MENA is one of the most diverse regions, constituting many countries and varied geography from high Alborz mountains to the Sahara Desert. The fintech ecosystem in the MENA region has become active in the last three years, with investors supporting all key segments like Payments, Wealth, Insurance, Lending. Across the MENA region, the fintech growth is driven by technological innovation to improve the existing financial services, which had remained more branch-focused. The diversity continues to the fintech ecosystem; UAE is the most developed fintech space, followed by Bahrain, Egypt, Morocco, Tunisia, & Jordan.

North Africa consists of a large unbanked population followed by Arab states; it is expected that in the current decade, this number will shrink sharply with the support and open- mindedness of Regulators in the region. For example, the central banks of Egypt, Bahrain, UAE, and Jordan have introduced new initiatives to regulate digital payment services. In addition, crowdfunding regulations are introduced by Lebanon, Dubai, Bahrain, and Abu Dhabi.

Though the Middle East and Northern Africa (MENA) regions are different economically and politically, they have similar pain points. These include lack of usage of the latest technology in the BFSI sector, low market penetration of banking services, need to handle requirements of the immigrant population. Fintechs are transforming the BFSI sector to support the global user’s point of view and not just the region’s current needs.

The fintech ecosystem in the MENA region has been one of the most actively growing across the globe. This is driven by technological innovation to improve the existing financial services. The innovation and development offered by Fintechs have accelerated during the COVID outbreak, further strengthening the need for Fintechs in the BFSI space of the MENA region. In addition, Lebanon has adopted crowdfunding regulations like ADGM & DIFC.

The government and Fintech ecosystem have well evolved over this region. ADGM (Abu Dhabi Global Market) has introduced a framework to supervise Open Banking services & to protect data privacy concerns from Fintechs. DFSA (Dubai Financial Services Authority) has published a Framework for Regulating Security Tokens supporting issuers looking to raise capital using distributed ledger technology. The Egyptian, Bahraini, UAE, and Jordan central banks have adopted specific initiatives to regulate digital payment services. Saudi Arabia has improved three positions on the ease of doing business index, making strides to diversify its economy. Let us find out the impact of these changes in regulations and improvements contributing to various sectors in detail.

Banks

The region has multiple formal collaborations between the Gulf Cooperation Council (GCC) and the Middle East and Northern Africa (MENA). In addition, several Central Banks provide regulatory support as the banks operate across the borders. The Banks in the region are also amid a consolidation phase, with the bigger Banks merging to create a Super big Banking group. In 2019, Abu Dhabi Commercial Bank (ADCB) merged with Union National Bank (UNB), the third-largest bank of UAE. In 2020, Dubai Islamic Bank & Noor Bank merged to be run as one entity, and in 2021, the National Commercial Bank of Saudi has announced that they are merging with Samba creating a few of the region’s most valuable Banks. There is market speculation that the second wave of mergers will be following soon as 20 banks with a combined worth of 1 trillion USD are in the process of negotiating the mergers.

The banking sector has a powerful push to compete with the ‘Big Tech,’ mobile network operators, for cross-sectoral mergers to meet customers’ changing needs. Big Tech Firms like Amazon, Google, Facebook are offering over 50 financial services in association with Big Banks like JPM, ICBC, China Construction Bank, Wells Fargo and Ant. Though the Fintechs are trying to take over the world to be the new technology and strategic partners across various sectors, the Big tech has got a stronghold on the competitive technologies to improve the banking facilities & are growing strength to strength. As the banks play a significant role in the financial transaction framework and technologically review, the fintech collaboration will provide a win-win situation in the financial ecosystem.

Banking Platforms

With top retail banks piloting private banking platforms, gaining experience from observing trends from East, are looking at ‘Banking as the rise in platform services, banks cannot monopolize the digital touchpoints for customers, while platform players would be dependent on Banks to execute transactions.

According to Accenture, the transactions on banking platforms are up by 70 percent over the last year, while the banking transactions have seen a decline of over 15 percent. Tarabut Gateway, WAQFE, Benefit Pay, Aion Bank have mainly been popular among the public compared to other fintechs.

Offering hyper- personalization of services or products using the data, the ‘Banking as Platform providers are helping create new profitable niche markets at a meagre marginal cost. Expecting near-perfect execution, Middle east Banks can experience robust business case implementation of various financial services on a single platform to challenge the big techs.

Payment transfers & Remittances

The Digital Payments transfers & Remittance segment in the MENA region has recorded the most robust growth with new technology providers, platforms, and payment tools being launched. In addition, the market penetration of smartphones and the internet has paved the way for innovations in the digital payments market that account for its comprehensive growth.

Saudi Arabia has launched an instant payment system called Sarie in April 2021, under the supervision of the Saudi Central Bank (SAMA). The payment method enables all bank customers to transfer funds instantly using various transfer options. For example, customers of local banks can send/receive up to $5,300 (SAR20,000) using the payment system. Sarie will also allow quick transfer service using customer’s mobile number, email address, ID number, or IBAN to send up to $660 (SAR2,500). The UAE is also developing an Instant Payments system in an early testing phase; it is expected to be launched in the coming years. Paytabs, the payment platform backed by Saudi Aramco, has become one of the most significant Payment Fintechs & has expanded to operate in 17 countries. Paytabs, Paymob, Xpence, Hala, telr, Benefit Pay have accounted for almost 80% of the financial transaction without banks or cards.

Sector wise Growth in MENA region in 2021

The digital payments segment was perceived as a sophisticated envisioning of society. At the same time, the pandemic helped the global audience change their opinion based on the need of the hour. In 2019, 65% of the population in the MENA region transacted on COD-specific orders; the situation in 2021 is that only 16% population are fixated on COD. With growing preference for transactions using Digital Payments, Governments & Companies in the MENA region are looking forward to launching a mobile-based real-time payment system like UPI in India.

NIPL, the International Arm of NPCI & Middle East’s digital commerce enabler Network International has signed an agreement for collaborating on acceptance of NIPL’s mobile-based real-time payments. As a result, network International is proposing to roll out UPI mobile payment solutions in UAE in the first quarter of 2022, including the sectors such as jewelry, supermarkets, and duty-free retailers.

Union Pay International collaborates with PayTabs to offer UnionPay Cards as a payment method to customers who purchase goods and services online in the UAE. The collaboration aims to improve the customers’ checkout experience and boost e-commerce conversions from COD.

The changing digital payment landscape envisioning real-time payments is fuelling the digital transformation of the payments and services, owing to the changing lifestyles, daily commerce, and rapid growth in the e-commerce segment. The growing trend is expected to continue for the next 3 to 5 years, completely transforming how the world transacts.

We predict large consolidations in the Payments sectors as the market is overcrowded with more regional & local players in each country in the MENA region. Moreover, with challenges on cross-border support, high expectations on technological innovation & consumers preferring fintech’s backed by Banks or Big Techs over the other, the market can witness massive consolidation in 2022.

Neo Banks

Operate very efficiently over a limited set of services like Savings accounts, Payments, Money transfers, financial lending solutions, among others, through partnerships with other banks. The neo banks have an incredible growth potential driven by the low-cost model with an increased adoption from micro, small and medium enterprises, start- ups, and next-gen customers. Customers are gaining interest in neo banks as, in the MENA region, only a few large banks are integrating with third-party platforms and the retail banks are lagging behind in technology adoption. This region has a different model as far as Neo Bank is concerned. Globally, we have seen Neo Banks are Fintechs building banking stacks in partnership with Licensed banks. While the conventional Banks are a long way into the latest technology adoption, the prominent banks in the region are launching their Neo-Banking establishments. It is an easier way to serve the customer’s changing needs. Mashreq Neo, Emirates NDB’s Liv, CBD Now recently launched by the Commercial bank of Dubai are a few such examples of Big Banks taking the Neo Bank route. While in recent times, the Neo Banks run by Fintech companies like WAQFE, Xpence, MeeM, Muniy, & Aion are on the rise with a combined market share of 28%.

Lending and Personal Finance

The MENA region is currently witnessing the explosion of Buy-Now-Pay-Later (BNPL), SME Lending, and credit services on the digital platforms helping the customer move away from the traditional credit cards or loan system. Being run on the legacy model, acquiring a loan or credit facility in the region is time-consuming and cumbersome. Beehive, Lendo, LiWWa, Eureeca, & Tabby have an average disbursement time of two to three days. However, the conventional banks still take around Seven to ten days, while the BNPL/ Checkout Finance is funded immediately on the POS portal or Payment Gateways. Following the trends from American and European Fintech’s, some fintech’s are launching lending products like Pay Day Loans (Short term Loans) to cover the expenses between paycheques. FlexxPay in UAE is one of the first to deploy this product, while the other P2P companies are exploring the possibilities of launching a similar product offerings. In the hope to explore innovative solutions in the lending and credit space, there is a rise in the fintech enterprises venturing into lending as their primary forte. With the decreasing dependency on cash and bank-supported lending solutions, fintech lending is rapidly gaining traction in the region, with significant shifts to be experienced in the coming years.

Insurtech

According to Zawya, as much as 80% of the population in the MENA region are uninsured. Therefore, there is a high potential for Insurance or Insurtech in the MENA region. In addition, many insurance offerings are available globally, spanning the property, health, life, automobile, electronics, among others, throughout the region. With traditional insurance companies finding it challenging to suit the diverse needs of the customers, there is a huge opportunity for Insurtech players to explore and build new profitable segments. The region can play a vital role in the digital transformation of the insurance segment while creating new and innovative solutions to widen the market reach.

There has been a rise in exciting solutions with the Insurtechs regarding funding & marketing activities. According to MAGNiTT, $26 million was ploughed into MENA-based Insurtech start-ups in 2019 – the highest amount in any year in recorded history. Insurtech in the Middle East includes Yallacompare, Souqalmal, Aqeed, Bayzat, and others which have accounted for 80% with around 20% change in preference to Insurtechs over conventional insurance firms, according to KenResearch. In addition, there were events conducted by Insurtech 2021 in several major cities in the GCC region that focus on advancing the insurance sector.

Wealthtech

Over 45% of the wealth in the MENA region is in cash. The Digital wealth management industry is highly competitive, and the MENA region has only a few local players, leaving a significant gap in the local markets to fill. The traditional wealth management firms charge a very high fee for unsophisticated services and impersonal products.

The Wealthtech industry in the region is at a very nascent stage of transformation. At the same time, in the current scenario, personalized service, digital wealth managers, and Robo- advisors are unevenly spread across countries that have advanced technologically compared to the other. For example, Bahrain will have around $22 billion in assets under management (AUM)

Saudi Arabia will have $24 billion AUM, and the UAE $1.6 billion, according to data from the Dubai International Financial Centre under the supervision of Robo-advisors. Considering the pain points of the end customers, the regulatory authorities are further supporting the WealthTech space to make them more accessible to end customers. With a greater demand for the services in the wealth space, there is a high growth anticipated in the coming years in the WealthTech area.

Blockchain

The MENA region has been embracing crypto assets and blockchain technology at various levels. With exploring the Central bank Digital Currencies (CBDC) projects from different countries in the MENA region, the blockchain/ cryptos are expected to grow irrespective of the current market conundrums. UAE Central Bank, along with a few Asian Banks, has announced a mobile- based CBDC program under development. UAE Trade Connect has launched a blockchain-based digital platform to combat double- financing & invoice frauds. DEX & Mid-Chains launched a global digital asset exchange/marketplace to trade cryptos, while the Bahrain-based company RAIN is launching a marketplace. By 2022, Dubai is expected to host more than one thousand cryptocurrencies as per Nickel Digital Asset Management firm. Most Venture capitalists invest in launching new platforms in the Middle East to improve the On-Demand Liquidity (ODL). At the same time, most developments or launches are planned in partnership with the MENA- based financial services technology companies that premier in blockchain technology. Amid the formal announcements of launching cryptocurrencies or accepting crypto, the ambiguity that these currencies are being legalized tender is yet to be answered. However, with cryptocurrencies expected to eliminate the banking troubles on international remittances, investors have extended belief that cryptos could be driving the financial market in the MENA region.

Regtech

With the emergence of the Regtech services, there will be a decrease in the burden on the regulatory bodies to ensure compliance with new changes. As a result, the MENA region has recorded an all-time high of 448 Regtech firms with 74 specializing in Regulatory Reporting, 61 in Risk Management, 91 in Identity Management/control, 185 in the Compliance space, and 36 in Transaction Monitoring. To monitor compliance of the digital firms, there is a growing need for the latest technology like AI, Bigdata, Blockchain in the regulatory space. However, not being tech-savvy, it will be difficult for the regulatory bodies to ensure compliance w.r.t the volume of changes happening in the regulatory area. Regtech’s are establishing a solid base in the fintech ecosystem to overcome real- time regulatory compliance monitoring, complex regulations, litigations, and regulatory remediation challenges. Moreover, with many companies operating across the borders of MENA countries, Regtech’s are in high demand in the MENA market more than ever.

Conclusion

The global advancements of technology/digitization in the BFSI segment have helped the leaders of the MENA region question the path for progressive development. The region has an almost 80% unbanked population and is now looking to improve the market reach and extend the support to fulfill the population’s needs. Moreover, the digital transformation in mainstream organizations poses the challenge of transforming and redesigning how they work.

Governments and Investors are looking for Fintechs to help them transform the services. The comprehensive growth of the fintech ecosystem across the countries in the region is helping Governments, Businesses, customers, and all the population fulfill the desire for improved services in the sector.