Professor Susanne Espenlaub is Programme Director for the MSc Financial Management at Alliance Manchester Business School. She is an internationally recognised academic with an extensive record of research published in highly prestigious and world-leading academic journals. Her research areas are corporate and entrepreneurial finance, including venture capital, private equity and private debt.
Some of her recent work deals with cross-border flows of venture capital and private equity, the determinants of VCPE (Venture Capital-Private Equity) performance, the reasons for VCPE performance persistence and the investment practices of private debt funds. Her research also examines share issuance and buybacks, including the performance of initial public offerings (IPOs) and the impact of listing rules, legal system and investor protection on the delisting of IPO stocks.
Professor Espenlaub’s masterclass highlighted FinTech 4.0, focusing on the growing world of FinTech in the Middle East. She discussed key FinTech segments, growth trends, impact on financial services and society, funding through venture capital, and exit routes for investors. She also highlighted the potential growth of FinTech in the Middle East, emphasising the need for supportive institutional frameworks for positive impacts on financial inclusion. The session included discussions on the history of FinTech, different generations of FinTech, and the challenges and opportunities for FinTech companies, including the importance of friendly regulations and collaborations with traditional financial players. Attendees engaged in interactive discussions on the topic and explored various questions related to FinTech investments, IPOs, and the future of the industry.
“For this masterclass, I picked the topic of FinTech because I've been looking at it in my teaching. In fact, one of the courses on our MSc Financial Management that I've developed, called Business Models and Financial Strategy, has quite a big FinTech component in it. So, it was interesting for me to have another look at what's happened to FinTech recently and, secondly, also what's happening in FinTech in the Middle East.
“I'm looking at a few things that are close to my research, which is actually about the financing of FinTech and also about FinTech as an investment - something that I haven't actually seen a lot of research on or even professional reports on.”
Looking at the funding and the growth of FinTechs in different regions, she cited a McKinsey & Company report predicting general growth at 15% year-on-year, with the Middle East forecast growth rate of 35% year-on-year.
“The Middle East really stands out in terms of being a real hotspot for FinTech in terms of really massive forecast growth. And what they're predicting here is that by 2028, the Middle East will account for 2% of the global FinTech market. Generally, the trend is that emerging economies will be on the forefront of FinTech innovation and FinTech markets, and that's really where FinTech will be most strongly developed. The developed economies are very well aware that the share of emerging economies in FinTech is growing.”
Looking at the history and development of FinTech, she explained that FinTech is not really new. “If you think about it, finance has always involved technology - from the invention of the abacus…to double-entry bookkeeping. Typically, they talk about the three ages of FinTech and then I realised there's now a fourth age, which started in 2018. Technology has always been around and it's always been important. FinTech 4.0 is not going to be the final stage.
“Examining the literature, a lot of it is about disrupting the existing financial service industry… by unbundling financial services...to become more efficient at providing them, and actually provide them at lower cost. And hence, they can out-compete the existing providers.
“Also, of course, importantly, it's really the use of innovative technologies to speed up things and automate things and make everything faster and far more low-cost. When reading the academic literature and asking whether you get a positive impact of FinTech on financial inclusion, when you look at studies across many countries or across many regions, what is really important is that you only get this positive impact if you have a supportive institutional framework. So, you need, for example, investment protection and you also need protection of the individual rights of the consumers.
“When you look at the share of FinTech in terms of global banking revenue in 2022, it was 5%. FinTech is growing very fast and is certainly growing much faster than overall banking - overall banking is growing at roughly 6%, whereas FinTech is growing at roughly 15%. So clearly, FinTech is growing within overall banking but it's not going to eliminate overall banking. And there are very good reasons for that.”
The UAE was ranked number six in the top 10 of global markets (2023) in terms of investments in FinTech, according to Innovate UK. $1.3 billion was invested in 54 deals after a 92% jump in investment in 2023, compared to 2022. The reasons for the rise included a general ‘catch-up’ by UAE financial services incumbents increasing spending on digital transformation, creating opportunities for B2B fintech; ‘leap-frogging’ - UAE digital wallet adoption for payments and identity is higher than in Europe; and FinTech friendly regulation.
“In the UAE, we've got a traditional banking sector that is still ripe for disruption. So, there is still a lot of growth potential and there is potential, of course, for FinTechs to collaborate with these existing players. And by collaborating, that generates further growth opportunities for FinTech. The Middle East and the UAE are important financial players…you already have all of those financial service providers right here. It is the perfect place really for FinTech, the perfect environment.
“At the same time, you have an ecosystem of FinTechs that has grown around some initiatives like the DIFC, there's a number of accelerators that exist here. So, this is a very favourable ecosystem and there's been a growing economy and very good adoption rates of online and digital.
“Friendly regulation is a big promoter, a big driver of growth. And then of course, it's this impact of particularly investments by venture capital funds (venture capital and private equity is actually my area of research, as well). But that doesn't seem to be happening in FinTech and that is a real issue. Now, of course, there is generally a tendency nowadays for companies to stay private for much longer, because the private equity players are actually willing to put funds in those at a much later stage and also to remain invested, even after the IPO. I think there are so few IPOs, it does suggest that there is not enough funding now for some of the really large FinTech players. In FinTech area, there are a lot of acquisitions and what's actually happened is that instead of going public, exiting through IPOs, a lot of venture capital and private equity are now exiting through acquisition. And often what happens is that FinTechs are being acquired by traditional players. So, the M&A exit has become much more popular as well, and potentially more profitable. Returns on FinTech IPOs tend to be disappointing post-IPO but this is also true for IPOs in other industries.”