An overview of the Middle East fintech landscape

In recent years, fintech has contributed significantly to increasing access to digital financial services. As a result, businesses can now offer financial services through different forms of technology, thus enabling them to grow and expand.

An Economist Impact survey of 300 C-suite executives from the banking industry titled Threat Assessment 2022: Digital Competition in Global Finance, commissioned by WS02, discovered that 47 per cent of banking executives provide customer service via digital channels. Furthermore, over the next two years, 77 per cent of these executives expect their organisations will serve customers mainly through digital channels.

“All signs in the Economist Impact report point to established financial institutions successfully rising to the digital challenge,” says Eric Newcomer, WSO2 chief technology officer. “A majority of survey respondents said they have the necessary tools, are culturally ready, and have the talent needed to create new digital products and services, which to me represents a significant change in the industry dynamic.”

On the brink of rapid expansion
The Middle East has seen an influx of fintech startups, new funding and increased support for existing and new ventures. According to Statista, the number of fintech companies is expected to reach 465 in the region this year from 30 in 2017. When it comes to investments, Wamda reported that startups in the Middle East and North Africa region raised $176m in May this year across 42 deals, a 62.7 per cent increase year-on-year, with Egypt raising $81m, a rise of 135 per cent year-on-year. Furthermore, Saudi Arabia raised $46m across nine deals due to HyperPay’s $36.7m round led by Mastercard, followed closely by UAE-based startups with $45m raised across eight deals.

Going digital
In the UAE, the government has taken various measures to encourage the growth of fintech. The country is leading in the MENA region, reaching a record high of $2.5bn this year. In May 2021, UAE launched the DIFC Innovation Hub, the region’s first ecosystem dedicated to bringing fintech and innovation communities together. The hub is expected to play a key role in driving collaboration between early-stage and growth startups, tech unicorns and big tech firms. Not only does the hub connect startups with commercial partners, it also actively delivers financial initiatives to provide funding.

In September 2021, the hub announced that it had reached full capacity with tenants, including early to growth-stage startups such as Yap, Beehive, Tabby, Xpence, Stake, Rain and Bayzat as well as Thunderbird School of Global Management, part of Arizona State University. DIFC also announced a fourfold expansion to the hub in the next two years to accommodate up to 1,000 businesses.

“Fintechs have a unique opportunity to provide a superior customer experience while offering dynamic consumer protection. The UAE ecosystem is one of the fastest-growing blockchain ecosystems in the world, with fintech in the region not yet adopting this novel approach,” comments Saqr Mashhor Ereiqat, co-founder of Crypto Oasis.

“The fintech industry is thriving and is increasingly being adopted by the more traditional financial institutions and sectors,” says Madalina Rotaru, chief executive officer at Capex.com. “Fintech saw a tremendous boost from the emergence of cryptocurrencies, Defi, and the technologies around the metaverse, as well as from the digital shift created by global coronavirus lockdowns. In addition, the volatile market conditions have also been a ground for the democratisation of automated trading solutions that provide individual and professional traders with an edge and a safer trading environment.”

Meanwhile, Fintech Saudi estimates that the number of fintech companies active in Saudi Arabia grew by 37 per cent in 2021, while investments reached $347bn. Last month. The Financial Sector Development Program (FSDP) launched the Fintech Strategy Implementation Plan, aimed to situate the kingdom among the leading countries in the field of fintech, with Riyadh becoming a global Fintech hub. The strategy also aims at enhancing the economic empowerment for individuals and communities.

The emerging players
It’s not just the banks and governments, but a handful of startups that are also making serious moves in this sector. Earlier this year, Tabby, a buy-now, pay-later platform, extended its Series B capital raise by $54m. The platform has over 1,100,000 active shoppers in Saudi Arabia and the UAE and collaborates with over 3,000 brands. Online retailers using its payment solution have witnessed a more than 10 percentage point decline in the usage of cash on delivery by their customers, a statement said.

Meanwhile, fintech firm PayBy has integrated its payment solutions with Asfartrip, an online travel and tourism platform. Customers who book travel, flights, or hotels on Asfartrip may now check out securely utilising PayBy payment alternatives. The fintech company also announced that the Asfartrip website had been incorporated into its native app, allowing clients to access travel and accommodation booking services as well as cashless travel.

Furthermore, FOO, a B2B fintech solutions provider in the MENA region, has expanded operations into Saudi Arabia to support digital transformation efforts sweeping across the nation. FOO works with banks, fintech companies and retailers across the region to provide digital products that enhance business models and customer experience. Another startup in this sector, FlexxPay, announced its expansion into Egypt by opening a new office in Cairo. The company estimates that around 20 million people across Egypt could benefit from early wage access.

Insurtech is another fast-growing segment that has witnessed many startups gain significant traction. For example, Turtlemint, an Indian insurtech company, opened its first office in Dubai last month. The expansion is undertaken to scale its digital insurance platform offering for enterprises. With the global insurance market predicted to grow at a CAGR of 6 per cent per year, reaching almost $6.4tn by 2025, Dhirendra Mahyavanshi, co-founder at Turtlemint believes that insurtechs will both enable this growth in the insurance sector and also benefit from the same. “The opportunity for insurtechs to grow and add value to the insurance ecosystem remains immense. In collaboration with insurtechs, insurance companies will be able to enhance claims management, ease the issuance process, improve customer engagements, and create customized insurance products that can meet the nuanced needs of consumers.

Regulatory risks
Since each GCC nation has its regulatory requirements, fintech firms must balance their growth plans with the operating rules. To grow sustainably, they need to take on the right amount of regulatory risk while balancing their expansion with compliance. Fintech companies must have technology that can be deployed seamlessly in any country. By ensuring that identity verification steps are secure, compliant, and seamless, robust onboarding processes reduce the risk of fraud for businesses and prevent money laundering.

“Data residency laws and data privacy are fundamental for all businesses to follow. For fintechs, it’s crucial to ensure the right kind of licencing for specific activities, which might include proving business maturity, auditing and hitting milestones/targets, before graduating to more comprehensive licencing and advanced activities. Government regulations must keep up with them to stimulate ecosystem growth,” states Oliver Obitayo, CCO at IDnow Middle East. “Fintechs often chart new business models that transcend the legacy of doing business. Their areas of regulatory focus should include data protection, open banking and finance, dynamic consumer protection, digital currency and ESG,” opines Erieqat.

Moving forward
The way customers choose to manage their finances has changed dramatically. There’s been a massive uplift in digital payments, a decrease in branch openings and a surge in fintech usage. Investment in new innovation hubs is also increasing in momentum. As we advance, the future of fintech seems to be bright and looks to proliferate. Looking at the future ahead, Mahyavanshi says, “I think there will be more focus on creating small bite-sized products that fulfil the specific needs or context of customers. Further, I also think that there will be more focus on value enhancement by leveraging artificial intelligence, machine learning and data analytics. And importantly, we are going to see more regulatory support for innovation in the sector.”

Read: Alinma Bank, Foodics sign strategic fintech partnership to empower SMBs in Saudi