Exploring Economic and Technological Determinants of FinTech Startups’ Success and Growth in the United Arab Emirates

Hajer Zarrouk,Abderazak Bakhouche,Teheni El Ghak

doi:10.3390/joitmc7010050

Abstract

In the last few years, the United Arab Emirates (UAE) has emerged as a regional hub serving as an incubator of the FinTech ecosystem, where regulators began implementing policies to encourage the growth of Fintech ventures in 2017. However, detailed empirical evidence concerning the impact of various FinTech-level and ecosystem-specific factors as determinants of FinTech success and survival is yet to be discussed. This paper investigates the underlying factors influencing the success of UAE-based FinTech ventures. Several factors are included in the analysis, controlling for the hedonics of the FinTech, including the business model, availability of and access to finance, and business ecosystem framework. Data are pooled using a semi-structured questionnaire conducted with 32 FinTech founders. A qualitative analysis with an ordered logistic regression model was performed. The findings suggest that the availability of resources, in particular through venture capital, is vital to the success and survival of FinTechs as microbusinesses. However, financial barriers, the regulatory environment, and legal issues have a detrimental impact on facilitating the creation and growth of FinTech ventures. Furthermore, the business model dimensions “product/service offering” and “value proposition” tend to influence the success of these ventures. The empirical model’s findings will serve as a data-driven tool to help guide finance policymakers in their decisions on how to promote this new sector.

Highlights

In recent years, the global financial system has been significantly transformed by the historically unprecedented dual expansion in financial innovation in terms of product variety and the adoption of information and communications technologies (ICTs), with implications for cost efficiency and information asymmetries
One hundred and nineteen emails were sent to FinTech founders located in the United Arab Emirates (UAE), with their startup operating in the finance and technology industry
The FinTech startups considered in this study were classified by their field of activity, as follows: (i) Payment/billing services represent the highest percentage of 22% of all categories; (ii) Lending services constitute 19%; and (iii) regulation, (iv) wealth management services, (v) capital markets, (vi) insurance services, and (vii) money transfer/remittances involving international money transfers and tracking software represent 45%

Summary

Introduction

The global financial system has been significantly transformed by the historically unprecedented dual expansion in financial innovation in terms of product variety and the adoption of information and communications technologies (ICTs), with implications for cost efficiency and information asymmetries. The deployment of ICTs in the financial market has resulted in more international capital flows, lower transaction costs, reduced information asymmetries, and new investment opportunities locally and abroad for both novice and experienced investors [1]. Financial development can be defined as adopting innovation-driven improvements in financial instruments, markets, and intermediation, with the favorable effects of information, regulation, and transaction costs [2]. The formidable advances in technology and communication and the propagation of technology applicability to finance have led to the emergence of a new segment in the financial sector, which is referred to as FinTech [3].

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