The remittence market is set for disruption and the UAE is primed to lead. Will the next finch unicorn hail from Abu Dhabi?

By Xische Editorial, October 8, 2019

The global remittance market is heating up. With more people than ever crossing borders in search of work, global outflows of capital to low- and middle-income countries is hitting new highs. According to the World Bank, “annual remittance flows to low- and middle-income countries reached $529 billion in 2018, an increase of 9.6 per cent over the previous record high of $483 billion in 2017”. Coupled with the rise of financial technology and the proliferation of smartphones, it's abundantly clear that the remittance sector is flourishing. 

Trust remains a premium in this sector. The traditional titans of the remittance trade such as Western Union levy high levies to move money because they can guarantee that it will arrive at its final destination. Technology is finally coming to disrupt this model by providing better service at a lower price. 

Take cryptocurrency as one example of the disruption. Blockchain technology removes some of the trust concerns because it is designed to highlight transparency. Trust is placed in code, not people. Yet, Blockchain remains an elusive solution as many governments are legislating against the use of cryptocurrencies and regulatory conditions are still being hammered out. While the technology might be secure, it remains a volatile way to move money. 

With its cryptocurrency-based payments network, Facebook is one of the largest companies using blockchain to disrupt the market. Facebook’s Libra currency will be backed by several major companies and controlled by an independent board based in Switzerland. Recently it has run into several major regulatory hurdles as lawmakers around the world fear the power that it could give Facebook. Indeed, when it goes online, Libra could be one of the strongest currencies in the world without any backing from a government. We live in wild times. 

The genius of Libra is that users will put their trust in Facebook and its wholly-owned companies like WhatsApp and Instagram. Consider it this way: If users already trust WhatsApp for their daily conversations with friends and family, why not use a Facebook service to send money home. Facebook doesn’t have any major interest in making money from small transactions. Rather, it’s after user data. Users that already give over their data to Facebook have little to lose and a lot to gain. 

Libra demonstrates there are many solutions for the rapidly changing remittance sector. Throughout the emerging world, there are new applications that store and transfer digital money between users with little more than a cellphone. This is enabling an entirely new class of customers to join the formal financial services sectors. Poorer communities that once relied on cash, which is a notoriously insecure method of storing money, can now use their phones with digital money. This is a gateway to other financial services such as insurance and savings accounts. 

Trust remains a premium in this new digital landscape and its one reason why countries such as the UAE are well-positioned to lead the new financial technology sector. The Arabian Gulf has one of the most robust remittance markets in the world thanks to the presence of a large number of foreign workers. With myriad remittance outlets based in the UAE, the country has long been on the forefront of the global remittance industry. Coupled with its budding knowledge ecosystem and start-up culture, the UAE is ideally placed to be the home of the next great innovation in the sector. 

The public and private sector are already pushing developments. The Abu Dhabi Global Market (ADGM), for example, is taking a leading role in incubating the next generation of FinTech startups. This month, FinTech AD will gather eight global FinTech unicorns for a conference highlighting the “role that Abu Dhabi plays in the development and sustainable future of the FinTech and financial services economy in the UAE and wider Middle East and Africa region”.

Richard Teng, the CEO of Financial Services Regulatory Authority of ADGM, said that the conference is “a significant recognition and testament of Abu Dhabi’s ongoing support and commitment to the growth of the startups and entrepreneurial sector in the UAE. As an International Financial Centre and FinTech enabler, ADGM recognises that Fintech has, and will continue to transform the financial services sector.” 

The UAE is ideally positioned to be the home of the next great remittance or FinTech innovation for the same reason Facebook is well-place for Libra. The country has trust worldwide in its financial markets and existing remittance platforms. With the backing of the Government, people from India to South Africa will be confident that their money is safe and secure. Coupled with the budding start-up ecosystem in the country which has already produced the likes of Careem and Souq.com, the next FinTech unicorn just might come from the UAE. When it comes to FinTech, trust is the critical indigent to real disruption.