Iran is a powerhouse of entrepreneurship in MENA region due to strong demographics, large-scale growth potential and high-end technological infrastructure. Such positive environment has been curtailed by the notorious sanctions imposed globally on the Iranian economy. The lift of sanctions in 2016 by P5+1, however, has changed the perception to this particularly substantial market, and paved the way for an increasing interest of foreign investors to tap into unrivalled returns and opportunities both in public and private markets. Such drive has also facilitated formation of an ever-expanding ecosystem of private equity, venture capital, entrepreneurship and start-ups.
Fintech industry has not been immune to this shift to a higher ground. The interest towards rising fintech industries is an eye-catcher alongside other innovative ideas. There are now ten accelerator programs such as Avatech, Dmond, Trigup; three venture capital investment companies; five venture capital funds such as Sarava, Shenasa and Rahnema, and two angel networks, Avaangels and Karaya. Iratel, Griffon and PSIG has created venture capital arms to invest in tech companies. An idea exchange has been created to facilitate information and updates across the board. Various fintech businesses have drawn investments ie Fanap, ISC, eFarda, Tosan and others. Availability of sector-focused funds and varying scope of fintech firms is an indicator that the more has yet to come. It is however not quite easy to map the industry around numbers. A country-wide database seems to be very relevant to eloquently identify the fact-based potential in Iranian fintech landscape.
Below are some of the highlights to consider for the Iranian fintech market:
Regulation: Lack of an authorized fintech body and an integrated regulatory framework is a backdrop. Central Bank of Iran has recently announced that it is engaged in a comprehensive framework to regulate fintech industry in the country. This is a look-forward to development.
Technology Leverage: In the sanctions-era, technology companies have emerged to sustain domestic financial services. Such technology and software houses are there out in the market empowering banks, insurance companies, brokers and other players. Impromptu emergence of such operators have helped building know-how, professionalism and innovation in the country. It is why transition to fintech mindset might prove to be easier in dimensions such as P2P payments, P2P loans, remittances, crowd funding, microloans, e-wallets, robo-advisory, trading, data analytics and personal finance.
Efficiency: Low-cost and high-caliber workforce is a clear advantage. Broad availability of quality engineers and developers is an added value.
Banks: Banking services are available throughout the country towards widespread branches even in small towns. Banks however need to be upgraded technologically given the appetite towards online banking. Use of smart phones among youth is a catalyst to switch to mobile banking. There is a compelling reason for banks to collaborate with fintechs to lever on innovation, agility and flexibility.
Trading: Capital markets are liquid and widely participated by individual investors. Trading culture is embedded and shored up by brokerages. Algorithms and product diversification will prevail the local markets as the foreign funds are drawn into competitive returns. Investment advisory is expected to convert into online space with more robotic and speed-based technology involved. It is very likely to see fintechs in capital markets towards deployment of technology, AI and big data.
Challenges: Despite upsides, some challenges remain in effect. Merits of fintechs are not entirely discovered by market participants. Banks are yet to be fully linked with the global system. Swift integration is slow, and seriously undermines money transfers across the border. Regulatory framework requires alignment. Accounting rules need to be brought updated. Foreign ownership in firms is subject to constraints. Political pressures on the country are not completely lifted.
Similar to many other countries, Iran is experiencing an appetite towards fintech products and operations. Such appetite is counter-weighted by various challenges. There is however a need to educate the regulators, banks, investors and fintechers towards a healthy development of the fintech market.
FintechPark is organizing a fintech conference in Tehran in May 2017, first of its kind in the country. Such event will help all interested parties to grasp a better understanding of the market, potential and challenges. Stay tuned for updates. Look forward to seeing you there!
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