK’s deputy CEO for Kuwait, told The Banker that Weyay had already gathered “exceptional interest” in the youth segment for new accounts, and that the bank had exceeded initial targets for August by the end of February.

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