BrazilMiddle East fintech industry could triple in next two years
The fintech industry in the Middle East is growing rapidly and could triple by 2025 – if the sector continues to see appropriate levels of investments and innovation.
The Middle East and North Africa (MENA) region has been enjoying a fintech explosion in recent years. The region’s optimistic macroeconomic prospects and the consistently strong performance of its financial services sector all but ensure the continued expansion of the fintech industry.
What was a $1.5 billion industry in 2022 could grow to be worth between $3.5 billion and $4.5 billion by just 2025, according to a report from leading strategic consulting firm McKinsey & Company. That would boost fintech’s share in the overall financial services industry from only 1% of revenue to around 2.5%.
Notably, for its analysis McKinsey considered the MENA region together with Pakistan, given the close ties between the regions – dubbing the two regions as MENAP.
Though the MENAP fintech scene was primarily centered in the UAE in 2017 and earlier, it has now seen the large-scale entrance of players from Bahrain, Egypt, Saudi Arabia, and even Pakistan.
Investor funding for fintech startups more than quadrupled from around $200 million in 2020, reaching a massive $885 million in 2022. This huge increase in investments has mostly been destined for companies in Saudi Arabia, Egypt, the UAE, and Bahrain. Overall, investments have increase by around 36% annually from 2017 to 2022.
“We believe fintech innovators could play an increasingly significant role in the way consumers and businesses in MENAP conduct daily transactions and build wealth for the future,” said McKinsey.
More diversity in the sector
As more fintech companies spring up in the region, the diversity of subcategories continues to widen, with companies catering to end users with a range of different services.
Previously, investors were most keen on backing pragmatic and straightforward fintech start-ups – those offering services like mobile wallets and payment apps. The newer start-ups popping up in MENAP now offer a significantly diversified set of services, with both B2C and B2B use cases.
Examples of newcomers include Saudi Arabia’s Tamara, a buy-now-pay-later service, and Emirati working capital tool Lnddo. Several digital investment platforms have sprung up in different MENAP countries, like Sarwa in the UAE and Egypt’s Thndr.
The top five categories among these new fintech companies driving the wave in MENAP are: homegrown fintech start-ups, international fintech firms, banks, other nonbank financial institutions, and cross-sector fintech firms.
Going forward, there is much to be optimistic about, according to the McKinsey report. One part of the reason for that is a general strong economic performance from the MENAP countries, in contrast to weakening performance in other parts of the world. That is mostly due to high commodity prices, making oil-rich nations particularly comfortable. Year-on-year growth in the region for 2023 is expected to be around 2% to 5%, while Europe can expect merely 1%.
Another is the fact that the fintech scene still has several steps to take before it emulates its peers in other countries in terms of size, funding and overall market maturity, meaning there is substantial room for further growth.
Banking has emerged a strong sector in some Middle Eastern countries – particularly in the UAE – as oil-rich countries increasingly look to diversify their economies away from black gold. Pledges to reach net zero and plans to phase out oil in the GCC countries have been some of the most ambitious in the world, though only time will tell if they are realistic.
McKinsey’s report was led by Max Flötotto (a Germany based senior partner), and Middle East-based colleagues Sheinal Jayantilal (partner), Sonia Wedrychowicz (partner), and Sagar Shah and Rinki Singhvi (consultants).
