GEC NEWS WIREInvestments in Gulf-based fintech startups are expected to reach US$ 2 billion in the next decade, compared to a mere US$ 150 million invested in the last 10 years, according to a new study by MENA Research Partners (MRP).
The UAE and Saudi Arabia are expected to play a key role in unlocking the GCC growth potential and shaping the MENA fintech sector. MRP suggests that both countries will be at the heart of the evolving fintech transformation, powered by many factors: adopting a top-down approach for creating advanced infrastructures for the smart cities of the future, having the highest online connectivity per capita in the region, and representing 45% of the MENA economies. The private sector in both markets is also stepping up its investments in fintech.
“The call on private capital in the fintech space remains largely untapped, although we have seen some deals completed over the past few years. Today, we have a US$ 2 billion funding gap of private capital investments in fintech startups, when compared to other emerging markets. The private capital investment gap compared with the global average is much wider, at US$ 10 billion. In the last ten years, private capital investments in GCC-based fintechs was a mere 0.007% of the GDP, 10x below the emerging markets average of 0.07% for that period and 43x below the global average of 0.3%,” says Anthony Hobeika, Chief Executive Officer of MRP.
The MRP research indicates that 35% of the total investments in fintech startups in MENA over the past 10 years were made in 2017; or US$ 52.5 million out of the US$ 150 million invested between 2008 and 2018, were completed last year. This momentum is expected to prevail over the next few years, albeit at a much higher pace. This will be driven by many factors, not the least being the GCC governments’ initiatives. Regulators and government policies are increasingly supporting the fintech ecosystem and creating boosters for it to grow locally: Dubai’s Fintech Hive, ADGM’s Reglab, Bahrain Fintech Bay, and KSA-UAE’s joint project for a blockchain-based system are just a few examples. The study says that the shift of economic power from West to East will benefit these GCC fintech hubs.
Other factors include conventional banks embracing the fintech wave and complementing their traditional offerings with digital solutions. This is coupled with the rise in stand-alone fintech companies which are emerging to fill the US$ 1.7 trillion gap in market funding for Small and Medium Enterprises (SMEs). At the moment, many cash-rich SMEs do not have access to bank funding in the region. Only 20% of these companies have access to a line of credit from financial institutions, compared to an average of 42% in Latin America, Eastern Europe, and Central and Eastern Asia and the Pacific. This large funding gap left by banks and capital markets can be filled by fintech companies operating in the lending and capital raising sub-sector.
MRP estimates that the number of fintech companies in the MENA region will more than double in the next three years, to reach around 260 fintech startups from the current 130. However, Hobeika says that there will be consolidation in the market, which will drive larger transactions. He anticipates that this will result in the creation of at least one regional fintech unicorn (a startup company valued at over US$ 1 billion upon exiting) in the next five years.
