The number of startups in MENA’s Fintech ecosystem doubled from 46 to 105 over the three years 2013 to 2015 with 250 more startups expected to launch by the year 2020.
These are the results of a report dubbed “State of Fintech” by online payment service provider PAYFORT, and Wamda, a platform for entrepreneurship in MENA, on the region’s emerging Fintech industry.
The report sought to answer questions about the opportunities and challenges facing the MENA’s home-grown Fintech industry, one of the fastest growing startup sectors. “Financial services and traditional banking are being challenged by very innovative digital technology start-ups, offering simple, accessible and lower cost mobile solutions,” said 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,” said 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; 1 in 2 bank customers are open to new digital services; and, finally, a staggering 86 percent 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’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 3 in 4 start-ups are based in the 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 2017 alone.
Despite the rapid growth in the Fintech sector, it still faces several core challenges: government and financial sector regulations, hiring and retaining talent and funding. In fact, about 1 in 4 Fintech startups shut down, with just 10 percent 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.”
Ecommerce is set to quadruple in the next 5 years and, with Fintech playing an integral role in this growth, it is forecasted that it will gross $20 billion by 2020. The region has seen a sharp rise in Fintech investments from 2015 to 2016 – a 43 percent in terms of deal flow and an almost 100 percent 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.