- Lacking regulation or access to licensing, fintech in Lebanon proves challenging.
- While there are fintech-adjacent paths entrepreneurs can pursue, these require partnering with licensed entities, such as banks and financial institutions, which are limited in the number of partnerships they can undertake.
- Other countries in the region have opened up regulation and created regulatory testing sandboxes to encourage fintech.
Entrepreneurs in Lebanon seem to have a certain resilience within them. “If you can make it work in Lebanon, you can make it work anywhere,” is a mantra often heard by Executive. For one sector, however, making it in Lebanon proves particularly challenging—especially for late comers. Fintech entrepreneurs in Lebanon are faced with the lack of access to licensing and the lack of regulatory or technical sandboxes—usually established by a government or central bank—making it hard for fintech startups to operate or test their products. As a result, many fintechs find themselves turning to regional markets earlier in their lifecycle than startups in other sectors—in some cases before testing or marketing their products.
Globally, the fintech market took off around 2015. Market size will reach $305.7 billion by 2023, according to international consultancy firm Kenneth Research. Other predictions by the firm include the payment/billing services sub-market segment generating $207.11 billion in revenue by 2023, with significant growth in artificial intelligence and blockchain, and North America leading globally in expected growth, but Asia-Pacific anticipated to grow faster than other regions.
In the MENA region, fintech is growing, albeit behind global rates. A report from Magnitt, a Dubai-based entrepreneurs’ network, found that in 2018, fintech attracted the most investment by sector in the region—at 12 percent of investment overall. Annual growth is expected to reach $125 million by 2022, according to a 2018 research by Beirut-based MENA Research Partners. The number of fintechs in the MENA region has more than doubled in the past two years—to more than 240 companies—according to research from Fintech Galaxy, a Dubai-based company.
Fintech in Lebanon is challenging, but success stories do exist. A 2019 Arabnet article cited16 fintechs in Lebanon, with the country ranking third in number of fintechs hosted regionally. From the commercial bank side, in 2018 Bank Audi ran a hackathon where it invited five startups to test their products in a sandbox they had created. A new white paper by MEVP from 2019 titled “Evolving MENA Fintech Landscape” notes the importance of such a sandbox in a fintech ecosystem: “The virtual space created by such a framework provides a restricted area in which FinTech businesses (both established and start-ups) can test and refine their technology-based innovative products, services, and platforms without being immediately burdened by the usual regulatory and financial requirements which would otherwise apply to their activities.” Sandboxes are especially important for those entrepreneurs who wish to develop payment, wallet, digital banking, loan, and microloan solutions.
The number of fintechs in the MENA region has more than doubled in the past two years—to more than 240.
Another positive signal for fintech in Lebanon is that banks are looking to collaborate with startups, founder and CEO of Fintech Galaxy Mirna Sleiman says. One successful example is that of Tycron, whose product gives banks a real-time overview of their local and overseas accounts, now in use by SGBL. The Investment Development Authority of Lebanon’s Fintech Sector in Lebanon 2018 Factbook points to seven Lebanese fintechs that have grown into regional and international players in the last five years, as well as identifying Lebanese fintech market opportunities in insurtech and e-payment with “12 payment providers offering fast and innovative payment methods which enables fintech start-ups to bring new techniques.”
Lack of regulation, however, remains a major challenge. Back in June this year, Riad Salameh, the governor of Banque du Liban (BDL), Lebanon’s central bank, released a statement saying: “Our intention is to regulate and supervise fintech companies, by imposing their licensing by Banque du Liban.” To Executive’s knowledge, no progress was made on this front. (Pinpay, an electronic money transfer service is the only Lebanese fintech to acquire licensing to operate from the central bank. Its shareholders are BankMed, Bank Audi, Fransabank, and Middle East Venture Partners.)
David Norman, co-founder of Juno, a digital solution for unbanked populations, tells Executive that in June he and his co-founder Alexander Axiotiadis were in talks with Prime Minister Saad Hariri’s office. “They were looking at how to do a regulatory sandbox, but now because of the economic crisis, they dropped it,” he says. BDL’s willingness to consider fintech and other digital solutions and cryptocurrency has accelerated in the last couple years, which is a positive signal for the eventual future of fintech in Lebanon. However, recent political and economic developments in the country leave the future on a lot of fronts, fintech included, looking uncertain.
There are other options for those who wish to pursue fintech in Lebanon, such as channeling efforts into solutions that do not require a license to operate. However, some entrepreneurs following these routes are still required to partner with banks because they need a licensed party to operate with.
“Blockchain and AI, customer experience, that is technology that is useable. AI companies should be flourishing in Lebanon, but still they don’t survive,” Sleiman says. “Part of it is lack of awareness and ignorance on a banking level.”
For those who are newer to the scene, finding partner banks appears challenging. Two new Lebanese fintech startups Anachron, a robo advisory tool, and Juno that Executive spoke with (and previously profiled) cited the lack of regulation, lack of a sandbox, and inability to locate a partner bank as the main drivers behind their decision to move their focus out of Lebanon.
Both Anachron and Juno have looked for but failed to find a licensed partner, e.g. a bank or other financial institution, to operate under. “I’ve spoken with Blom Bank, Sarander, Audi, and Cedrus, and all have said no for different reasons,” Norman says. “Some are afraid of the tech, some don’t understand what you’re trying to do. The usual excuse is that ‘It’s not within our strategy.’”
Juno, because of their unbanked target market, are primarily considering Egypt (2017 World Bank numbers estimate that 33 percent of adults own a bank account) and Jordan (World Bank data states only 42 percent had a bank account in 2017). Anachron is considering Bahrain, which has a sandbox and legislation for fintech, co-founder and managing partner Wael Khattar tells Executive. “So far our market [in Lebanon] seems to be non-existent, not just because of the banks, but because of how our product matches the current economy in Lebanon,” Khattar says. Anachron is used by investment advisers and asset managers in banking to increase efficiency of client interaction—it is a difficult time to offer such a product due to the current economic situation.
Even with modest progress, Lebanon lags behind the region significantly when it comes to offering an attractive environment for fintech. “Fintech requires regulatory support. Full stop,” Galaxy’s Sleiman says. “When it comes to fintech, you can easily set up a company, burn so much cash throughout your lifecycle, reach a deadlock where regulations are not helping you, and then you can go to the graveyard without anyone noticing you were a startup.”
According to the MEVP white paper, Bahrain was one of the first to launch a sandbox in 2017, just one year after Abu Dhabi. Bahrain’s sandbox has incubated more than 35 startups and Bahrain’s central bank has helped integrate fintech solutions into 11 banks. Today, despite its small market size, it remains an attractive option for fintech in the region, Sleiman says.
“Some are afraid of the tech, some don’t understand what you are trying to do. The usual excuse is that ‘It’s not within our strategy.’”
Other countries, like the UAE and Egypt have taken strides forward to make their markets attractive to players in the fintech field by introducing sandboxes and designing innovation-friendly legislation. Bahrain, UAE, Egypt, Saudi Arabia, Jordan, and Oman have all introduced regulatory sandboxes beginning in 2016.
Dubai and Abu Dhabi are also attractive options for those in fintech because of testing environments, but one thing they still lack is the involvement of the central bank, says Sleiman. In 2017, the Dubai Financial Services Authority introduced the Innovation Testing License that allows fintech firms to develop and test concepts within the Dubai International Financial Centre without being subject to regulatory requirements that typically apply, according to the MEVP white paper.
Egypt is another up and coming market, and in Sleiman’s opinion, has the chance to be at the forefront of fintech in the region. In 2019, Egypt’s central bank established a $58 million fund to invest in fintech startups and also introduced a regulatory sandbox. The first pilot cohort gained access to the sandbox in June 2019 according to a report by Daily News Egypt, and have been focusing on digital know-your-customer applications.
The region has made rapid progress in the last two years, but the modest developments from Lebanon are not enough to keep Lebanese fintechs in the country. Even with some fintech finding success, regulation from the government and central bank must catch up.