The MENA region is a key part of the frontier markets continuing to show significant potential for future economic growth. This is aligning with a surge in fintech activity in the region and the pandemic has only accelerated the path to financial industry disruption.
The MENA region is expected to continue its path of economic growth and this could be driven by the burgeoning fintech invest in the region. For Dubai and the UAE economy, the pandemic hit at a time when the country was moving its economy away from oil-focused investment and towards the hospitality and tourism sectors. These were the hardest-hit areas of the global fallout from the coronavirus.
Despite the problems, Dubai‘s economy is expected to grow by around 4% in 2021, which will be driven by the government’s relatively effective response to the pandemic. The government has taken measures to provide local businesses and individuals with support from a total of four stimulus packages valued at 6.8 billion AED ($1.85 billion) into the year-end. Dubai is emerging as a major financial hub for the MENA region and this was boosted by the government’s early efforts to support the entry of western financial interests.
The MENA region has seen a surge of fintech startups over the last 5-10 years and this could have a major effect on the financial industry, and could even tip the balance of power in the global economy further towards the region. At November 2020, the region had over 400 fintech ventures. The distribution of those enterprises sees the UAE at the top of the pile with 154 startups, followed by Saudi Arabia (86) and Egypt (67). Bahrain holds the fourth spot at 40.
The rise of the fintech sector comes at an opportune time because of the trends in the global economy. The UK’s dominance as the world’s financial hub is under threat after the country’s exit from the EU, while the US struggles with internal politics. All three of those economies have also been hard hit by the virus and have the likes of China bearing down on them for economic dominance.
With banking institutions cutting staff and working from home, the traditional finance sector is in cost-cutting mode. This allows the fintech upstarts to creep up on the big names and take market share in the MENA region.
Fintech trends in the MENA region
The MENA region has been ripe for disruption and financial inclusion as the World Bank estimates that two-thirds of the adult population in the Arab world don’t have a bank account, while lending to small & medium enterprises is much lower than the global average.
The regulatory environment in the fintech sector started growing in 2017 and the Middle East has become a focal point for regulations. Other countries can now look to the region for the framework to build their own regulatory structures.
Fintechs were largely focused on payment and lending solutions at the outset and the majority of MENA projects are focused on the digital payments, transfers and remittance areas. As the ecosystem expands, startups are now looking further afield to technologies such as blockchain, AI and big data.
The pandemic has actually been an accelerator of technology and digital adoption in frontier markets. Digital payments have been growing in the likes of Africa, with millions now using telecoms platforms for payments. Egypt is emerging as a leading digital technology and e-payment platform, with 194k point-of-sale (POS) machines in the country.
The virus has seen many new users adapting to areas such as online banking due to the fear of being outside and this will only advance the downfall of bricks-and-mortar financial powerhouses and speed the path towards digital providers. The new startups have an advantage of being lean and less distracted by big balance sheets and capital expenses.
Dubai targets cashless economy
Another effect of the pandemic on the MENA region has been a move by Dubai to expand its capabilities in cashless payment. The country has a goal of being in the top 10 cashless economies and recently launched platform to facilitate this.
The new Unified Payments Network (UPN) is offering zero onboarding costs to encourage merchants to use the system. Dubai is also looking to accelerate financial inclusion in the UAE by onboarding local wallets and asking all payment service providers to the network. It is measures such as these that will secure the country’s role as a digital hub while many western nations still feel threatened by the growth in fintech and see it a fringe element of the financial sector.
For investors, this is a big issue because you want to invest in startups that are being given a clear runway without regulatory or user hurdles. This is being highlighted in the growth of investment in the MENA region with startups raising $654 million with over 360 deals in 2020. February and March saw an investment boom with $120 and $140 million invested respectively, but the pandemic sucked the wind out of the sector’s sail with a slump to $17 and $20 million in the following months. The trend has now picked up again with over $65 million in December and once the world economy recovers, this trend could continue higher to the levels of early-2020.
The UAE led the pack with $37.5 million in deals with Saudi Arabia at $20 million, but Oman launched two technology accelerators and saw 14 deals in December, highlighting that the trend is spreading to other countries.
The coronavirus pandemic has wreaked havoc on the global economy, but the western nations have been hit hardest, while their countries also struggle with political bitterness and division. While this is ongoing, there is a real chance for the balance of power to shift more towards Asia and the MENA region. While China may start to gain dominance in the global securities markets, the MENA region could really start to gain ground in the global fintech space. Investors should expect to see continued growth in investment and startup ventures with some exciting changes ahead.