Earlier this year, consultancy firm KPMG reported in its Pulse of Fintech report how the fintech ecosystem in the Middle East continued to evolve. The report highlighted two fund-raising deals that took place in the second half of 2021 as an indicator of things to come: a $75m fund raising by Bahrain-based crypto fintech Rain, and a $50m fund raising by UAE-based Tabby, the buy now, pay later fintech.
The KPMG report went on to predict that deal sizes would continue to grow in the Middle East, primarily in the payments sector. This was part of a wider prediction of a stronger focus on fintech deal-making in underdeveloped regions. “Investors will ramp up their targeting of jurisdictions considered to be underdeveloped in terms of financial services – making more deals in regions like Africa, Southeast Asia, Latin America and the Middle East,” the report said.
At the same time, SGP, the IT and technology recruitment group, found that the fintech sector in the Middle East is growing rapidly, with a compounded annual growth rate of 30%. It predicted that 800+ fintech companies from subsegments including payments, open banking, regtech and compliance, smart lending, insurtech, blockchain and cybersecurity solutions for the financial industry, will raise more than $2bn in venture capital funding.
“Since 2017, when only 30 regional fintech companies raised less than $80m, the Middle East has seen significant growth as a fintech hub, both for investors and tech-savvy innovators,” SGP’s report, 2022 Market Report: Fintech MENA & UAE, said. “With almost half of the 400 million people in the region under the age of 25 years, we believe the push for digital-first solutions across sectors like payments, banking and lending will continue to surge.”
However, SGP reported that the growth of fintech in the MENA region is not evenly distributed. Most fintech activity in MENA is concentrated on the digital payments segment, followed by remittances, digital lending and digital banking. Jurisdictions such as the UAE, Israel and Morocco have introduced bespoke regulations for payment services. In some instances – such as in Egypt – e-payments have become mandatory for some transactions, such as those involving public institutions and private companies. Likewise, some regulators have started to embed fintech products into several governmental services.
Most of the fintech deals (32%) and funding (49%) across MENA in 2021 were focused in the UAE. According to an IBS Intelligence report, the UAE is home to almost 50% of the region’s fintech companies.
“Within the UAE, Abu Dhabi is recognised as a top fintech hub, home to Abu Dhabi Global Market (ADGM), which created the first fintech regulatory regime in the region,” the SGP report said, adding that ADGM’s RegLab is the world’s second most active fintech sandbox, a low-risk environment in which to test innovations.
Currently in the UAE, payment companies dominate the fintech industry, representing around a quarter of all fintech companies, significantly outpacing its closest competitors, blockchain and insurtech. Fintech companies in emerging sectors like open banking and data/artificial intelligence remain relatively few at present, but SDG predicts these areas will grow in importance over the coming years.
FinxAr, launched by the Arab Monetary Fund, is an index of modern financial technologies in Arab countries.
The index identifies the efforts of Arab countries in enabling and promoting fintech adoption.
The UAE leads the Arab countries in the general index, achieving an average of 75%. The general index consists of six sub-indices, including policies and legislation, the demand side, access to finance, financial markets infrastructure, talent development to support innovations, and collaboration and partnerships.
UAE 75%
Saudi Arabia 65%
Bahrain 64%
Tunisia 55%
Egypt 52%
Philip Smith is editor of The Treasurer
This article was taken from Issue 3, 2022 of The Treasurer magazine. For more great insights, log in to view the full issue or sign up for eAffiliate membership