For as long as they’ve existed, financial sector outlook reports have predicted oncoming change. But while these predictions have always leaned more towards gradual, natural change, 2020 saw something much more drastic, and in many ways, completely unexpected. The onset and duration of the global Coronavirus pandemic threw many world economies into disarray. Spreading at an alarming rate and effectively slowing trade, retail, and other economic essentials to a near-standstill, Covid-19 created not only a dire toll on human health and wellbeing, but also caused significant damage to the very financial foundation on which world commerce operates.
However, the new year brings with it bold new promise. As vaccination rates continue to climb world-wide, economies likewise have begun licking their wounds. The financial chaos of 2020 is receding, and financial optimism is taking its place. In fact, while the global financial services market was worth USD 20.5 Trillion in 2020, experts expect to see that number grow to USD 22.5 Trillion in 2021 at a compound annual growth rate (CAGR) of 9.9%.
Unlike in many other economies, the finance industry in Bahrain has not slowed throughout the past several years, and continues to experience substantial growth. The Kingdom is now home to 400 local, regional and global institutions and has a banking sector worth over USD 200 Billion in 2019. With the growing economy in the Kingdom, Bahrain has proven itself as a key player in the growth of the financial sector as a whole. Bahrain’s approach to foreign investment is extremely friendly, providing powerful opportunities for private business.
Interested in furthering your business in the financial sector? Keep reading for our financial services industry analysis for 2021, and discover key insights into why you should bring your financial services company to Bahrain.
Financial Institutions
It’s certainly no secret that 2020 was a difficult time for economies worldwide. The global pandemic prompted cuts to funding rates, and banks that earn much of their income from interest on loans were left without viable revenue streams. At the same time, global GDP growth which was already slowing down entering 2020 saw a much steeper decline than had been originally anticipated. The International Monetary Fund (IMF) calculates that global GDP saw a dip of 4.4% (approximately USD 6.2 Trillion) during the 2020 calendar year.
But despite difficult times and uncertain prospects, banks and other financial institutions around the world rose to the challenge. They rallied to embrace new operating models and switch many of their functions and services to a virtual environment. This demonstration of resilience and agility not only helped ensure a measure of continuity in unprecedented times, but also provided a stabilizing factor in many economies, as well as a reliable channel through which governments such as the United Kingdom, the United States, Japan, and even Bahrain were able to provide stimulus and relief programs. These factors have placed financial institutions in a unique position to surge forward throughout the coming year.
As global finances begin to rebound, all signs point to growth in the banking sector. With banks returning to normal lending, and interest rates leveling out, banks can start lending more often, improving their returns in the process. At the same time, the pandemic provided an unflinching glimpse into certain lessons that might have otherwise gone unlearned. Approximately 79% of senior banking and capital markets executives believe that COVID-19 helped them identify shortcomings and weaknesses in their institutions’ digital capabilities. Forced to address many of these issues or face potential ruin, financial institutions are now leading a charge towards improved technologies, better services, and increased resilience.
One such aspect of the pandemic that has encouraged financial institutions to embrace digital change is the need for remote accessibility. Around the globe, leaders, employees, and customers have been compelled to remain at home. As such, more banks are moving many of their services away from the traditional tellers and offices, and instead relying on apps and websites.
But while this move may have been prompted by a need for social distancing in the face of an extremely communicable disease, it has had an additional benefit of improving accessibility. Banking customers are able to work with financial institutions at their own convenience and from anywhere with an internet connection. Studies have shown that financial and banking institutions that make the investment in new technologies come out on top — not only in terms of revenue and income but also in employee and customer satisfaction.
With banks being a vital role in the global economy, the banking industry has a major opportunity to assume leadership positions in helping the world recover from the financial discord of 2020.
Fintech
While the financial services industry has always made proper use of relevant technologies to help ensure accuracy, accessibility, and regulatory compliance, the 2020 pandemic has only cemented tech’s essential role in banking, investing, insurance, and more. Consumers’ increased dependency on digital channels, and ever growing demand for digital and mobile options for viewing and managing their finances has helped facilitate this transition. To put it plainly, many subsectors within the fintech sector saw significant increase as a result of COVID-19.
Moving into 2021, fintech is leaning towards two trends that have the capacity to revolutionise how businesses and consumers interact with financial technologies: banking as a service (BaaS) and embedded finance.
Banking as a service is bringing financial products and capabilities to traditionally non-financial businesses. By partnering with fintech companies and licensed banks, many businesses are beginning to provide services such as deposits, loans, and credit cards. As an example, consider a business that wants to improve customer engagement, and so partners with a bank to provide customers with a debit card with which they can earn points on every dollar spent. Where this kind of interaction once would not have been possible for non-banks, it is now becoming much more commonplace across many divergent industries. With BaaS, organizations can utilise already-existing, well-established technologies to provide banking services tailored specifically towards their customers and business goals.
Embedded finance is something of a step back from BaaS. Where banking as a service endeavours to provide the full suite of traditional banking products, embedded finance usually only focuses on one or two such products, such as a loan, credit card, digital wallet, or payment plan. Embedded finance is opening up new revenue lines, while also allowing non-financial businesses to improve the customer experience in ways that were never before possible.
Large, established companies, as well as emerging champions and new players, are all eager to incorporate fintech into the evolving business models. They wish to enjoy the advantages offered by embedded finance and related technologies so that they may enjoy a larger market share. And thanks to advancements in application programming interface (API) technology, adding these services is a simple, non-disruptive process that nearly any business can handle.
These increased investments are helping fintech enjoy unprecedented growth. In fact, the global fintech market value is anticipated to reach USD 309.98 in 2022.
In many ways, fintech is the future; it allows for the possibility of decentralization, where key players outside of banking bring in new thoughts, innovation, skill sets, methods, and a renewed consumer focus to an industry that has long remained consistent. And, by promoting an ecosystem of collaboration between banks and fintech companies, economies will be better poised to adapt to changing conditions throughout the world.
As the industry continues to expand, the Kingdom of Bahrain is dedicated to embracing and advocating for financial technology companies. Bahrain’s broad-based Financial sector and FinTech ecosystem offers traditional banking institutions and newer FinTechs a collaborative space to test and scale new products across the GCC markets.
Bahrain’s financial sector is among the strongest in the world, accounting for 17% of non-oil GDP, and home to approximately 400 financial organizations (and growing). This is more than a happy coincidence; Bahrain has worked tirelessly to nourish fintech as a growing, yet already-essential part of the GCC economic landscape. In fact, the Global X FinTech ETF went so far as to recognise the Central Bank of Bahrain as the Most Innovative FinTech Regulator of 2019.
Despite the hardships many countries in the financial sector faced due to the COVID-19 pandemic, Bahrain saw growth within the sector due to the steps they have already taken towards digitisation in years prior. A main focus of the Kingdom prior to the pandemic was adopting digital banking and e-payment services into the economy. When the pandemic struck and everyone made the shift to online banking and touch-free payments, Bahrain was already well equipped to handle the growth the FinTech sector saw. The government of Bahrain has also switched to solely electronic methods of payment and hopes the private sector will follow suit shortly.
Thanks to a regulatory framework designed to foster innovation, Bahrain is ensuring that fintech continues to change the way the world approaches finance.
Learn more about how Bahrain has been focusing its efforts on helping fintech companies achieve success and promote improved financial services worldwide.
Invest in Bahrain
For all intents and purposes, 2021 appears to be a time of economic and financial resurgence. As such, many businesses and entrepreneurs are interested in taking advantage of emerging circumstances to carve out success and make a positive difference to the world economy. For these pioneers, Bahrain provides an unrivaled opportunity for growth.
With competitive prices, a strategic location in the heart of the Arabian Gulf, a well-educated and experienced workforce, and a commitment to a free and prosperous business environment, Bahrain enters 2021 as a major economic player and a major investment opportunity that savvy organizations are rushing to take advantage of.
With all the growth that is projected in 2021 for the financial sector, along with all the benefits that Bahrain has to offer, it’s never been a better time to bring your financial services company overseas to Bahrain. Bahrain offers the perfect economy and landscape for your business. To learn more about business opportunities in Bahrain, contact Bahrain EDB today!
