The world is slowly waking up. A new industry is here: fintech. While banks have traditionally been the guardians of financial transactions, in the last decade and a half, nontraditional players have begun to pose a threat to their business, putting pressure on banks to evolve. From Paypal and Google Wallet to Facebook’s recent announcement that it would start a free payment service, the technologically savvy alternatives to banks that are popping up are starting to eat at the traditional giants’ bottom lines.
To mitigate the risk of being overtaken by these young companies, large global banks are starting to make investments in more technological tools to help them compete. And they are serious about it. Global investment in financial technology — “fintech” — companies has tripled from $4.05 billion in 2013 to $12.2 billion in 2014, according to a 2015 report by consulting giant Accenture.
While some banks in Lebanon are more attuned to these trends and are starting to make investments into technology companies with financial gear, overall the sector is slow on the uptake. But there is a major problem for tech savvy banks: the dearth of local fintech partners. The most forward thinking banks tell Executive that the tech startup ecosystem is not as mature in Lebanon as it is in other countries such as Turkey.
This is a missed opportunity for our budding local tech startup ecosystem. It is time for both the banks and entrepreneurs to start realizing the potential of new financial technology, and the business they could create out of it. On the banks’ side, investing in fintech products is a huge opportunity to distinguish themselves from the sea of other banks, as well as from competitors such as the big international payment businesses.
On the entrepreneurs’ side, banks could be major, stable clients. It is time for small enterprises to wake up and realize this potential. Banking is one of the most important sectors in Lebanon, with clear scalability implications. Building tools for banks means building tools for reliable clients that have cash to burn on technology budgets.
This is particularly important since recent government (at least in talk), central bank and private initiatives have made it clear that stakeholders want to grow Lebanon’s tech startup sector. And sizeable amounts have been thrown towards encouraging entrepreneurship, either directly or through investments. The central bank in particular has been pushing money into the ‘knowledge economy’ through various means. But for such initiatives to succeed, investment must be in the types of businesses that stand a chance.
While Lebanon does have a budding and diverse startup ecosystem, many of these startups are focusing on overcrowded business-to-customer models. While these initiatives are commendable, the saturated Lebanese market — and the rest of the Middle East and world — may not need another copycat app.
Instead, it is perhaps better for Lebanese entrepreneurs — or some of them — to concentrate their time and resources on building businesses that are more needed and that have concrete, reliable clients: the banks. For the sake of both individual company survival and the growth of a tech sector, the answer lies in the banks. Deliver the fintech.
But this is not a one way street. Banks should also realize the potential of technology startups that create inventive and innovative products and services to satisfy the ever changing younger generations of customers. And the fact that many banks in Lebanon are still blind to this is a huge problem — for them. Banks in Lebanon need to start taking the advent of new technologies and competitors seriously. And that means start investing now for the future.
