This is an excerpt from The Future of Fintech in the Middle East 2023 report.

The Middle East has seen rapid technological advancement and digitalisation over the past couple of decades. The region has blossomed into a tech hub, with Gulf nations establishing sophisticated technological frameworks. In the development of AI innovations, the Middle East is rising on the global scale, yet governance is localised and growth in concentrated in a few countries.

The Middle East as a region is laser-focused on becoming the next AI hotspot. PwC predicts that the Middle East will amass 2% of the global benefits of AI by 2030, which is around $320 billion. The study estimates that Saudi Arabia will contribute most from the region at $135.2 billion. The predicted annual growth for in the contribution of AI per year is 20-34% for the region.

The rapid adoption of AI technology in gulf economies is seen in the technological growth of the UAE, Saudi Arabia, and Qatar. Other Middle Eastern countries are in process of building up AI frameworks but are operating at a slower pace. Both Saudi Arabia and the UAE are in the top 50 countries ranked in the Global Innovation Index. The diagram below displays the AI strategies that have been laid out in gulf nations.

AI initiatives highlight national priorities

The International Data Corporation (IDC) found that the greatest area for growth in the AI sector in the Middle East is in the financial sector. Following the financial sector, other large areas for AI adoption include education and healthcare, followed by the manufacturing industry.

Abdulla Almoayed, founder and CEO of Tarabut Gateway, remarks that Saudi Arabia and the UAE are leaders in the region. He adds: “AI has the potential to support operational growth in various sectors, such as healthcare, education, transport and energy. Clear upsides include improving productivity, enhancing efficiency, and enabling cost savings.”

The UAE is a space of rapid innovation, having formed an AI strategy for growth in AI technology and talent, the ‘National Artificial Intelligence Strategy 2031’. The UAE is predicted to see AI contributing $100 billion to its economy by 2023, nearly 14% of its GDP. Omar Sultan Al-Olama, UAE minister for AI stated that the UAE has formed an agreement with Oxford University to send executives and officials for an 8-month course to learn the value of AI.

Within the UAE, Dubai is making strides towards AI adoption in its initiatives to ensure digital transformation such as the Smart Dubai strategy, Dubai Autonomous Transportation strategy, and the Dubai 3D Printing strategy. All of these initiatives aim to build on implementation of AI in the public sector and using technology to construct a more efficient and sustainable city.

Nameer Khan, chairman of the MENA Fintech Association and founder at FIL, notes that the UAE is utilising AI to address sustainability and climate change issues. Khan cites the UAE’s National Program for AI and Digital Transformation as an initiative to apply AI strategies to safeguard the environment.

AI in the Middle East is largely focused on robotics and customer communication through banking assistants. The first AI banking assistant in the region has been developed by Emirates NBD, a chatbot called Eva. Robo-advisory has seen growth in the region, with more UAE-based banks developing chatbot technology and looking for financial solutions through behavioral science and artificial intelligence.

Jayesh Patel, CEO of Wio Bank, states that his institution is in the process of employing data and digital algorithms to simplify operations, such as opening bank accounts and customer service.

He refers to ChatGPT as an inspiration and a push to evolve their chatbot technologies: “Although ChatGPT is still in its infancy, it has the potential to revolutionise industries by automating the code-building process, simplifying customer journeys, and adding value to the national economy. As AI continues to evolve, it has the potential to unlock even more commercial benefits and add value across a wide range of sectors.”

Middle East governments are making moves towards AI regulation

AI regulation in the Middle East is still catching up to the rapid development of AI technologies. Noting that there is not an international standard for AI governance, the Middle East, similar to other regions, is still in the process of gaining its bearings in the area of AI regulation and enforcement.

Almoayed remarks: “Measured AI regulation needs to keep up with technological development and investment levels, without stifling innovation. Given the lack of rapid movement in the world’s most powerful countries on AI regulation, there is definitely scope for the Middle East, with its very technology-savvy countries, to draft its own sensible regulations and lead the way.”

However, similar to AI adoption, Saudi Arabia and the UAE are currently ahead in terms of establishing governance. In 2020, Saudi Arabia launched the National Strategy for Data and AI to boost AI research. In the UAE, the Dubai International Financial Centre has collaborated with the UAE Council for AI to launch an AI and coding license. Abu Dhabi also established an AI Centre of Excellence in 2022 to drive AI-based solutions and bolster business partnerships and government participation.

Dhriti Nath, product manager at NOW Money, notes on regulatory progress: “Governments in the Middle East are taking steps to support the growth of the fintech payments ecosystem. For example, the Central Bank of the UAE launched a regulatory framework for digital payment service providers, and the Saudi Arabian Monetary Authority introduced a regulatory sandbox for fintech startups.”

Almoayed goes on to observe how the UAE and Saudi Arabia are making notable progress in the area, and that Bahrain is also establishing AI regulatory guidelines.

Patel states: “The UAE have proactively encouraged businesses, inventors, and educators to become early adopters of AI through their policies and initiatives such as Mohamed bin Zayed University of Artificial Intelligence (MBZUAI) and the UAE AI & Robotics Award for Good. As the AI sector matures and the UAE strives to meet their goal of becoming a world leader in this area as part of the of the National AI Strategy 2031, I would expect regulations to keep a pace.”

The Middle East needs a customer-focused retail payments agenda

There are a wide range of areas in which AI tools can be used, but in the retail payments sector financial institutions are focused on enhancing customer service and protecting transactions. The greatest benefits from adopting AI strategies in Gulf countries are determined to be improving decision-making within public services and resource industries and enhancing customer services in the retail and banking sectors.

A research paper by Deloitte found that while Gulf countries are eager to integrate AI into their economies, they are struggling to implement it. It stated that line managers are finding difficulties in understanding AI mindsets and deploying new models. Patel states: “It is still in the nascent stages, but AI tools have the power to shift the narrative in the customer's favour.”

Saeed Albuhairi, CEO of Tweeq, explains that there are several ways in which AI is being implemented in the Middle Eastern retail payments ecosystem:

1. “Fraud prevention: AI algorithms can analyse large volumes of data to identify fraudulent transactions and prevent them from being processed;
2. Personalised marketing: AI can analyse customer data to provide targeted marketing campaigns, which can increase customer engagement and lead to more sales; and
3. Payment security: AI-powered security systems can help to secure online transactions and detect potential threats before they become a problem.”

He continues that a whole wave of new possibilities for AI application are presented through chatbots such as ChatGPT which could offer customised consumer recommendations, interactive financial planning, constant customer support, and automated account management.

Financial institutions are focused on streamlining their services in the Middle East, with heavy investment in predictive analytics, fraud prevention, customer personalisation, and chatbot services. AI spending in the MENA region is estimated to reach $3 billion in 2023.

Khan cites statistics from a report released by the MENA Fintech Association, stating: “95% of consumers in MENA are considering emerging payments such as wearables, biometrics, digital wallets and currencies, and QR code (in addition to contactless) and 65% of consumers have tried new payment methods in the last year. Furthermore, in the next year, 55% plan to use QR codes, 49% plan to use biometrics, 52% plan to use cryptocurrency, and 66% plan to use digital wallets. In fact, 61% of surveyed consumers said they would avoid businesses that do not accept electronic payments of any kind."

Digital payments have seen massive growth in the region, with digital payments transactions in the UAE increasing 9% between 2014 and 2019 annually, and Saudi Arabia seeing a 70% boost in card payments between 2019 and 2020, in part due to the pandemic.

The young, tech-savvy population in the Middle East contributes to the rapid adoption of new technologies and the integration of digital payment methods. The payments ecosystem in the Middle East is seeing a surge in fintech adoption, collaborations between fintechs and banks, and smartphone penetration.

Commenting on the new payment schemes emerging in the region, Jorge Camarate, partner with Strategy& and the leader of the Financial Services practice in the Middle East, and Dr. Antoine Khadige of Strategy& Middle East and part of the PwC network, observe: “By 2030 financial transactions are projected to grow annually at double digit rates therefore commending advanced capabilities spanning from fraud detection systems to advanced credit decisioning systems. The region’s leading processors are already investing in use cases such as predicting customer credit card behavior and defaults, reducing false debit and credit card declines and machine learning based fraud detection.”

Their remarks indicate that the retail payments industry is picking up in the region, and AI is a vital cog in the machine.

As a region, the Middle East is becoming more prevalent in the global AI industry and moving towards becoming an innovative technology powerhouse. Nath sums up the trajectory retail payments sector: “Overall, the fintech payments ecosystem in the Middle East is dynamic and rapidly evolving, driven by a range of factors including the region's large and youthful population, increasing digitalisation, and supportive regulatory environment.”

While governance is still in process of being developed and many technologyforward initiatives are still in their early stages of implementation, the region is expected to become a key player in the global AI industry and is looking to integrate more AI technologies throughout Middle Eastern societies.