FinTech In Kuwait:
Late To The Party?
By Sophie Smith
Financial technology (FinTech) has become the new, in-demand, industry to invest in, offering lucrative opportunities with the rapid rise of online services. Not wanting to miss out, Kuwait too is focusing its energy on FinTech, realising the opportunities it offers and, accordingly, aspiring to become a major player in the field. It is well placed to do so as it is home to one of the best-established finance sectors in the Gulf, with the oldest sovereign wealth fund, the Kuwait Investment Authority. Also, Kuwait has produced some successful tech startups, including the delivery app Talabat. However, it is not easy to become a key player in FinTech as the field is already heavily penetrated by Bahrain, Saudi Arabia and the UAE—all of whom have well-established ecosystems.
Fintech in Kuwait
Kuwait’s FinTech industry is still very much in its nascency. Only in recent years has the country introduced measures and regulations to foster a conducive environment for FinTech adoption — mainly centred around electronic payments (e-payments). The Central Bank of Kuwait (CBK) has a dedicated FinTech Unit, which focuses on research and issuing FinTech- and e-payment-related guidance, alongside supporting the Regulatory Sandbox Framework.[i] The Framework, launched in 2018, supports companies and individuals in experimenting with, and utilising, new technologies related to the e-payment of funds.[ii] Simultaneously, the CBK founded the Electronic Payment and Settlement Systems Supervision Unit that assures the quality and efficiency of e-payments, while also launching other initiatives to create the necessary infrastructure and systems for e-payments, including the Kuwait Automated Settlement System for Interparticipant Payments (KASSIP).[iii] To regulate such initiatives, Kuwait City introduced a Cyber Security Framework and Resolution No. 44/430 of 2018 to safeguard the banking system and regulate e-payments, respectively.[iv]
To bolster these efforts, Kuwait’s Boubyan Bank has also partnered with Dubai International Financial Centre’s (DIFC) FinTech Hive to launch the Accelerator Programme, which looks to support tech startups in Kuwait.[v] And, Kuwait launched a $200 million fund for investments in technology in 2019 to support technology and the digital economy.[vi]
The Appeal of FinTech
FinTech adoption can contribute towards diversifying the economy away from its heavy reliance on oil and promoting sustainable economic growth in line with Kuwait’s economic development plan, Vision 2035.[vii] This holds especially true in the digital age, where there is a growing demand for online services as 83% of Kuwaitis are willing to adopt FinTech features—a trend that accelerated during the COVID-19 pandemic.[viii] Hence, it will allow Kuwait’s financial sector to cater to this demand and, accordingly, remain competitive, as well as become a more resilient, inclusive, and innovative sector. FinTech adoption can improve operational efficiency and reduce costs while improving accessibility and convenience for customers. This could, in turn, contribute to Kuwait’s economic development and create new investment and employment opportunities—especially amid the current global economic crisis, which has seen inflation skyrocket and growth slow while speeding up the transition to renewable energies.
Remaining Challenges
As Kuwait attempts to reap the benefits of FinTech adoption, its homegrown industry has only now begun to emerge. According to the Global Fintech Rankings of 2021, Kuwait City ranked 238 globally (out of 264 cities) and 10th regionally. Out of the Gulf countries, it fell behind Bahrain, Saudi Arabia and the UAE[ix] and, it holds a relatively low adoption rate in comparison to the other Gulf countries.[x] There is a need to create a more conducive environment at a faster rate for industries to fully exploit the opportunities that FinTech offers by:
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Creating a favourable FinTech business ecosystem. Kuwait can adopt further FinTech-specific regulations that provide clear guidance and rules for companies, and initiatives that incentivise businesses to invest in the sector through more favourable business conditions. Moreover, the country could benefit from creating a more supportive ecosystem by addressing concerns that include: a lack of consistent and transparent policies and regulations mired with bureaucratic red tape and cumbersome public contracting and procurement procedures.[xi]
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Investing more in fintech-related education programmes and funding opportunities. Kuwait can invest further in its local talent through fintech-related educational courses and programmes, as well as offer further funding opportunities for FinTech businesses to stimulate innovation and research.
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Expand beyond e-payments. Kuwait has primarily focused on e-payments. Expanding to other areas, such as insurance models, robo-advisor solutions, and crypto-currency, will further accelerate FinTech adoption in the country and make it more competitive.[xii]
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Distinguish itself from the regional competition. Bahrain, Saudi Arabia and the UAE all have established FinTech ecosystems, making it more difficult for Kuwait to become a major player. Hence, Kuwait should focus on distinguishing itself by, for example, taking advantage of its well-developed Islamic finance sector as it is home to the Kuwait Finance House, described as ‘one of the foremost Islamic financial institutions in the world.’[xiii] Possible collaborations between the Islamic finance and FinTech sector could be one option in that regard.
Adopting such recommendations will facilitate the establishment of a more conducive and competitive environment for FinTech in Kuwait that would allow it to stand out in the region. This will enable the country to not only foster a homegrown FinTech industry with local talent and innovations but also attract foreign investment — offering the potential for Kuwait to become a regional player in FinTech while advancing into the highly demanded digital age.
18 July 2022
References
[i] Central Bank of Kuwait, Kuwait Banking Report 2019 (Kuwait City: Central Bank of Kuwait, 2019). https://www.kfh.com/dam/jcr:fcf731eb-b3d0-4a71-8ef6-80c54448b4c6/Kuwait-Banking-Report-2019.pdf.
[ii] Central Bank of Kuwait, ‘Regulatory Sandbox: Overview,’ Central Bank of Kuwait, n.d. cbk.gov.kw/en/legislation-and-regulation/regulatory-sandbox/overview.
[iii] Central Bank of Kuwait, ‘Kuwait Automated Settlement System for Interparticipant Payments (KASSIP),’ Central Bank of Kuwait, n.d. https://www.cbk.gov.kw/en/payment-systems/kuwait-automated-settl-sys-kassip.
[iv] Central Bank of Kuwait, Resolution No. 44/430 of 2018 Promulgating Instructions for Regulating the Electronic Payment of Funds (Kuwait City: Central Bank of Kuwait, 2018). https://www.cbk.gov.kw/en/images/10p2-135610_v50_tcm10-135610.pdf; Central Bank of Kuwait, ‘CBK Introduces Cyber Security Framework for the Kuwaiti Banking Sector,’ Central Bank of Kuwait, February 18, 2020. https://www.cbk.gov.kw/en/cbk-news/announcements-and-press-releases/press-releases/2020/02/202002181127-cbk-introduces-cyber-security-framework-for-the-kuwaiti-banking-sector.
[v] Boubyan Bank, ‘Boubyan Accelerator,’ Boubyan Bank, n.d. https://boubyan.bankboubyan.com/en/landing/boubyanaccelerator/.
[vi] Kuwait Times, ‘Kuwait announces plan for $200m tech investment fund,’ Kuwait Times, January 20, 2019. https://www.kuwaittimes.com/kuwait-announces-plan-for-200m-tech-investment-fund/.
[vii] New Kuwait, ‘Kuwait 2035,’ New Kuwait, n.d. https://www.newkuwait.gov.kw/home.aspx.
[viii] Deloitte, Middle East FinTech Study (London, UK: Deloitte, 2020). https://tdv.motc.gov.qa/sites/default/files/2021-10/me_fintech-study-report.pdf.
[ix] Findexable, Global Fintech Index (London, UK: Findexable Limited, June 2021).
[x] Deloitte, Middle East FinTech Study.
[xi] International Trade Administration, ‘Kuwait: Market Challenges,’ International Trade Administration, February 14, 2022. Trade.gov/country-commercial-guides/Kuwait-market-challenges.
[xii] Deloitte, Middle East FinTech Study.
[xiii] Kuwait Finance House, ‘The History & Beginning,’ Kuwait Finance House, n.d. https://www.kfh.com/en/home/Private-Banking/aboutus.html.