The 2016 National Financial Inclusion Strategy highlighted that only 36% of the Palestinian population uses financial products and services. Even if the rate of financial inclusion gets closer to the aimed 50%, more than half of the adult population would still be excluded from the formal financial system. The combination of financial technology (Fintech) and innovative business models can contribute to overcome many of the well-known financial inclusion barriers such as low levels of financial literacy and costly financial services.
For Fintech led financial inclusion to work, however, it is not enough for banks or new Fintech companies to just adopt new technologies. Success depends on various stakeholders playing their part and contributing as a unified system to develop a hurdle-free and efficient ecosystem. Core stakeholders required in the Fintech ecosystem include the following players:
The Government needs to develop the right policies and programmes to encourage the development of Fintech. This may include special legislation to provide tax incentives for Fintech ventures or investors in them, a programme of grants and funding, as well as a national educational curriculum at universities to develop more Fintech skills for the market.
Regulators play a key role in opening the financial system to Fintech newcomers, by lowering regulatory barriers (such as high capital adequacy requirements) or allowing testing of certain business models that do not fit within exiting regulation.
Traditional financial services firms must play their part equally to bring about financial inclusion. Digital transformation initiatives may help to reduce costs and in turn help lower the cost of financial services for the underserved. Incumbents can also develop new digitally enabled products and services to open new untapped markets.
Entrepreneurs are vital to the development of a Fintech sector. New ideas come from entrepreneurs that experience problems in the financial system first hand. Fintech firms have proven to be much more effective in being able to serve the underserved population.
Consumer education can be facilitated by using digital learning channels. A financially literate consumer will be more willing to use digital financial services, thus creating the necessary levels of demand needed for commercial viability of Fintech ventures.
Infrastructure and technology providers are vital to the success of digital financial inclusion. Basic internet and mobile access are vital, and in addition, digital Know Your Customer (KYC) solutions and payment gateways are important to build blocks for Fintech platforms.
Investors and Accelerators are crucial, as they help Fintech ventures ride the tumultuous start-up stage where much advice, guidance and capital are needed to get through that stage.
Finally, educational institutions must work with the industry to develop Fintech talent, which will be in high demand if Fintech led transformation works.
Status Quo of the Palestinian Fintech Ecosystem
The Palestinian Fintech ecosystem has come a long way on their journey towards digital financial inclusion. The Palestine Monetary Authority (PMA) and the Palestine Capital Markets Authority (PCMA) have made remarkable progress to open the financial system to innovation, as well as to develop Fintech and digital financial services skills and capacities within their institutions (for more details click here and here).
The emergence of online banking and mobile banking solutions shows the progress several banks are making to drive digital financial services. Insurers are equally looking into offering digital channels for customers to purchase insurance or manage their policies. Incumbents are in addition seizing the opportunity of Fintech to increase operational efficiencies and to cut costs. In 2020 Payment Service Providers got licensed for the first time by the PMA and since then have facilitated easier payment of bills and peer to peer payments via mobile and digital channels.
Equally, the Palestinian IT sector is vibrant and well developed. A few Palestinian IT companies are delivering solutions to their clients in developed countries across Europe and Americas.
Academia has also taken an interest in the Fintech sector (find some examples of publications at the end) and the Palestine Polytechnic University introduced with support of the GIZ a Fintech dual studies programme, contributing to build Fintech capacity, to meet demand as the sector grows.
The progress is encouraging. Nevertheless, in view of an enabling Fintech environment there is still some way to go before the full benefits of Fintech for financial inclusion can be realized.
Key Recommendations for the Creation of a Fintech Enabling Environment
As there are many interdependencies between the different stakeholder groups and isolated efforts rarely result in desired outcomes, a clear understanding on the interlinkages between them as well as a strong collaboration are key for success. In addition, a central register or oversight body could contribute to an improved coordination of efforts to drive the Fintech agenda.
As with the existing National Financial Inclusion Strategy, a National Fintech Strategy could also support an enabling Fintech environment by not only acknowledging the Fintech stakeholders, but also by recommending strategic and tactical initiatives for each of them.
Whilst regulators have taken great steps to open the financial system to innovators, underdeveloped parts of the Fintech ecosystem could result in low quality, or no Fintech solutions being presented to the regulator for testing and licensing. Specialized Fintech accelerators must emerge to provide support to aspiring Fintech entrepreneurs. Their success in producing quality Fintech start-ups will encourage investors to actively invest in this sector. Government tax incentives and financial support can also provide Fintech entrepreneurs with that initial push to launch and grow their ventures. In the case of foreign Fintechs these incentives can be the key to raise their appetite for the Palestinian market.
Incumbents must continue their efforts towards digital transformation. However, they must open doors to entrepreneurs who bring innovative ideas and collaboration opportunities. Much of the digital transformation initiatives led by traditional financial services firms, such as digital channels, tend to benefit those already in the financial system. These initiatives help to drive competitive advantage for banks rolling them out. Nevertheless, digitization alone rarely includes those that are excluded. Fintech innovators find ways to serve these communities, and when supported by for example banks and insurance firms, they can truly accelerate financial inclusion.
By Jay Tikam (Vedanvi) and Sofia Bublatzky (GIZ)
 The level of financial inclusion was calculated by considering bank account ownership, borrowers from banks as well as insurance policy holders (Source: National Strategy for Financial Inclusion in Palestine 2018-2025 Palestine Financial Inclusion Strategy.pdf (pma.ps) )
Abu Daqar, Mohannad A. M.: Aeqawi, Samer; Abu Karsh, Shariff, 2021, Fintech in the eyes of Millenials and Generation Z (the financial behaviour and Fintech perception”,
Wael Al-Daya, Sedeaq Nassar & Mohammed Al-Massri, 2022, “Financial Technology (FinTech) Innovation and the Future of Financial Institutions (FIs) in Palestine – An Exploratory Study”, International Conference on Business and Technology, and
Mohammed Abu Daqar, 2021, “The Readiness of the Palestinian Banking Industry to Fintech Era: Measuring the Fintech Ecosystem in Palestine”, Szent Istvan University, Doctoral School of Economic and Regional Sciences.