The next steps taken by the Israeli fintech ecosystem might determine the entire UAE-Israel relations

Governments and regulators all over the world can learn some important lessons from the UAE’s governors in building supporting regulatory frameworks for financial institutions and fintechs to flourish

Aviv Barzilay 09:2306.09.20

The increasing interest of Israeli banks and fintech companies in UAE's financial industry and its technological progressives following the agreement between the UAE Central Bank and the Israeli Finance Ministry might be revealed to be a two-edged sword. The UAE financial market is sophisticated and well-established, managed by brilliant people, integrating the wealth and strength of the sovereign families, the best knowledge money can buy, and state-of-the-art financial technology. Tapping into this market will require Israeli companies to operate under well-defined regulatory frameworks and profound adjustments to the local business culture which has zero-tolerance for inefficiencies and waste of resources.


Fintech. Photo: Shutterstock Fintech. Photo: Shutterstock


There is no doubt that the normalization and the removal of the boycott consist of a tremendous financial opportunity for both sides, however the UAE has managed to position itself very quickly as a regional fintech hub thanks to cutting edge business strategies, unique relations between the public and the private sectors, and co-creation of knowledge bases and partnership models with the strongest financial institutions.


The UAE is the largest fintech hub for startups in the MENA region, hosting more than 45% of the startups operating in the MENA region, responsible for almost 50% of all fintech deals and 70% of all funding (According to the U.S-U.A.E Business Council 2019 reports). The UAE offers a share of young adults (20-39 years old) at 49% in 2019 of its total population. This age bracket is traditionally more tech-savvy than other generations, a highly influential consumer base and a key target audience for fintechs. Liv., the first lifestyle bank in the UAE and E20, UAE's first digital bank for businesses and tailored to provide seamless financial coverage for SMEs, both developed by the Emirates NBD Bank, are great examples for the technological progressiveness and diversity of the UAE's financial industry.


Governments and regulators all over the world can learn some important lessons from the UAE’s governors in building supporting regulatory frameworks for financial institutions and fintechs to flourish. The quick regulatory response to a rapidly changing economic environment allows local financial centers like Abu Dhabi Global Market (ADGM) to be recognized as the “best international financial center (EMEA) 2020” for two years in a row. While the Israeli open banking regime has a questionable future, the current target date is March 2021 after yet another delay from December 2020, affected by the everlasting political crisis. The Dubai International Financial Center (DIFC) is being praised globally for a quick and effective response to Covid-19, supporting its business community with a reasonably and feasible relief package. This relief package was rolled out at the beginning of the crisis when firms operating in its jurisdiction could use it to mitigate the effect on their operations and preserve their clients’ base.


The opportunity for Israeli fintechs is not a comprehensive one but rather limited to those areas which the UAE is struggling with, such as financial offering for undeserved and financially excluded communities supporting its 80% foreign workers demographic and anti-money laundering (AML) and counter-terrorist financing (CFT) capabilities. Notably, increasing interest in AML/CFT capabilities among Emirati financial institutions is driven by substantial progress made by the federal government in terms of creating the appropriate regulatory guidelines to support regtech solutions. The Financial Action Task Force’s (FATF) historic struggle with the UAE's AML/CFT existing frameworks and amount of free-zones is creating an opportunity for cross-channel identification platforms, biometric recognition tools and account validation during onboarding solutions. The need of local companies for trustworthy digital entities driven from their use in the UAE's government's validation platform, the UAE Pass and Emirati IDs during validation of both onboarding and conducting transactions, might be answered with optimizing and automating complex KYC models.

The UAE’s economy has suffered from the Covid-19 effects on the markets just as much as any other country and is taking all the necessary precaution measures to protect its wealth and global strength. From the ground up all the financial sectors, both public and private institutions, have rethink their business models and shield themselves with consolidation programs, new risk scoring methodologies, and constant monitoring of financial indices. Israeli fintechs offering alternative and innovative prediction models for insolvency of individuals, credit-related solutions and fully automated asset management methodologies might attract interest from the UAE. However, Israeli Fintechs will have to adjust their offering to meet the standards and requirements presented by the Emirati market and well-structured tax and privacy frameworks as those will remain significant barriers in the near future for any cross-borders deals between Israeli and Emirati entities.


Israeli entrepreneurs must understand that the management of all the leading financial centers and institutions is composed of highly capable and sophisticated local professionals, representatives of sovereign families and the best talents relocated to the UAE from all around the world with a strong presence of European professionals. Any selling process of fintech-related services or products, must take into consideration this unique structure of management and the implications of this cultural richness on the competitive landscape.


The Emirates have not been waiting for the arrival of the Israeli fintech ecosystem and the change in diplomatic relations between the countries has a restrained reaction from our neighbors. The clients from the GCC are well aware of the strengths and weaknesses of the Israeli business culture especially for those of the tech ecosystem. They will mitigate any unknown variable and adhere to any information gaps with in-depth due diligence processes, longer testing periods, and no tolerance for "cutting corners". Tapping into the exciting financial industry of the UAE will require Israeli Finetchs to learn from their mistakes and build a shared prognostic for the appropriate level of maturity and compliance required from companies wishing to export Fintech to the UAE.


Aviv Barzilay is the Head of Strategy at Herzog Strategic