Exploring Economic and Technological Determinants of FinTech Startups’ Success and Growth in the United Arab Emirates
Abstract
:1. Introduction
2. FinTechs in the UAE: Reality and Perspective
3. Literature Review and Build-Up of Hypotheses
4. Data and Methods
4.1. Method of Data Collection
4.2. Econometric Specification
5. Results
5.1. Financing
“Bank Account Opening is one of the obstacles that we are facing here, …..”Interviewee A.K.
“Opening a bank account, the single biggest reason for delay, frustration, and consideration of opening in other countries instead of the UAE for FinTech and all new startups…”Interviewee T.G.
“I did not apply for any line of credit or loan….Application procedures were complex... I did not think it would be approved.”Interviewee A.H.
“….Collateral requirements were too high…”Interviewee M.A.
“….Application procedures were complex;... interest rates were not favorable; … size of loan and maturity were insufficient.”Interviewee W.E.
5.2. Business Environment
“….Cost of setting up … ADGM should ease the cost of establishing at least for gulf residents, or provide installment plans to ease establishing in the UAE.”Interviewee H.A.
“… The costs are higher in the UAE, so we have off-shored the non-client interface roles.”Interviewee A.N.
“…. Major obstacles are related to regulation, and all that is related to secure payment, AML.”Interviewee A.N.
“….. Joining an accelerator helps to have good mentors who support setting up the business, helping to build networking, and, importantly, providing opportunities to raise capital... Pieces of Advice and guidance that I received from mentors were valuable and helpful….”Interviewee M.C.
“….. participate in a bootcamp startup or an accelerator that will save time and money…”Interviewee M.S.
5.3. Business Model
5.4. Other Factors
“Schools and universities must have a more in-depth focus on Entrepreneurship, Venture Capital, and general training on how companies are built. Most young people in the UAE do not even know where to start due to the lack of guidance. Secondly, fear needs to be eliminated, and this is instilled by expat parents which is the result of general conditions in the UAE, such as fear of losing a job, which will lead them to lose their Visa status, which will lead to them not being able to sponsor their families and so forth. Given this scenario, some more info sessions are required, even on the legality front. For instance, young people need to know that it’s okay to be unemployed and to do their own thing, and here is how you can do it...”Interviewee M.A.
“….., during may the first 10 days exceeded 1 million.... the transaction volume is multiplied by 4 during COVID- 19 period.”Interviewee O.B.
“….. We are fine and will come out stronger.”Interviewee J.A.
“… To survive the current COVID-19 outbreak ……, we pivoted the product and added another service.”Interviewee T.G.
“…..We have quickly made changes to our product suite and made digital companies like our Target Market.”Interviewee A.N.
6. Discussion
7. Conclusions
Author Contributions
Funding
Data Availability Statement
Acknowledgments
Conflicts of Interest
Appendix A
UAE’s National Visions and Strategies | |
---|---|
UAE’s National Vision 2021: Calls for the UAE to become a knowledge-based economy and “among the best in the world in entrepreneurship.” | Ministers of Artificial Intelligence and Advanced Sciences (2017). Creation of tech-focused institutions (Smart Dubai, Abu Dhabi Digital Authority, and the Dubai Future Foundation) and launch initiatives (Takamul Program, TIP-Technology Innovation Pioneer, Hub71, Area 2071, to support entrepreneurs in various technology-related verticals). The U.S.-U.A.E. Business Council drove a trade mission for US firms focused on building partnerships with the UAE government and business entities in the FinTech domain (2019). |
Emirates Blockchain Strategy 2021: Launched by the UAE government | The strategy aims to perform half of the government transactions using blockchain technology within three years. This involves e-payment services, offering an opportunity for FinTech firms to be involved (2018). |
Implementation of the National Artificial Intelligence Strategy 2031 (2019) | This strategy was led by the UAE Minister of State for Artificial Intelligence by investing in the latest AI technologies and tools, including AI applications to FinTech. |
Tomorrow 2021 (2018) | The three-year vision includes 50 initiatives backed by USD13.6 billion. Budget for the Abu Dhabi Government Accelerators Program (Ghadan 21). The movement to develop FinTechs is part of this greater effort. |
Government and regulatory agency support | |
Establishment of a dedicated FinTech office by the UAE Central Bank (2019) | FinTech office aims to develop national regulations for financial technology firms. |
Financial Free Zones | |
Dubai International Financial Centre (DIFC): Established a number of partnerships to create favorable environments in which FinTech startups can flourish. | Regulatory Sandbox models known as the DFSA Innovation Testing Licence (ITL) Program, which entitles ITL holders to test advanced and innovative financial products, services, and business models (launched in 2017). Partnership with US consulting company Accenture to further promote innovation at the FinTech Hive and facilitate collaboration with Accenture’s FinTech Innovation Labs around the world (2018). Many other partners include AWS, Careem, Cigna, EmiratesNBD, FAB, K&L Gates, MetLife, Microsoft, Standard Chartered, and Visa. DIFC FinTech Fund announced in 2017 with committed capital of USD 100 million. DIFC FinTech Hive Startupbootcamp. DIFC FinTech Hive launched in January 2017, creating a collaborative ecosystem providing flexible co-working spaces and access to a financial community: Hive seeks to enhance and encourage innovation in the region and bring cutting-edge financial services technologies to the Middle East through a 12-week accelerator program where startups can develop and experiment with their solutions under the mentorship of delegates from the main local financial institutions. |
Abu Dhabi Global Market (ADGM) | Creation of a RegLab FinTech sandbox, which is a specially-tailored regulatory framework that provides a controlled environment for FinTech startups to develop and test their innovative solutions (announced in 2016). ADGM Academy, part of ADGM, is working with global experts to build a high-quality financial education portfolio. Partnership with Plug and Play, the Silicon Valley accelerator. It opens a new office in Abu Dhabi and brings some of its top startups. Annual FinTech Abu Dhabi Festival (2017, 2018, 2019, and 2020) invites applications from FinTechs to participate in the FinTech Abu Dhabi Innovation Challenge. FinTech-related investment fund: (i) Abu Dhabi Catalyst Partners; established in April 2019, with committed capital of USD 1 billion, and direct investment in FinTech, and (ii) Ghadan Ventures Fund, launched in May 2019 with committed capital of USD 146 million (fund to increase the access to financial resources for Abu Dhabi-based startups, including FinTechs). Member of the Global Financial Innovation Network (GFIN), which aims to facilitate collaboration between regulators and help FinTech companies test cross-border solutions (launched in January 2019). |
Private Sector Partnerships | |
Partnerships with banks | ADCB partner with Plug and Play and ADGM to join Plug and Play’s global ecosystem, Emirates NBD partners with DIFC FinTech Hive to certify FinTech startups who have successfully used Emirates NBD’s Application Programming Interface Sandbox to develop innovative financial solutions. FAB and Abu Dhabi Digital Authority collaborated to launch the Abu Dhabi Government Digital Payment platform (ADPay) to ease electronic payment for customers and investors in the UAE (2018). Hive’s corporate partners include Accenture, AIG, AXA, AWS, Cigna, Emirates Islamic Bank, First Abu Dhabi Bank, Microsoft, HSBC, Standard Chartered, Visa, MetLife, Zurich, and Finablr. |
US financial service companies have embraced the UAE’s FinTech space. | Amex: In 2019, Amex rolled out a corporate accelerator where FinTech startups were challenged to find solutions to specific problems. Citi: In 2019, Citi held its first MENA FinTech Challenge, which provides the region’s FinTech community with the opportunity to convert their ideas into practice and advance solutions around selected problem statements. Mastercard: In 2018, Mastercard initiated its first Start Path Summit in Dubai. The event brought together FinTech startups pitching their innovative financial services solutions. MetLife and PayPal: MetLife Foundation, PayPal, and Village Capital selected early-stage ventures for the Finance Forward (MENA 2019 accelerator program) Visa: Visa collaborated with two local FinTech accelerators in the UAE from inception—the DIFC FinTech Hive and Startupbootcamp. Since 2019, Visa has been enlarging its global FinTech Fast Track program to permit both new and established FinTech firms to issue digital payment solutions by strengthening the Visa network’s speed, security, reliability, and global reach. |
Appendix B
FIRM CHARACTERISTICS | |||||||
---|---|---|---|---|---|---|---|
Field of activity: (Tick where appropriate) |
| ||||||
PERCEPTION OF SUCCESS: HOW DO YOU MEASURE SUCCESS OF YOUR FINTECH | |||||||
Please indicate how do you perceive the performance of your establishments? |
| ||||||
HUMAN CAPITAL OF THE FOUNDERS AND MANAGERS’ CHARACTERISTICS | |||||||
Academic attainment of founders: (Tick where appropriate) |
| ||||||
Entrepreneurship/Finance/Technology-related experience. | YES/NO by type of experience If YES, number of years ----------; | ||||||
VENTURE CAPITAL (VC) | |||||||
If VC is the main source of capital, how many VC investors? | ……………………. | ||||||
If VC is the main source of capital, what is the current funding stage that your startup is at? (Tick where appropriate) |
| ||||||
How many investing/financing rounds you participated in time since first funding? | ………………………. | ||||||
ACCESS TO LOANS AND FINANCE | |||||||
Does this establishment have a line of credit or a loan from a financial institution? | Startup year: Yes/No Current year: Yes/No | ||||||
If Yes, how much time that takes from the request date to receive the money? | ……………… | ||||||
If No, what was the main reason why this establishment did not apply for any line of credit or loan? (Tick where appropriate) |
| ||||||
OBSTACLES TO FINTECHS DEVELOPMENT (BUSINESS-GOVERNMENT RELATIONS) | |||||||
No obstacle | Minor obstacle | Moderate obstacle | Major obstacle | Very severe obstacle | Does Not Apply | Don’t know | |
Access to finance | |||||||
REGULATION | |||||||
Corruption | |||||||
Customs and business regulations | |||||||
Practices of competitors in the sector | |||||||
OTHER BUSINESS ENVIRONMENT FACTORS | |||||||
Inadequately educated workforce | |||||||
To find needed skills in the UAE? | |||||||
Availability of data center/Cloud Solution | |||||||
Business licensing and permits, | |||||||
Copyright protection rules, | |||||||
Possibility to have an office. | |||||||
BUSINESS MODEL: TAXONOMY DIMENSIONS AND THEIR RESPECTIVE CHARACTERISTICS | |||||||
Business dimensions characteristic are presented in Table 1. Based on [44] and revised by authors. | |||||||
OPEN QUESTIONS | |||||||
Are there any specific barriers to setting up your Fintech start up? Any specific to UAE? | |||||||
Do you have any recommendation to overcome/ease the barriers? | |||||||
To what extent is your firm’s activity (in terms of turnover) affected by the current COVID-19 outbreak? Please choose a single option | |||||||
How do you will react in order to survive the current COVID-19 outbreak? |
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Name | Significant Variables | Total Variables | Definition and Characteristics | |
---|---|---|---|---|
Finance Factors | Access to finance | 1 | 5 | Having obstacles to access to finance, having a line of credit or a loan from a financial institution, interest rates were not favorable, collateral requirements were too high, and did not think it would be approved. |
Venture capital funds | 1 | 4 | Financing through VC, VC funding stage, amount of funding raised, and financing rounds. | |
Business Environment | Regulation | 1 | 1 | Corruption, customs and business regulation, and practices of competitors in the sector. |
Other business envirnment factors | 0 | 6 | Business licensing and permits, copyright protection rules, to find needed skills in the UAE, inadequately educated workforce, availability of data center, cloud solution, and possibility to have an office. | |
Business Modes | Dominant Technology Component (main IT artifact that is the driver for the digital business model) | 0 | 6 | Blockchain, digital platform, robotic process automation, database, marketplace, and decision support system. |
Value Proposition (outlines the value the firm generates for its ecosystem) | 2 | 13 | Automation, customization, collaboration, insight, matching/intermediation, financial risk, security, monetary, transparency, convenience/usability, unification/consolidation, text analytics, and natural language processing (NLP). | |
Delivery Channel (outlines how the products and services are delivered to the customers) | 0 | 5 | API, App, WWW, WWW + App, and Instant Message. | |
Customers (describes to whom the firm intends to offer its products and services) | 0 | 3 | B2B, B2C, and B2B + B2C. | |
Revenue Stream (outlines how the firm is making revenue from its products or services) | 0 | 7 | Pay per use, revenue share, sales, subscription, kickback, free, and hybrid. | |
Product/Service Offering (outlines what the firm offers to its customers) | 2 | 19 | Cryptocurrency, payment service, information aggregation, information extractor, lending community, alternative trading venue, robo advisor, brokerage, currency exchange, current account, financial education, financing, investments, fraud prevention, tokenization, clearing, settlement, compliance (Distributed Ledger Technology (DLT) can enable firms and regulators to monitor transactions in near real-time, improving the process efficiency and transparency for external regulators), KYC, and remittances. | |
Control variables | Founder-, firm-, and environment-related factors | 2 | 9 | Deliver cost efficiencies, founding teams, age of the founder, COVID-19 impact, academic attainment of founders (master), finance-related experience, technology-related experience, entrepreneurship experience, and partnerships with financial institutions. |
Financing Effects | Financing and Regulation Effects | Financing and Alignment of Strategy with Technology Effects | Financing, Regulation, &and Alignment of Strategy with Technology Effects | |||||
---|---|---|---|---|---|---|---|---|
Coefficients | Odds | Coefficients | Odds | Coefficients | Odds | Coefficients | Odds | |
Finance-related experience | 2.553 (2.11) ** | 12.850 | 2.879 (1.89) * | 17.796 | 4.330 (3.67) *** | 75.964 | 4.120 (2.15) ** | 61.575 |
Academic attainment of founders (master) | 1.769 (1.79) * | 5.869 | 1.905 (2.26) ** | 6.725 | 1.959 (2.24) ** | 7.098 | 2.058 (1.73) * | 7.831 |
Access to finance | −1.057 (−2.89) *** | 0.347 | −1.586 (−3.06) *** | 0.204 | −1.332 (−3.68) *** | 0.263 | −1.778 (−2.88) *** | 0.168 |
Venture capital funds | 2.363 (3.00) *** | 10.626 | 3.366 (2.07) ** | 28.970 | 2.347 (2.24) ** | 10.457 | 3.386 (2.67) *** | 29.561 |
Regulation | −3.716 (−2.40) ** | 0.024 | −3.258 (−2.01) ** | 0.038 | ||||
Deliver cost efficiencies | −1.220 (−2.51) ** | 0.290 | −0.798 (−1.18) | 0.449 | ||||
Pseudo R2 | 0.4019 23.48 *** −17.474007 | 0.5357 12.36 ** −13.564816 | 0.4755 24.44 −15.323266 | 0.5616 32.81 *** −12.808214 | ||||
LR chi2(2) | ||||||||
Log Likelihood |
Value Proposition Effects | Product Service Offering Effects | |||
---|---|---|---|---|
Coefficients | Odds | Coefficients | Odds | |
Access to finance | −1.347 (−3.94) *** | 0.259 | −1.625 (−4.48) *** | 0.196 |
Venture capital funds | 2.734 (2.95) *** | 15.399 | 2.751 (3.30) *** | 15.671 |
Regulation | −3.009 (−3.36) *** | 0.049 | −3.506 (−2.96) *** | 0.030 |
Monetary | 3.425 (2.75) *** | 38.734 | ||
Security | 1.491(1.87) * | 4.444 | ||
Robo advisor | 2.633 (1.68) * | 13.924 | ||
Clearing and settlement | 3.053 (4.16) *** | 21.192 | ||
Pseudo R2 | 0.4856 23.83 *** −16.164297 | 0.5372 | ||
LR chi2(2) | 36.59 *** | |||
Log likelihood | −14.541035 |
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Zarrouk, H.; El Ghak, T.; Bakhouche, A. Exploring Economic and Technological Determinants of FinTech Startups’ Success and Growth in the United Arab Emirates. J. Open Innov. Technol. Mark. Complex. 2021, 7, 50. https://doi.org/10.3390/joitmc7010050
Zarrouk H, El Ghak T, Bakhouche A. Exploring Economic and Technological Determinants of FinTech Startups’ Success and Growth in the United Arab Emirates. Journal of Open Innovation: Technology, Market, and Complexity. 2021; 7(1):50. https://doi.org/10.3390/joitmc7010050
Chicago/Turabian StyleZarrouk, Hajer, Teheni El Ghak, and Abderazak Bakhouche. 2021. "Exploring Economic and Technological Determinants of FinTech Startups’ Success and Growth in the United Arab Emirates" Journal of Open Innovation: Technology, Market, and Complexity 7, no. 1: 50. https://doi.org/10.3390/joitmc7010050