Payments is increasingly becoming the backbone of Financial Services especially for alternative finance where the loan/ Factoring product which is not collateralised but the mechanism of repayment acts as a collateral.As the world get more cashless and new digital payments will evolve. Alternative finance companies will use the digital transaction flow to understand cash flows , patterns and even profitability. They will then use these to make informed & instant artificial intelligence based funding decisions resulting in more financial products for Merchants.
The Alternative Finance has had steady growths in UK andUSA which will continue in 2017. However I see an unique opportunity in UAE. In middle east mostly banks are providing the card acquiring solutions to business, except for likes of AFS in Bahrain who have a high share of the market. The opportunity for Alternative Finance providers could be to partner with a Bank in UAE and in countries like Bahrain tie up with the likes of AFS. Through alternative finance providers this product can be offered by bank directly to the moderate risk customers using their own funds but for high risk customers they could pass it to alternative finance providers or do a syndication model.This is a much needed loan for Small Business who have low scale but High margins. They can afford the cost but don’t have the liquidity.The merchants shares a part of his profit as a fee and it’s not a interest product. We are consulting with Sharia Scholars to review this and see if a Sharia compliment certification can be awarded to card receivable factoring.
Sure it benefits the UAE customer but how do the UAE Bank benefit from partnering with an alternative finance player ?
Benefit for the UAE bank is following
- They will be reaching out to potential loan customers for the bank and helping bank sell more of its loan products and earn higher revenue.
- If the partner UAE bank is able to offer a loan for the customer who is with a competing bank then the customer will tend to switch all their banking needs to the bank that provide the loan to them .i.e. their bank. They will also acquire this customer for its main banking lifecycle and also merchant acquiring.
- In 2018 VAT and taxation will come into play in UAE. This will create a new need for alternative finance as businesses are not use to calculate and provide for tax provision. Small business suddenly realise that they are due for tax at the last minute and there is a big uptake of alternative finance for such requirements due to cash flow situations. We have seen here in UK that taxation can provides algorithms for funding , in future with an API into tax authority ( in UK HMRC provides one) one will be able to take machine decisions( artificial intelligence (AI) based decisions) on lending. With AI & Algorithms becoming more efficient one can develop a platform which will have a value for banks. One who move now we will have an early movers advantage in ME for alternative lending data that can then feed AI models.
- The Dubai government wants to be on blockchains by 2020. This too is an opportunity. I have detailed the impact of blockchain on alternative financein my article separately just after my visit to Las Vegas, Money2020*.
Here above is a short dump of my thoughts and views. Can you please put them through your wisdom and acid test them for imperfections ? Or if you have been in the UAE market and don’t agree or see hurdles. Please comment. I would love to receive you critical comments if any and if you like it please share it.