Payfort, an online payment service provider for the Arab region, and Wamda, an organisation supporting entrepreneurship in MENA, have released a report that provides insights into the evolution of the financial technology (Fintech) sector in MENA.
The joint ‘State of Fintech’ report answers important questions about the opportunities and challenges facing the MENA’s home-grown Fintech industry, one of the fastest growing startup sectors. According to the report, the number of startups in MENA’s Fintech ecosystem doubled from 46 to 105 over the three year period covering 2013 to 2015.
It predicts the region could have a total of 250 Fintech startups by the year 2020.
“Financial services and traditional banking are being challenged by very innovative digital technology startups, offering simple, accessible and lower cost mobile solutions,” says Fadi Ghandour, chairman of Wamda.
“The industry is changing fast; this research highlights trends in the Arab region, continuing the work we do at Wamda in supporting the entrepreneurial ecosystem.”
“The new State of Fintech report identifies four main drivers for MENA’s emerging Fintech sector,” adds Omar Soudodi, managing director of Payfort.
“SME lending stands at half of the global average; the volume of ecommerce is set to quadruple over five years; one in two bank customers are open to new digital services; and, finally, a staggering 86% of adults in the region don’t have a bank account. There is no doubt that the region’s Fintech sector is going to continue to accelerate.”
State of Fintech identifies key drivers and barriers for the Middle East and North Africa region’s new Fintech industry, offering insights on new solutions being brought to market by Fintech startups and explaining key trends for investors and policymakers.
According to the report, Fintech startups have sprung up in 12 Arab countries, yet three in four startups are based in Egypt, Jordan, Lebanon or the United Arab Emirates, with the Emirates accounting for half of these. Collectively, these startups already employ around 1,600 people.
MENA’s Fintech startups provide a wide range of services to private, corporate and governmental partners. Payments is the most developed of the sectors, with startups offering bill payment, electronic wallets, mobile and online payment solutions, including integrated payment services platforms.
Against a backdrop of global and regional economic turmoil, real barriers to participating in the region’s financial ecosystems and limited access to capital, MENA’s Fintech startups have managed to raise $100 million in funding over the past decade.
However, investor deal flow is on the rise and the State of Fintech report forecasts that some $50 million will be invested in Fintech startups during the year 2017 alone.
Despite the rapid growth in the Fintech sector, it still faces several core challenges. These include government and financial sector regulations, hiring and retaining talent and funding.
In fact, about one in four Fintech startups shuts down, with just 10% accounting for the majority of funding and hiring. However, the new report also sees light at the end of the tunnel, with new developments across the region promising to improve the chances for new Fintech startups.
“We’re seeing the drafting of a wide range of reforms and new regulations around the region, at a government and financial regulatory level, indicating that policy makers are now better informed and have a clearer vision for innovation and what drives innovation,” said Soudodi.
“We’re also seeing more talented people choose entrepreneurship over corporate employment and more professionals from the financial sector identifying Fintech opportunities.”
State of Fintech aims to address topics of relevance to entrepreneurs, investors, policymakers, large corporations, the financial sector and the general public.
It aims to identify the key drivers and barriers for the new Fintech industry in the region, offer insights on what solutions Fintech startups are providing and what investors and policymakers need to consider now in order to unleash Fintech’s potential.
MENA e-commerce is set to quadruple in the next five years and, with Fintech playing an integral role in this growth, it is forecast that it will be worth $20 billion by 2020.
The region has seen a sharp rise in Fintech investments from 2015 to 2016 – a 43% increase in terms of deal flow and an almost 100% increase in deal size. However, this fast growth of the Fintech sector poses many questions for investors, banks, financial services firms and government policymakers regarding the future of Fintech startups in the region and their place in the financial ecosystem.
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