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Fast-changing business models based on increased mobility and connectivity promise to have far-reaching implications for Middle East businesses. The so-called "uberisation" of the economy is often perceived as a disturbing force. However, it also represents an opportunity for finance leaders to innovate and reduce costs.
Disintermediation: cutting out the middleman
"Disintermediation" is the concept that is hidden behind the success of companies like Uber, Careem and Airbnb. It is a trendy term referring to a process where intermediaries are removed.
Yet the concept is not new. It dates to the late 1960s, when individuals started investing directly in government securities and private stocks and bonds as a result of governments imposing limits on interest-bearing savings.
Nowadays, disintermediation is more likely to refer to a type of economy where, enabled by the internet and mobile technologies, platforms are created that directly connect buyers and sellers of goods and services.
Since it challenges existing practices, disintermediation is disrupting traditional business models and having a huge impact on many sectors, from travel and music to IT, finance and transport.
"Across the enterprise finance world, disintermediation is a rising trend. In insurance for example, reducing the number of steps taken between providers and end-users is increasingly a core aim for firms," remarked Alexander Makeyenkov, senior vice president in finance practice at global technology consultancy DataArt.
"In the wider finance world, there is a strong push across multiple companies to be more connected to their end-user and this will only continue."
Peer-to-peer finance
With its appetite for new technologies, the MENA region is ripe for disintermediation.
"The Middle East is on the verge of a massive digital disruption," noted McKinsey in a recent report. "In the past decade, the cross-border data flow connecting the Middle East to the rest of the world has increased more than 150-fold. Several countries - including Bahrain, Qatar, and the United Arab Emirates - are leading the digital consumer charge, with high smartphone-adoption rates and social-media use."
McKinsey said it believes that consumers are ready, highlighting their enthusiasm for digital. However, are businesses in the region, and finance directors in particular, ready for this disruption?
According to Makeyenkov, uberisation is a "loaded term" that brings with it some level of controversy among finance leaders. There is also some degree of scepticism among them that financial technology, said to be the Uber of finance, will ever be mass adopted.
"Really only Uber and a few other examples have managed to scale from small providers of a new service to global companies operating in multiple regions. There remains a question mark over whether firms operating with fast-changing business models will be able to maintain their momentum as they grow," he said.
A cost-cutting opportunity
Nevertheless, finance leaders are not immune to the attraction of alternative funding methods such as peer-to-peer (P2P) lending or equity crowd-funding to raise money and invest in growth, especially since finance departments are continually under pressure to implement cost reduction programmes across their organisation.
Globally, the P2P lending market is estimated to grow annually at 53 percent between 2016-2020, according to Technavio, a media market research firm. The Middle East is also seeing a number of new entrants in this blossoming market.
Craig Moore, CEO of Sharia-compliant Beehive, the UAE's first online marketplace for P2P finance, has witnessed an increase in demand from businesses in the region.
"There is a large market of great businesses looking for affordable finance that they can secure in a reasonable timeframe. Many of our business customers have encountered challenges trying to find finance on terms they can afford," he said.
"Others have been limited by the time it has taken to get through long application and approval processes, which can cripple a business if they run out of cash during the application."
Alexander Makeyenkov said he believed that launching solutions such as crowd-funding are potentially a bullet in the foot for banks, whose business model is based on risk-management lending. "It is essential that CFOs and banks should position themselves correctly in this space, to be part of the mix as firms look at different funding sources."
Makeyenkov added that amid the moving landscape of disintermediation, cloud solutions offer the advantage of connecting players operating in different companies directly with each other and simplifying access to a firm's offer. Furthermore, cloud solutions represent a cost-saving opportunity for firms and help reduce potential maintenance issues, he said.
© Oracle 2017
