Inflows of financial services foreign direct investment (FDI) into the UAE rose in 2020 and have remained buoyant this year due to various government efforts to support the development of the country’s fintech sector.
Financial services and fintech FDI capital expenditure jumped 7% year-on-year to $692.8m in 2020, while the number of projects increased from 51 to 56 and the number of jobs created rose from 892 to 1053, according to FT-owned greenfield data monitor fDi Markets.
This flurry of activity has continued into 2021, with the number of jobs created already at 1032 across 29 projects as of end-July, with a total capital expenditure of $467m.
“Prior to Covid-19, a lot of supportive [fintech] initiatives and regulations had already been issued or were in late-stage planning,” says Abdulwahid Alulama, a corporate and mergers and acquisitions partner at law firm White & Case. “So, what has happened during the pandemic has been a take-up and an acceleration of the work that had been done beforehand.”
Government-led efforts include the Emirates Blockchain Strategy 2021, which was launched three years ago with the aim of shifting 50% of transactions, including e-payment services, to blockchain by the end of this year.
The country’s National Artificial Intelligence (AI) Strategy 2031, meanwhile, seeks to develop an integrated system that employs AI across the UAE including financial services. A minister of state for AI was appointed in 2017.
The UAE’s main financial free zones, the Dubai International Financial Centre (DIFC) and the Abu Dhabi Global Market, have both established fintech sandboxes to allow start-ups to test products and services in a controlled environment under regulatory supervision, as well as establishing accelerator programmes and partnerships. Start-ups can apply for funding from a $544m innovation fund to develop their platforms.
Data aggregation and payments
“Dubai and Abu Dhabi are starting to become hotspots for a lot of new businesses focused on digital banking, data aggregation and payment platforms,” says Mr Alulama. Dubai accounted for 80% of the projects destined for the country last year, while the UK was the top source country for projects, followed by the US and India.
“There is a huge unbanked community in the UAE — many labours, for example, rely on cash — and a lot of investment has gone into creating platforms to serve that section of the population in areas such as money exchange platforms and remittances,” Mr Alulama adds. Start-ups such as Now Money, a smartphone-based remittance and banking app, have sought to tap this market.
Prior to Covid-19, a lot of supportive fintech initiatives and regulations had already been issued
FDI into financial services this year includes Amazon Payment Services — an online payments processing service owned by US tech giant Amazon — investing in a fintech lab based in the DIFC. The US blockchain research and development firm Future FinTech is also investing in a new unit in Dubai, focused on crypto trading and asset management.
Notable deals last year include Saudi Arabian buy now, pay later platform Tamara opening an office in Dubai and UK business accelerator network Startupbootcamp establishing a new regional headquarters.
The Abraham Accords
The normalisation of relations between the UAE and Israel, following the signing of the Abraham Accords in August last year, represents another boost for the country’s financial services sector.
In January this year, Israeli fund manager Liquidity Capital put $100m behind the new office in Dubai to support investments across the Middle East, via a partnership with UAE-based Vault Investments.
“The impact [of the Abraham Accords] has been instantaneous. It’s really helped kickstart things, especially on the fintech side, where is Israel is such a big player,” Mr Alulama says.
US-based Icecap, which facilitates the trade of diamonds via non-fungible tokens, moved its global headquarters from Denver, Colorado to Dubai in May this year.
“The fact that the diamond industry [and related financial services] is coming to the UAE is directly related to the normalisation of relations with Israel,” he adds.
Further opportunities for fintechs have also been created by the awarding of licences for two new digital-only banks in the UAE — Zand and Al Maryah Community Bank — as well as sizeable recent digital investment by state-owned lenders such as Emirates NBD and First Abu Dhabi Bank. “At all levels there is a very strong push towards the development of technology [in the UAE] that not all countries have,” Mr Alulama says.
