Investor appetite in Middle East’s FinTech sector remains strong

17 September 2020 Consultancy-me.com

An increasingly vibrant hub for tech startups, the Middle East is drawing significant early stage investments in the FinTech space, according to a new global report from KPMG.

The ‘Pulse of Fintech’ by KPMG examined several investment channels into the global Fintech landscape, spanning venture capital (VC), private equity and merger & acquisition (M&A) deal activity among others. The goal was to see how FinTech investments have fared since the start of this year.

Results are highly promising. While many market segments have simply crumbled under the economic pressure from Covid-19, FinTech across the world appears to be thriving. An upshot from the crisis and the resultant lockdown has been that consumers across the world have developed a preference for mobile-based transactions, as most things had to be done from within the confines of their home.

Total global investment activity in FinTech

As a result, despite the absence of megadeals in the FinTech space, KPMG reports that investments of more than $25 billion still flowed in, $20 billion of which were VC-backed. A similar landscape is unfolding in the Middle East, where FinTech was already a hot spot before the crisis hit at the start of this year. Investment interest is on a high, although the market remains better primed for smaller early-stage deals over large deals.

Since the start of this year, Europe, Middle East and Africa (EMEA) have seen nearly 400 deals cumulatively worth nearly $5 billion. The big value deals were concentrated in Europe, although the Middle East saw a flurry of smaller deals as a startup environment finds its legs. No doubt, Covid-19 has significantly squeezed the amount of funding on offer. Yet, the authors report that the crisis has also been a catalyst for digital advancement in the region.

“Covid-19 has accelerated the acceptance of digital business models in a region that has a very strong tradition of in person, relationship-based service provision. This is driving traditional banks in the region to increasingly consider partnerships and alliances with FinTech companies able to help them with their accelerated digital journey,” said Abbas Basrai, Partner & Head of Financial Services at KPMG in the Lower Gulf region.

Total investment activity in FinTech in EMEA

Middle East’s frontrunners

The three markets in focus were Israel, Saudi Arabia and United Arab Emirates (UAE), each of which holds a distinct position in the Middle East FinTech landscape. In Israel, FinTech investments surpassed $14 million in the last quarter, significantly outperforming the first quarter of the year. Deal count has also stabilised in the last quarter, having been in a dip since the end of last year.

FinTech efforts in Israel have largely been concentrated in the open banking segment, with targets to set up an open banking regime in the country by the end of this year. Covid-19 has thrown a spanner in the works here, forcing the deadline back to March 2021. Nevertheless, KPMG reports that interest in the open banking regime remains strong, with banks and smaller innovators all pushing forward with their efforts.

The FinTech landscape of Saudi Arabia is being driven by a strong regulatory push. A digitalised banking sector is very much a part of the country’s Vision 2030 strategy – aimed at modernising the Saudi economy and reducing it’s dependence on oil. Regulators are engaged full time in making this happen, and KPMG points out that this spells promise for FinTech investments. According to Head of Financial Services at KPMG Saudi Arabia Ovais Shahab, the rest of the year appears to be a successful one for domestic FinTechs.

Investments in FinTech in Israel

“The central bank is poised to develop the local FinTech ecosystem through initiatives such as FinTech Saudi and the regulatory Sandbox, and works with other stakeholders including the capital markets authority to drive growth. Through this close collaboration of regulators, incumbents and newcomers in the financial sector, Saudi Arabia is sending a strong signal to the world about its ambitions in the FinTech arena. As digital transformation continues to gain traction, more sector growth – and therefore investment – is expected heading into H2 of 2020,” he said.

FinTech in the UAE is also a vibrant segment, helped along by significant regulatory backing. The Abu Dhabi Global Market (ADGM) has FinTech support structures in place, including sandboxes. The UAE government also has innovation funds to support the environment. UAE FinTech has been strong in recent years, and Basrai expects it to get stronger. 

“The UAE government has moved forward with a number of initiatives in order to help foster the growth of FinTech. These, combined with startup funds, will be a big part of developing the UAE’s FinTech ecosystem over time,” said Basrai.