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Fintech industry poised for significant growth in the MENA region

The Financial Technology (fintech) industry in the Middle East and North Africa (MENA) looks well placed to enjoy a period of substantial growth

As many as 69% of adults remain totally unbanked in the region Internet penetration in Saudi Arabia stood at 95.7% in January 2021 Fintech is going to be the "game-changer"

By Ayad Nahas, Communication Strategist

The Financial Technology (fintech) industry in the Middle East and North Africa (MENA) looks well placed to enjoy a period of substantial growth.

 Part of this growth could come from a large unbanked population.

According to the World Bank, only 8% of adults belonged to the banked population in 2018 and as many as 69% of adults remain totally unbanked in the region.

GCC expatriates with low and middle-income salaries constitute a large proportion of the unbanked such as in the UAE, where around 80% of the population is outside the current financial system.

Yet, regional smartphone and internet penetration is very high, reaching 2 mobile-cellular subscriptions per UAE inhabitant in 2019, while Internet penetration in Saudi Arabia stood at 95.7% in January 2021.

 Regional governments spotted this opportunity and introduced regulation to substantially attract investments into the sector.

 Fintech is a term that describes new technology which seeks to improve and automate the delivery and usage of financial services. At its core, fintech helps companies, business owners, and consumers better manage their financial operations, processes, and lives by applying specialized software and algorithms on computers and, increasingly, smartphones.

 Fintech’s adaptability across a slew of consumer sectors is propelling its widespread acceptability. Managing finances, trading shares, furnishing payments, and shopping online (often on your smartphone) has never been more convenient.

At the forefront of the fintech disruption are agile innovations such as peer-to-peer (P2P) lending and crowdfunding, providing alternative lending platforms, and widening access to fundraising.

While they may currently still need some centralized form of finance, at the minimum, P2P lending and crowdfunding can use fintech and blockchain to quicken the process, avoid paying high banking fees, and garner the interest of digitally-minded Millennials and future Z-generations.   

A recent report by consultancy firm Deloitte also states that the UAE houses over 50% of the region’s fintech companies, with nearly 39% of the population using fintech for P2P money transfer.

According to a report by Crowd Funder, a leading online source for the fintech industry, the number of financial technology companies in the Middle East increased from around 105 companies in 2015 to 250 firms in the year 2021.

Hanna Sarraf, a senior banking executive from the MENA region, said fintech is going to be the “game-changer” that will decide the winners and losers within the financial services industry, globally and in the Middle East, in the short and long terms.  

He points out that new technologies and advanced data analytics are transforming the traditional banking business models from the way banks interact with customers to the way banks manage their middle and back-office operations. 

The global fintech market is expected to reach $309.98 billion at a CAGR of 24.8% by the year 2022 according to many key sources from the banking industry. In the MENA, the fintech industry is expected to hit a record valuation of $3.45 bn by 2026.

The growth of this sector is currently being propelled by the rapid rise in fintech startups as a result of the very high internet penetration in the region. Another major factor is that several traditional banks are undergoing digital transformations or even becoming neo-banks, a trend especially evident in the UAE.

In a survey by the Boston Consulting Group (BCG) last October, 70% of respondents said they are actively searching for a new bank, and 87% said they would be willing to open an account with a branchless digital-only lender.

Today, the UAE is leading the pack in financial technology and developing itself as a digital-first nation when it comes to banking, payments, and fintech, as evidenced by the UAE’s first digital bank to provide both retail and corporate banking services and which will soon be launched and led by Former Emaar Chairman, Mohamed Alabbar.

According to many experts, the fintech market in the MENA region is set to account for 8% of the Middle East financial services revenue by 2022. COVID-19 turned out to be a wakeup call to switch from traditionally deployed financial services to more sustainable finance and technology platforms

The fintech revolution is set to continue to disrupt, and traditional banks must keep up with the pace of technology in order to stay relevant and competitive. In this rapidly evolving, ever-changing market, it’s time to innovate, integrate and accelerate into the future.