Impact of FinTech on Firm Performance in the UAE

Introduction

As one of the most competitive financial centers in the Middle East Africa and Southeast Asia (MEASA) region, the Dubai International Financial Centre is transforming the forthcoming era of monetary services and corporate performance in the UAE and beyond. Recent work in the financial industry has revealed that Fintech is an important element in the present revolution. We have chosen this company as it is a fast emerging as has innovative means of achieving greater financial inclusion. They also have proven goals of inclusive growth by improving speed, efficiency, and convenience of the financial services (Lukonga, 2018).

Financial technology has opened up a world of vast opportunities for the financial industry and the business world by supporting the delivery of more innovative services, transforming the traditional business models, and generation of better profits. Fintech has brought forth a major impact on the current and future of the corporate world, which implies that businesses need to explore in their Fintech investmentsto provide users with greater value, yield higher revenues, lower funding costs, increased efficiency, risk evaluation, which ultimately improve the firms’ performance.

Across the UAE, Fintech is rapidly coming of age with the UAE government and regulators examining about the impact on firm’s performance and the economy. Today, the company is ranked as number 1 in the region and top 10 Fintech hubs globally, therefore, this literature review considers how Fintech is well positioned to drive higher growth and act as a platform for accessing vast opportunities, which, enhances theperformance. Majority of the firms are still facing challenges in the acceptance and adoption of Fintech, but the most recent progresses have radically transformed various activities by offering viable solutions to the age-old problems, which have a profound impact on businesses.

The theoretical framework of this review will be based on the theory of unified acceptance. We will look at how the company has adopted newer information systems and how it has impacted their business (Howard, Restrepo, & Chang, 2017). In addition, this review focuseson three business areas that have been transformed by the use of Fintech: payment processes, low funding costs, and the customer engagement.

Application of Fintech in the UAE Companies

2.1. Smart Payment Processes

In the recent past, the payment industry has experienced several great modifications largely due to the Fintech revolution by combining financial services, online-based transactions and pioneering analysis capabilities. The financial technology solutions prevent firms and consumers undergoing the cumbersome and time-consuming processes of cash and card payments. These transactions are easily completed online using the mobile banking applications,alternative payment methods such as digital wallets, blockchain technology (Arslanian& Fischer, 2019).

At present, Fintech wholly modifies the manner in which consumers and businesses engage in managing and operating payments. Though, while majority Business-2-Business (B2B) consumers appear to know the designation of the term, the private consumers in the UAE still do not haveform of general knowledge. Therefore, this study is unique in the sense that it delves further by investigating how UAE firms can increase their performance by increasing the uptake of the Business-to-Consumer (B2C) Fintech enterprises that target the wider audience, public consumers.

Various studies have examined the impact of the Fintech on transforming the payment processes used by companies and customers. Kang (2018) looked at the inclinations of mobile-based Fintech payment services and categorized them based on their service types to aid in delivering better and securer payment services in the future. The author postulated that as the market for mobile payments is activated and payment frequency by users rises, there is a need to develop simplified payment processes for all users. Overall, the study has laid down information that is applicable to UAE firms as they have laid down the requirements that Fintech payment services must provide. It has also detailed the security challenges that these services will face in the view of mutual authentications, availability, authorizations, integrity, and data privacy. Overall, Kang puts forward the notion thatthis platform when provided on mobile will develop into much safer services in the long run.

Broom (2015) discusses that by examining the developing capabilities of Fintech in both wholesale-corporate and consumer-retail payments processes and discussing the Fintech’s monumental role – as well as solutions it offers – will play in influencing the course of the UAE’s payments industry. Similarly, several studies have also discussed how Fintech can create value for firms in the UAE. Leong & Sung (2018) argue convincingly that numerous Fintech applications are based on payment, advisory, financing and compliance services that generate value for businesses. In the study, it was found that in terms of payment processes, the cashless payments are one of the biggest development trends in Fintech because companies have devised payment processes for customers. In summary, from a business viewpoint, the latest developments of financial technologies, expand business progression, like improving sales, automating of services, as well as customer retention. In the future, propose further planssuch as data transmission technology, safety measures, better customer experiences, and data analysissystems (Leong & Sung, 2018). Some of the issues faced by older payment systems is signature-based receipts, paper receipts, checks and the security threats to our credit cards (Wile, 2014).

Thus, based on preceding literature the first hypothesis (H₁) states: The current Fintech revolution will resolve the age-old payment problems faced by firms in the UAE.

Ease of access and sourcing of funds

Budding entrepreneurs experiencenumerous impediments such as access to funding in establishing new business once they identify opportunities or expansion of existing businesses to increase their capacity and firm’s performance. One of the most key challenges is raising funds to launch new venture or grow existing businesses. Traditionally, firmssought capital from banks, angel investors, friends’ contributions and venture capitalists. Freedman & Nutting (2015) postulated thatone of the key solutions provided by Fintech is crowdfunding, which allows entrepreneurs to appeal to the public using online platforms tosupport innovative ideas and grow businesses.

A study by Wati&Winarno (2018) was conducted to analyze the functioning of the crowdfunding model as one of the differentfinancingsources for SMEs in various countries. They found that themostfunding was attained by the equity crowdfunding model, where the funding targets, total of backers as well as minimum investment sum has a positive impact on the realization of crowdfunding.This shows that due to the use of FinTech, the crowdfunding model was successful in raising the required amount of money for the venture. This could be used by budding entrepreneurs to source the required funds for setting up their company.

Li, Spigt&Swinkels(2017) aimed at clarifying the importance of FinTech digital firms throughout the financial industry by examining the impact of the start-ups funding on stock returns of retail banks. The study shows that the financing of the new businesses that are in the digital banking sector has a positive impact on the stock returns which is a signal of higher firm performance.

Therefore, based on previous literature the second hypothesis (H₂) states: The ability to source funds through the use of FinTechis much easier and efficient compared to other platforms.

2. 3. Interactive Consumer Engagement

In the last few years, Fintech has disrupted conventional financial services by focusing on the customers first to deliver a seamless consumer experience through increased automation and individualization. Most older technologies make use of a lot of effort to engage with customers personally. This has been resolved by Fintech as it uses SMS as well as other communication tools aimed at reducing the costs and efforts of engaging with consumers. The tools have contributed towards the achievement of an interactive customer engagements by resolving complaint, gathering feedback, and disseminating information, which fosters greater sales andcustomer loyalty.

Tonder&Beer (2018) presented the new views on the relevance of customer satisfaction as well as obligation in promotion of consumer citizenship behaviors. One of the findings of their study is that banks are well aware of the different kinds of developments in the fintech environment,but they need to emphasize on beneficial partnerships in order to deliver the digital deal. Banks are making hefty investments in IT systems in a bid to meet customer expectations and guarantee a hassle free transaction banking and other digital solutions.

Larsson (2017) has studied Swedish bank management perceptions of FinTech’s impacts on digitalization and consumer e-loyalty. The study shows that Fintech has altered the classical interactions between thefirms and their consumers using computers or smartphones. In the study, they also explored the challenges that FinTech companies have posed to Swedish banks with regard to securing higher customer loyalty by conducting interviews with managers of different banks. The study has found that the FinTech expansion has encouraged the traditional banks to accelerate digital transformation to generate a distinctive profile of customers and meet their expectations.

Along with the fast development of Fintech, it has been observed that information technology can be applied to financial services by focusing on extensive application methods including influencing mechanisms behind the implementation of Fintech services. Hu et al. (2019) proposed a better technology acceptance model, which incorporates innovation, governmental support, image of the brand, as well assupposed risks as the core trust determinants by investigating how consumershave adopted Fintech. With respect to the consumer, thestudyreveals that the perceived ease of use does not have an impact on the attitudes towards adopting Fintech services. The ease of use is used to refer to the extent to which customers feel relaxed and their efforts in learning how to use the Fintech services that provide better services and improved customer experiences for customers, by firm’s personalization of customers’ needs.

Therefore, based on literature the third hypothesis (H₃) states: The Fintech revolution has improved customer engagement in the companies that have adopted this system.

References

Arslanian, H., & Fischer, F. (2019). The future of finance: The impact of FinTech, AI, and crypto on financial services. Basingstoke: Palgrave Macmillan.

Broom, D. (2015). Innovation in Payments: The Future is Fintech. The Bank of New York Mellon Corporation.

Freedman, D. M. & Nutting, M. R. (2015). Equity crowdfunding for investors: A guide to risks, returns, regulations, funding portals, due diligence, and deal terms. Wiley publications.

Hu, Z., Ding, S., Li, S., Yang, S., Hu, Z., Ding, S., Li, S., … Chen, L. (March 01, 2019). Adoption intention of fintech services for bank users: An empirical examination with an extended technology acceptance model. Symmetry, 11, 3.

Leong, K. &Sung, A. (2018). FinTech (Financial Technology): What is It and How to Use Technologies to Create Business Value in Fintech Way? International Journal of Innovation, Management and Technology, 9, 2, 74-78.

Li, Y., Spigt, R., &Swinkels, L. (2017). The impact of FinTech start-ups on incumbent retail banks’ share prices. Financial Innovation, 3, 1.

Lukonga, I. (2018). Fintech, Inclusive Growth and Cyber Risks: Focus on the MENAP and CCA Regions. Imf Working Papers, 18, 201, 1.

Howard, R., Restrepo, L., & Chang, C.-Y. (2017). Addressing individual perceptions: An application of the unified theory of acceptance and use of technology to building information modelling. International Journal of Project Management, 35, 2, 107-120.

Kang, J. (January 01, 2018). Mobile payment in Fintech environment: trends, security challenges, and services. Human-centric Computing and Information Sciences, 8, 1.

Teigland, R., In Siri, S., In Larsson, A., In Puertas, A. M., & In Bogusz, C. I. (2017). The rise and development of FinTech: Accounts of disruption from Sweden and beyond. Abingdon, Oxon; New York, N.Y.: Routledge.

Tonder, V. E., & Beer, D. L. T. (March 28, 2018). New perspectives on the role of customer satisfaction and commitment in promoting customer citizenship behaviours. South African Journal of Economic and Management Sciences, 21, 1.

Wati, C. R., &Winarno, A. (April 23, 2018). The Performance of Crowdfunding Model as an Alternative Funding Source for Micro, Small, and Medium-Scale Businesses in Various Countries. KNE Social Sciences, 3, 3, 16.

Wile, R. (2014, May 7). The way we buy stuff is totally ridiculous-Here’s what needs to be fixed. Retrieved from https://www.businessinsider.in/tech/the-way-we-buy-stuff-is-totally-ridiculous-heres-what-needs-to-be-fixed/articleshow/34792576.cms