The idea of the sandbox has broken the traditional ways with which we deal with everything new. Novel ideas and items are initially met with disapproval and rejection, which leads to loss of numerous opportunities. New ideas clash with prevalent systems, laws and regulations that bar application of ‘unfamiliar’ items. But this was in turn broken by the famed laboratory idea for testing Fintech, financial technology, in a specific milieu and under specific conditions to determine their pros and cons. So, what legislations would a state need to capitalize on this new technological flood?
The sandbox is a laboratory setting for testing innovations, be these financial or otherwise. Like any laboratory, the factors surrounding the sandbox are controlled in order to view the effect on what is to be tested so that the laboratory environment is changed. The sandbox is a very impressive reaction to the challenges posed by the global financial crisis (2007-2008), which was a crisis of confidence in the first place as it had adopted a scientific approach without being constrained by any applied traditional restrictions. An innovative way to solve problems was first initiated in the United States of America in 2012, and that later spread to the rest of the world.
At the conclusion of my first article on Fintech (vide the article “Is Fintech Constructive Disruption?”. Perusal of the experiences of states can spare us a lot of effort exerted on untested recommendations and monotonous ready-made solutions. Here, we cannot talk about Fintech while turning a blind eye to the Chinese experience where China has blocked Google in 2006, and later on both Twitter and Facebook in 2010 for sheer security reasons. It later came to bear that the economic benefits of that step were sizeable. China had taken that step as part of a graded multi-step strategy, including the construction of “The Great Firewall of China” – a step reminiscent of the way it built “The Great Wall of China” thousands of years ago to protect itself against attacks, though present day attacks take the form of cyber warfare.
Countries make their moves on the basis of an elaborate reading of reality and strong faith in their abilities. Another lesson pointed out by a Harvard study (WeChat: A Global Platform?) is that China has launched a propaganda campaign to foster the spirit of renovation. In that respect, the WeChat application that boasts nigh a billion active users per month is nothing but a product of competition. Pony Ma, founder of Tencent, the internet-based platform and gaming company, whose value exceeded USD 500 billion in 2018- realized that the best strategy to deal with the current situation of the Chinese government by blocking these giants and the need to locate an alternative is to fuel the spirit of internal competition. The result was the establishment of the Wechat platform that made its debut as an alternative for the Whatsapp messaging application. The Wechat platform has even outshone Whatsapp in many respects and came to be an exemplary model for Fintech. The WeChat is an integrated platform for social networking and e-commerce through which you can book appointments with your doctor, make a travel reservation or a clearance of a banking transaction.
There is a global map of Fintech. Fintech represents a real threat to the financial system as it may very well pull the carpet from under the feet of the London financial hub that supported the British government by USD 200 billion in 2015 and that represents 11% of the gross domestic income, according to a study conducted by KPMG. London has thus become the capital of Fintech. The best way of dealing with Fintech is by turning it into opportunities. London has adopted a Fintech ecosystem in terms of facilitating legislations and incubators and attracting the most sophisticated technical expertise to attract startup projects and polarizing highly specialized Fintech expertise. This is a capacity that developing countries do not possess because it takes decades to build an integrated system.
At this juncture, we may aptly pause a question on the location of the Middle East in the Fintech map and if there is anything to be learnt from the same. The UAE currently spearheads the Fintech race in the Middle East by polarizing ideas via setting up a favorable environment through adoption of the idea of the laboratory sandbox and not by the volume of financial applications it has produced. That race was henceforth joined by Bahrain, Saudi Arabia and Egypt and accompanied by the remarkable development of the Saudi Arabian Monetary Agency (SAMA), the Saudi Fintech hub, in 2019 and its polarization of 18 startup projects that varied between payments, lending and banking solutions.
The nature of rentier economies creates dependency, which means lack of competition that represents a fertile environment for innovation. The banking sector in the Gulf region is witnessing a spell of comfort by relying on guaranteed profit sources, which is a fundamental challenge for the prosperity of Fintech. The protectionist policies of the banking sector of the Gulf are harmful to economic growth and are moreover fatal to the banks themselves in the absence of a sense of urgency to embrace the race of the technological financial revolution.
Sandboxes are the ideal solution for developing countries where the ecosystem is not complete. These boxes save time for governments, facilitate exploration as well as enable those countries to keep up with technological innovations. The importance of sandboxes lies in the fact that they are ground-breaking methods for dealing with problems and items that crop up. It is therefore natural that innovation does not require legislations. One of the deadliest challenges to innovation is lack of sandboxes that provide opportunities for growth and testing.
There exists a multitude of actors responsible for building an integrated ecosystem. Developing countries are consequently advised to draw up a strategy for the Fintech. All matters associated with money are destined to go through a technological revolution. How can the economy’s plan be unaware of Fintech developments? How can the educational plan be uninformed of the skills required by the money sector? Experts and academics believe that technological specialization is likely to be integrated with accountancy and finance in the future. It is true that we do not have a sandbox, albeit Fintech is not far off the foreseeable future of the Oman. There is still a glimpse of a success story amid the numerous challenges. Have you heard about that story?
