Mapping the FinTech ecosystem in MENA
This post is a personal case study.
[Article is WIP]
Fintech is a massive industry that has implications in almost every sector. Despite its influence, the industry is known to have high barriers to entry — especially to tech innovations and is plagued with antiquated processes and infrastructure. I’m taking a look at how startups are leveraging the market and governments’ push for innovation, inclusion and transparency in the financial sector in MENA.
Feel free to drop a comment below or connect with me on LinkedIn — linkedin.com/in/nihalhassan/
Contents
- Introduction
- Growing market
- Regulatory backing
- Optimistic investor (VCs) response
- Venture Studios, Accelerators, and Support programs
- Categories:
— Payment processing
— Wallets
— Buy Now Pay Later
— Consumer BNPL
— Crypto Exchanges
— Consumer Trading Platforms
— Alternate investing
— Insurance
— Mortgage lending
— Other Lending
— Neo Banks
— Open Banking
— Remittance
— Corporate Spend Management
— Employee Benefits
— Wealth Management
— Crowdfunding
— Private fundraising
— Payroll management
— Early-salary access
— eKYC and RegTech
— Web3, blockchain and crypto - Little explored opportunities
- Conclusion
Introduction
The fintech industry has seen impressive growth over the past few years. The Middle East and North Africa (MENA) region presents a number of opportunities for the development of a booming fintech ecosystem. These include an expanding population, increasing economic activity, and burgeoning technology adoption rates.
MENA is a diverse region, spread across 20 countries and territories from North Africa and the Middle East. It consists of both low and high-income countries and in multiple studies and reports, you’d also find the inclusion or exclusion of data from countries like Turkey (MENAT), Israel, and Pakistan (MENAP).
Growing Market
According to the global payments solution provider Checkout.com, 91% of the population purchased online in 2022. And..
82% of the consumers use at least 1 fintech app in MENA.
The data is clear. The region has the highest proportion of digitally savvy consumers compared to other markets in the world and given the excellent spending power, it’s ripe for a boom in fintech.
In most GCC nations, foreign workers and their families constitute 50–80% of the population which opens up opportunities for reg-tech, cross-border investment platforms, and remittance apps.
The region is home to over 800 fintech startups valued at over $15.5 billion.
Regulatory backing
The finance industry has always had high barriers to entry for new entrants. It’s now an evolving industry and every country is setting its own set of laws and frameworks to prevent fraud and data breaches, and mitigate security risks while also opening up and accelerating innovations.
An excellent example of this would be the recently announced (Feb ‘23) FIT program by the UAE Central Bank which aims to promote payment innovation, drive financial inclusion, and achieve a cashless society.
It’s hard to miss the focused hubs created by the respective governments to foster innovation, and collaboration and to influence regulations. Notable ones include Dubai’s DIFC Hive, Abu Dhabi’s ADGM program, Fintech Saudi, Bahrain's Fintech Bay, and Qatar’s Fintech Hub.
Optimistic investor (VCs) response
Fintech startups are among the most well-funded early-stage companies in the region. 33% of all funds raised went to fintech startups across 150+ deals in 2022.
Entrepreneurs (talent) have shown increased interest in the space since 2018 and investors follow entrepreneurs. In 2018, Bahrain’s $100 Million Al Wafa Fund of Funds was one the earliest fintech-focused initiatives in the region. VentureSouq’s $50 Million fintech fund was launched in 2021 (which is now closed with 23 startup investments). Abu Dhabi’s Hub71 recently (Feb ’23) pledged $2 Billion toward web3 and blockchain.
Venture Studios, Accelerators, and Programs
Startup founders often look to incubators and accelerators to help them find product/market fit and raise initial capital. For entrepreneurial founders who aren’t necessarily working on that ‘right’ idea or have a team, there’s the option of venture studios.
There are a few fintech-focused accelerators run by the hubs mentioned above and then there are a few sector-agnostic accelerator programs. Top cohort-style sector-agnostic accelerators would be — 500 Startups, MISK Plug & Play Tech Center (I’m an alum, AMA!), Techstars, and Flat6Labs. They’re ideal for pre-seed stage startups who have just hit product/market fit (do we ever?) and want some doors to be opened.
Venture studios, on the other hand, incubate their own ideas, build a minimum viable product, find product/market fit and early customers, and then recruit entrepreneurial founders to run and scale the business. Al Wafa Fund & Hambro Perks’ Spring Studios (Bahrain), ADB’s Further Ventures (UAE), and Fintactics (Saudi Arabia) are the most active venture studios in the region and specifically work on fintech solutions.
Fintech Categories
Fintech covers a wide range of categories and subcategories across business-to-business (B2B), business-to-consumer (B2C), and peer-to-peer (P2P) markets. Some startups focus on building solutions for specific industries and niches.
The fact is that even a non-fintech startup will eventually want to expand its offerings (with financial products) when its core solution hits critical mass. There’s nothing stopping an eCom marketplace from offering loans to its biggest suppliers; a real-estate portal may see revenue generation opportunities in regtech. Let’s do a deep dive into the different sub-categories (categories are not mutually exclusive) in fintech.
Remittance
Cross-border remittance apps are the most widely utilized form of fintech by consumers. The high adoption is due to the sizeable expatriate population and the lack of citizenship and naturalization programs in many countries in the region. Also, the space is hot now since remote working and hiring international talent has become a norm.
Nearly 250 million people across the world send over $500 billion in cross-border remittances annually, according to Citi. But the space is ripe for disruption. “The fees are extremely high. It is embarrassing that we have not solved this issue so far,” Citi analysts wrote. Global average cost for sending money is around 6.5%.
Business model: flat fee for low-value transfers and 0.5–5% transaction fee.
Opportunities: The space still has great potential —cash remittance is still prevalent (80% of Western Union and MoneyGram’s remittances are cash-to-cash), transfer fees are high, P2P transfers are not instantaneous and not all countries are not covered. It took me 2 months to figure out a reliable way to send my Lebanon-based employee her salary. And this was in the year 2022.
Top players: MENA-based remittance players include NOW Money ($11M raised), HubPay ($22M raised), global apps (Wise, Remitly, and Paypal), traditional exchanges, and banks.
Payment processing
Payments gateways are responsible for almost all online consumer-to-business transactions these days. While it seems like this is a solved problem, I feel much innovation is left.
Business model: Business-focused APIs charging 0.5–3% in transaction fees with a flat monthly fee.
Top players: Region-focused Telr, PayTabs, HyperPay, Mamo (not API first), and more, and global gateways like Stripe, Paypal, Checkout, and many more.
Opportunities: cross-border payment collection for MENA-based DTC merchants and brands, a solution to reduce risks for cash-on-delivery purchases for merchants (20% of GCC and 40% of the rest of MENA still pay via COD), payment link businesses (Mamo Pay) for small businesses and creators like Gumroad.
Wallets
Wallets have become increasingly popular among consumer-focused eCommerce companies across the world. They’re fast and have higher conversion rates (compared to banks) which mean merchants are okay with the slightly higher transaction fees. Just UAE’s wallet market is valued at over $3 Billion. Egypt’s wallet penetration will reach 50% in 2025.
Business model: Consumer app for bill payments, P2P transfers, and managing money. Business-focused APIs charging 0.5–3% in transaction fees with flat monthly fees.
Top players: Wallets by banks and telcos, STC Pay, Benefit Pay, Mamo, and more.
Opportunities: Most wallet companies are on pursuing to become full payment gateways and eventually add more financial services — ‘super app for finance’. So the opportunities listed in the ‘payment processing’ section also apply here. Cash on delivery (COD) order return rate is 19% versus 8% for card payments. So eCommerce merchants really want online payments (46% in MENA) to pick up.
Buy Now Pay Later (BNPL)
BNPL is a low-touch short-term financing option available at the time of purchase on a lot of eCommerce apps these days. Consumers may choose this option over credit or debit card and pay the amount to the BNPL provider at a later date typically in a few weeks. It helps merchants increase their average order value by 50% and decrease cart abandonment by 20–30%. A report by Checkout.com says 50% of all MENA use BNPL today.
Business model: BNPL transaction fee (2–8%) for merchants is higher than that of a typical payment gateway. BNPL providers also charge a late payment fee to consumers and sometimes collect interest.
Top players: Tabby, Tamara, Postpay, Spotii, Sympl, valU, and many more.
Opportunities: B2B BNPL is yet to take off although we’re seeing companies like Bynow gaining traction.
Lending
Crypto Exchanges
Consumer Trading Platforms
Alternate investing
Insurance
Mortgage lending
Other Lending
Neo Banks
Open Banking
Corporate Spend Management
Employee Benefits
Wealth Management
Crowdfunding
Private fundraising
Payroll management
Early-salary access
eKYC and RegTech
Web3, blockchain and crypto
Little explored opportunities
- RegTech — company registration is still a pain across the region. Entrepreneurs across the world are excited about the opportunities the region offers and it’s too complicated for an outsider to understand. You can get the US Incorporation with a bank account and a working ‘+1’ phone number within a week sitting anywhere in the world. It will cost you less than $500. The whole thing in Dubai would take a month, set you back by $10,000–$20,000 and it’s hard to get a bank account without visiting and acquiring a work visa. Restriction on
