The Rise of Middle East Digital Businesses

Digital businesses are on the rise. These business models are typically characterized by the extensive use of technology and data to drive value for the organization and the customers that they serve. These businesses are on the rise in the Middle East. According to one forecast, just one subsector of digital business, e-commerce, is expected to grow to USD50 billion by next year¹.

It is important to distinguish between truly digital businesses and those who are adding digital capabilities to existing businesses. For instance, truly native digital businesses have been platforms from the start such as Uber, or Deliveroo. The second category would include consumer goods companies that have added a digital channel to their retail operations. “We think that anything that moves without paper is a digital business,” says Anuj Narayan, head of finance at PropertyFinder.com, the leading online property real estate listing platform in MENA, which was established in 2013. “That could be getting your customers to sign contracts digitally, to receiving and making payments online. It needs both your customers and your suppliers to be on the same portal and it means that the vast majority of all your interactions are in digital mode.”

There are three main reasons why digital businesses are thriving. Firstly, the technology is now available for these business models to exist. Digitisation is increasing and it allows organisations to adopt these models more easily than ever before. The second driver is data. One of the key characteristics of these types of business is their organisation’s ability to consume data and put it to use to create value. From a treasury perspective more and more data is now available, whether its payments data, data that helps better forecasting and better liquidity management, data on where customers are buying, what they are buying and in which currencies. The third driver is customer preference for ease of use. Customers now want to engage with an organisation though a platform or an app in a way that is creating value for them, the customers.

“For us, the main driver behind the growth is very simple: it is the ease of it,” says Narayan. “For every customer or supplier, it is the ease of being able to transact from your home or from your phone without having to physically go somewhere to do business.”

Overcoming Challenges

While the ease of conducting business digitally is a driver, the process of establishing a digital business still comes with challenges, not least in the treasury function that is often the backbone of any digital business. In some instances, manual intervention is necessary even in the most digitally native of organisations.

One such digitally native company is Tabby, a buy-now-pay-later platform that works with companies across KSA, UAE, Qatar, Kuwait, and Bahrain. It allows customers to pay in instalments for goods they receive immediately.

"We are a digital business from the inception,” says Pratik Rathi, Head of Finance at Tabby. “Our entire process, from onboarding merchants to settling payments, is digital. This not only enhances efficiency but also ensures real-time visibility into our cash flows, enabling precise timing for our payments and facilitating detailed and accurate cash forecasting.”

Pratik elaborates on the strategic importance of Tabby’s digital treasury, stating, “A sophisticated digital treasury is the backbone of our financial operations. It allows us to leverage advanced analytics and machine learning algorithms to optimize liquidity management and predict cash requirements with high accuracy. This proactive approach minimizes financial risk and maximizes operational efficiency.”

Despite Tabby's strong emphasis on digitalization and automation across all aspects, there are still key challenges such as budgeting for digital treasury operations and the necessity of occasional manual intervention, which is common in any digital business.

“Our founders and founding team come from robust backgrounds in e-commerce and financial services,” explains Pratik. “We had a clear vision of setting up and operating a digital platform business, making the investment in a digital treasury a fundamental aspect of our operations. Our focus on digital innovation has enabled us to build a resilient financial framework capable of scaling rapidly while maintaining stringent controls and oversight.”

Despite the aim for fully digital operations, there is sometimes still a need for human interaction. “Our system is designed to be seamless; the digital infrastructure ensures a mirrored process between the merchant’s activities and our platform,” says Pratik“Nevertheless, about 80% of our payment-related activities are fully digital, though certain tasks and checks & balances still require manual handling via spreadsheets. This hybrid approach allows us to maintain flexibility and address any anomalies promptly, ensuring the highest level of service quality for our partners.”

Indeed, the budgetary requirements for digitisation and the on-going need for manual intervention and human participation go hand in hand. Even though digitisation drives costs down over time, there is an initial, upfront cost that can prove a disincentive.

"Our mantra is automation, automation, automation,” says another, Treasury Head of a platform business operating in UAE and KSA that was founded in 2005. “But when you get the quotes in from providers that help you automate, it is sometimes too costly and we need to do it manually.”

Risk Management

One further tension inherent with digital businesses is the need to balance the desire to centralise all treasury functions with the need to mitigate the risk of concentrating all your business with one or two banks.

“We have spread our collections and funding activities across multiple banks,” says the Treasury Head. “We also have to balance the higher costs of some banks with the added technical prowess they may bring.”

For regional digital businesses such as Tabby and Propertyfinder.com to thrive, they need a digital treasury function, which is supported by digitally capable and regionally adept banking partners. “We also diversify our risks across multiple banks and yes the local banks may lack the technical capabilities of the international banks,” says Narayan at Propertyfinder.com. “When we want to centralize everything in one place, there are only one or two banks operating in the region that have that capability. It is one of the reasons why the larger banks are helping digital businesses like ours.”

What is clear is that the Treasury function plays a critical role in supporting an organisations overall digital agenda. At HSBC we are seeing that more and more clients are adopting digital and platform business models, and as a result we are committed to helping our clients on their digital transformation, whether they are digitally native start-ups, or established businesses looking to add digital channels. Getting digital treasury right is not easy. Therefore, the potential benefits that can be derived from digital business models, demand a very strategic approach to treasury management, and one that is fully aligned to the organisation’s broader digital aspirations.