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FinTech Surge in MENA: 5 Key Enablers Driving Growth in the Industry

The Middle East’s FinTech ecosystem, though relatively young, has experienced remarkable growth since the establishment of its first start-ups in 2015. Today, the MENA region hosts over 800 FinTech startups valued collectively at $15.5 billion, with the majority based in the United Arab Emirates.

A report by MAGNiTT highlighted a staggering 183% year-over-year growth in funding for MENA FinTech startups in 2021, marking the highest annual growth rate in the past five years. Furthermore, predictions from Saudi Arabian technology venture capital indicate the emergence of 45 unicorns worth over $100 billion by 2030.

Let’s explore the five key enablers driving this exponential growth in the MENA FinTech industry.

  1. Government Initiatives

Government reforms and initiatives have played a crucial role in fostering the FinTech ecosystem in the MENA region. Middle Eastern governments are actively promoting privatization, increasing public-private partnerships, and monetizing infrastructure assets to drive financial inclusion. By implementing FinTech-friendly regulations, they support the growth of home-grown startups and attract global players. Regulatory sandboxes across the region have been established to facilitate the adoption of digital financial solutions, further accelerating FinTech growth.

For example, the UAE and Saudi Arabia have been at the forefront, launching initiatives such as National Instant Payments Platforms (IPPs) to digitalize payments and enhance financial inclusion. This supportive regulatory environment has been instrumental in creating a fertile ground for FinTech innovation.

  1. Financial Inclusion

One of the primary drivers of FinTech growth in the Middle East is the urgent need to address financial exclusion. Over 70% of the population in the region does not have access to traditional banking services. FinTech startups have emerged as a solution to bridge this gap, offering innovative financial products and services where traditional banks have struggled.

The launch of instant payment platforms by the UAE and Saudi Arabia’s central banks exemplifies the region’s commitment to enhancing financial inclusion. These platforms aim to streamline and digitalize payments, making financial services more accessible to a broader population.

  1. Demographics

The MENA region boasts a young and tech-savvy population, which has been a significant factor in the growth of the FinTech sector. With over 450 million people, more than half of whom are under 25 years old, the region represents a vast market of potential customers who are eager to adopt new technologies. This youthful demographic is driving demand for digital financial solutions, creating a robust market for FinTech startups.

High mobile penetration rates further support this growth. The Middle East has achieved 100% mobile penetration, providing a solid foundation for FinTech companies to reach a large and receptive audience. As digital natives, this young population is more likely to embrace innovative financial technologies, fuelling the expansion of the FinTech sector in the region.

  1. Investment and Funding

The influx of investment and funding into the MENA FinTech sector has been another critical enabler of growth. In 2021, the region saw a 183% increase in funding for FinTech startups, indicating strong investor confidence in the market’s potential. This surge in investment has provided startups with the necessary capital to scale their operations, develop new products, and expand their reach.

The rise in funding has also led to an increase in the number of financial firms in the region. As of February 2022, the MENA region was home to more than 3,600 financial firms, a 25% increase from the previous year.

  1. Infrastructure Development

The development of robust infrastructure has been fundamental to the success of the FinTech industry in MENA. Governments have invested heavily in building the necessary infrastructure to support digital financial services. This includes high-speed internet connectivity, secure payment gateways, and regulatory frameworks that ensure a safe and efficient financial ecosystem.

For instance, the establishment of digital-only banks and the introduction of blockchain technology for secure transactions are examples of how infrastructure development is driving FinTech growth. The conducive environment for innovation in the region, is attracting both local and international FinTech companies.

As these enablers continue to evolve and strengthen, the MENA region is poised to become a global hub for FinTech innovation, offering exciting opportunities for startups, investors, and consumers. Much like Cedar-IBSi FinTech lab, which has been home to global technology companies who need a “soft-landing” opportunity into MENA and India. Join the FinTech Lab to tap into the Middle East banking technology today.

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Redefining the relationship between PSPs and merchants

The current relationship between merchants and Payment Service Providers (PSPs) is ripe for a reset. Merchants are grappling with consumer demand for greater payment flexibility whilst managing costs amid market turbulence and rocketing inflation.
Now acquiring has become a commodity, PSPs are struggling to justify higher margins and feel extreme pressure from players like Adyen, Stripe, and Checkout.com, who are aggressively going after the small-to-medium-sized SME merchant base. A race to the bottom on pricing is no longer working.
But this doesn’t mean there’s no hope for the future. If PSPs can expand the services for merchants to turn a pure acquiring relationship into a full banking one — innovation and growth opportunities are unlocked on both sides.

By Ivo Gueorguiev, Co-founder and Chairman of Paynetics

Ivo Gueorguiev, Co-founder and Chairman of Paynetics

The next level

Being a PSP in the current climate has become increasingly difficult. Pure acquiring services have become a commodity where client loyalty is short-lived, and margins are under pressure. Add increasing regulation, ever-changing card scheme policies and the growing redundancy of hardware Point of Sale (POS) — a pure acquiring relationship can feel like more pain than profit.

PSPs looking for longevity need to rethink their relationship with merchants, as they won’t win by continually under-pricing their competition and endlessly selling POS terminals. PSPs should instead consider how to compete with the big players, either banks or large acquirers, and add value to merchants.

Reducing merchant churn

An answer is moving from a pure acquiring relationship to a complete banking relationship. PSPs can offer bank accounts and corporate cards to bring down the acquiring cost and give immediate settlement to customers. The result? Increased margins and sped up transactions for merchants, enabling PSPs to draw in new customers, improve loyalty and reduce churn.

When a corporate card is issued within the same environment as card acquiring, merchants no longer have to wait three business days to move money from an acquiring account to a bank account. If a merchant can get a corporate card from their PSP, they can pay for their supplies and earn cashback, reducing the supply cost.

Another way PSPs can add value is by offering further lending facilitation through products like merchant cash advances reserved for banks and direct-to-merchant players like Viva Wallet. PSPs can leverage the transaction data to help lenders have a more precise underwriting of merchants, resulting in laser-sharp customisation of the loan profile and improved pricing.

Embedded finance to help PSPs step up

Fortunately, PSPs don’t need to figure out this new banking relationship alone. State-of-the-art instruments are available to providers wanting a deeper merchant relationship and additional revenue streams.

With the right financial services partner, PSPs can now offer fully functional International Bank Account Numbers (IBAN) accounts, open banking connectivity, and provide corporate cards. For instance, a fully functional IBAN account offers the same facilities as a regular bank account. Yet, with lower administrative costs and reduced complexity, making multi-currency, cross-border payments a breeze. Then there are the benefits of facilitating open banking. It enables merchants to embrace automation and leads to greater financial transparency by giving consumers more choice and control.

Another area of innovation is the latest software POS solutions, which only require a phone to accept card payments, leaving behind clunky, expensive hardware. Such features provide distinct advantages to merchants.

Benefits to both parties

Offering a suite of services enables PSPs to step up and compete with commercial banks and direct to merchant players so they do not get pushed out of an increasingly crowded field. In payments, doing one thing very well no longer cuts it — providers must offer more services to the same high standard.

Yet pursuing a complete banking relationship with PSPs is also in a merchant’s best interest. They gain a more user-friendly banking relationship, lower acquiring costs, immediate settlement and access to working capital.

Change is possible thanks to digital financial innovations and is desirable due to the significant economic benefits it could bring. A complete banking relationship benefits PSPs and merchants greatly, helping both maintain an edge in an increasingly competitive market.

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