Digital Pays Off

The GCC remains a small player in global fintech, but institutional support and capital availability encourage growth.

The Arab world saw a surge in fintech adoption in recent years. The Middle East and North Africa (MENA) region recorded more than 100 fintech deals in 2021, mainly in the Gulf. With expatriate workers forming a large majority of both the GCC population and fintech customers, payment and remittance startups are leading the industry. The United Arab Emirates (UAE) and Saudi Arabia alone are the world’s second and third largest remittance corridors, with over $80 billion worth of transfers in 2021.

And these customers prefer digital tools, prompting traditional players to step up their game. Banks all over the region are partnering with fintechs to offer quick low-fee remittance options. Even exchange houses are looking to innovate. Last year, Al Fardan Exchange in the UAE signed deals with U.S.-based Ripplenet and Singapore’s Thunes to facilitate instant cross-border blockchain-backed transfers.

This is also opening up opportunities for local tech firms, including Rise in the UAE, BeyonMoney in Bahrain and CWallet in Kuwait. Financial services adapted to online shopping is another fast-growing segment as the GCC’s e-commerce market jumped from $5 billion in 2015 to an expected $50 billion in 2025. “Customers in the region are becoming more online savvy,” says Faisal AlHaroun, senior vice president of Tap Payments, a Kuwait-based fintech solution for e-commerce.

Funding rounds reflect the trend. In June, Hyperpay, a Riyadh-based payment gateway for online merchants, raised $36.8 million to fuel regional expansion. In Egypt, Paymob raised $50 million and said it would expand in the GCC.

GCC fintechs can count on ample local cash. Local institutional and private investors are eager to back tech ventures as a way to diversify their portfolios away from oil and gas. In December 2021, VentureSouq was the last in a long series of local venture capital firms to launch a dedicated MENA fintech fund. The $50 million money-pot is supported by some of the region’s biggest players including Saudi Jada fund of funds, Bahrain’s Waha Fund of Funds and Abu Dhabi’s Mubadala Investment company.

“We are long-term believers in the continued acceleration of fintech in the MENA region,” says Suneel Gokhale, co-founder of VentureSouq. “We think there’s still a lot of ground to cover in payments, credit/alternative lending, digital banking, InsureTech, personal financial management and also in emerging areas such as embedded finance and DeFi.”

Easy access to capital and wealthy investors, however, is a double-edged sword. While it boosts the ecosystem, industry experts question the real value of some of the local startups. 

Banks Remain The Main Players

Fintech is at the heart of Gulf countries’ economic diversification strategies. According to a recent study by the Cambridge Center for Alternative Finance, 85% of MENA regulators perceive that fintech is favorable to their objectives compared to only 61% globally.

Until now, banks have kept the upper hand on financial innovation by investing in their own research and development, partnering with or acquiring startups, but customer loyalty is fading. According to a study by international consulting firms Arthur D. Little and German M2P, 45% of traditional bank customers in the UAE are ready to switch the competition in the next six months.

“Low rates, regulatory changes, and various new players entering the financial services landscape—including fintech companies, retailers, and telecommunications providers—are behind this trend,” the report stated.

So far, traditional lenders also had a quasi-monopoly on the creation of digital banks but even that is changing. In Saudi Arabia, the region’s biggest market, the three currently licensed digital banks are not tied to financial industry players. Similarly, in the UAE, Mohamed Alabbar, the founder of Emaar—the country’s biggest real-estate company—announced he would launch his own challenger bank.

As lenders are under mounting pressure to keep up with innovation and cut operating costs, fintech is expected to bolster M&A activity across the region.