Are We Ready for Digital Banks?
The FDIC just approved the first digital bank in the US. At the nexus of the global economy, the UAE is poised to lead a digital banking revolution.
By Xische Editorial, February 21, 2020
Source: HST6/Shutterstock
Global financial technology is heating up fast. Everywhere you turn there are fresh sources of capital pouring into fintech start-ups, which fuel innovative banking solutions for the global unbanked. The UAE punches above its weight in fintech. As record numbers of people cross borders to find work, for example, the remittance market is one particularly hot spot for UAE-based fintech startups. The opportunity for disruption in the financial technology market can’t be overstated for companies in the Arabian Gulf.
Given their position at the divide between established western markets and developing eastern markets, countries like the UAE and Saudi Arabia can innovate new fintech solutions that could have rapid global adoption. With growing knowledge economies and strong infrastructure already in place, innovative startups can easily expand their customer bases from the Gulf outward. Recent developments in the United States could present another opportunity for local investors and engineers.
You may not have heard of Varo Money, but it’s having a global impact. The bank is a digital-only US outfit that just received crucial FDIC approval. Until this point, digital banks needed to join forces with older, more established banks to complete their operations. Since Bank Simple launched in 2012, digital banks have pushed aggressively to receive FDIC-backing. Varo Money has waited for at least three years.
The FDIC system, which stands for Federal Deposit Insurance Corporation, insures deposits made into US banks by the federal government. Digital banks have struggled to achieve FDIC status because regulators have worried that venture capital support startups didn’t have enough capitalization to withstand a financial crisis or a bank run.With FDIC backing, Varo will be the first digital-only bank in the world’s largest economy. The flood gates are about to open.
How does an American bank influence the local finance sector? With one of the most trusted banking sectors in the world, the US is showing other markets that digital-only banks are viable. The onus is now on local institutions to follow suit and roll out similar products at home. A digital-only UAE bank could specialise in remittance payments, offer multiple digital currencies, and easily expand operations around the emerging world. Emirates NBD has already started the process with their Liv product.
Digital only banks are also a link with the digitization taking place in government services throughout the UAE. The recently formed Dubai Council, for example, is examining ways to streamline government services to amplify their impact. Digitization and greater technological integration across ministries and offices is a major part of this plan. The idea behind this drive is simple; by moving services to users’ smartphones and computers, residents have more time to focus on more important things in life such as work and happiness. Digital only banks can play a vital role in achieving this goal. The smartphone is a revolutionary tool. Why not move more services on to the platform?
By following developments in the West and emulating best practices, the UAE can further enhance its fast-growing fintech sector. With the leading technology infrastructure in the region, the UAE is ideally positioned to create the first digital-only bank in the Middle East. Leveraging the country’s position as a leader in the emerging markets, the UAE banking sector could become a world leader in digital finance. It’s a critical part of our growing knowledge economy.
