Emerging Fintech: How Careem entered the payments space and paved the way for startups in Middle East
In the inaugural edition of Emerging Fintech, we focus on the Middle East that is currently seeing exciting growth in the fintech space. We trace the beginnings of the fintech journey by looking at Careem, the first Middle-Eastern unicorn that has now entered the payments space with Careem Pay. We speak with the co-founder and CEO of Careem, Mudassir Sheikha, about the fintech opportunity in the region and how Careem plans to compete with startups.
Rapidly changing landscape…
The Middle East has changed a lot in the past decade, as the author of this post, having lived there, can attest. Once viewed as a place of traditional culture and some resistance to reforms, the region is now known as home for rapidly-changing cities racing each other to modernize and attract global talent. Dubai, of course, stands out for its hyper-modern architecture and infrastructure, as well as government’s commitment to make the country more attractive to expats that make up the majority of the population. However, Saudi Arabia has been very focused on catching up and surpassing the UAE, with Neom, a brand-new mega-city being built north of the Red Sea, aiming to shift from Saudi’s oil-based economy and revolutionize urban planning and sustainability.
…but payments space is still lagging behind
One need not look into the future to see how the region stands apart from the rest of the world. Countries there boast one of the highest COVID-19 vaccination rates globally thanks to the speedy and efficient rollout infrastructure, metro systems are self-operated, and e-commerce and online-delivery platforms are well-developed and growing. However, one sector seems to be behind the rest: payments. The region is still predominantly a cash-based economy. Indeed, the share of cash in point-of-sale payments stands at 53% in the Middle East and Africa as of 2020, according to FIS Worldpay, vs 19% in APAC and 11% in North America. This is a staggering difference. In the context of 400mn people living in the Middle East and around 800mn in the broader Middle East, North Africa, and Pakistan region, this presents a massive opportunity. Even in a more caught-up UAE, cash makes up one-third of POS transaction payments. In Saudi Arabia, this number is at a whopping 60%. However, this is set to change, with the private and public sector in the region focused on closing this gap, be it government-owned banks, startups, or new corporations backed by preeminent business leaders. Indeed, the Middle East fintech space is currently experiencing exciting growth, along with the broader tech scene, attracting investments and talent worldwide. To understand what is driving this growth, we should travel back to 2012, when two ex-management consultants decided to make transportation easier for their colleagues.
Careem revolutionizes the startup space
In 2012, Mudassir Sheikha and Magnus Olsson, previously McKinsey consultants in Dubai, founded Careem for corporate car bookings to help consultants in the region looking for transportation. This later transformed into a more general mobility model akin to Uber, and Careem quickly grew in the region, with operations across more than 100 cities in 14 countries offering ride-hailing, food-delivery, and other services. In 2016, Careem became the first unicorn from the Middle East. Uber has also been operating in the region alongside Careem, which created formidable competition in the space. In 2019, Uber acquired Careem for $3.1bn, with the latter continuing to operate under its own brand. The deal solidified Careem’s position as the leader in the mobility space and unlocked sustainable funding and numerous growth opportunities for the firm. However, the deal had far more wide-reaching consequences for the tech space in the Middle East:
- Increased capital flows into the ecosystem. The Careem/Uber deal crystallized tech opportunities in the region, catching the attention of investors worldwide. This also propelled the growth of the local VC space. Seven years ago, the biggest funding raises were concentrated in Dubai, like the $60mn Series C funding by Careem in 2015. Fast-forward to today, and the MENA region has raised almost $300mn in the month of November alone, distributed across countries like UAE, Egypt, Jordan, Saudi Arabia, and Algeria, according to Wamda, a regional VC fund. Global investors like Sequoia, SoftBank, and Tiger Global Management have today invested into startups across the region.
- The Careem Mafia. The 2019 deal also generated wealth for the top management and early employees at Careem, many of whom left the firm to found their own ventures. Dubbed Careem Mafia or Careem Cartel, this group extends across the Middle East, from Pakistan to Egypt. Moreover, ex-Careem employees, known to have scaled the business, are highly sought after in the tech space for their expertise and capabilities. In essence, Careem experience has become a brand in itself, highly desired from investors and employers. Examples of Careem Mafia startups include Bazaar, a B2B marketplace in Pakistan, and SimpliFi, a cards as a service platform that raised $5mn in funding in December.
- More talent into tech. If top university graduates intended to pursue banking and consulting roles in the region, many are increasingly turning to the tech space for employment. On top of this, many people from the Middle East who have left to study/work abroad are now coming back, enticed by the opportunities in the tech space.
From mobility to payments
It was clear that the 2019 deal will help fuel Careem’s growth ambitions beyond ride hailing. In 2020, the firm launched its Super App, integrating its services from ride-hailing to delivery and bike rental into one user experience. At the center of this Super App is Careem Pay, the mobile wallet. At the time, Careem Pay mainly allowed credits to transfer between users, but the vision for the platform is to capture the digital payments gap in the region through a variety of financial services. In 2021, Careem Pay processed 66mn transactions across six markets. Pakistan led with the highest number of P2P payments and mobile recharges, while Careem captains (drivers) topped up their phones with an aggregate amount of $1.5bn. Meanwhile, there have been a slew of payments startups launched over the past few years aiming to solve the same pain points that Careem does. While Careem has an existing and wide-reaching customer base, infrastructure, and brand power, it is an established organization of a few thousand people, competing with nimble startups. We spoke to the co-founder and CEO of Careem, Mudassir Sheikha, about his vision for Careem Pay, the fintech opportunity in the region, and what the Careem/Uber deal meant for competition and talent.
Why did Careem decide to venture in the payments space with Careem Pay? How does the payments feature fit in the Super App concept for Careem.
Launching Careem Pay is a natural evolution for our Super App, which has taken off in the UAE and is rapidly being expanded across the Middle East, North Africa and Pakistan.
Our purpose is to simplify and improve lives across the region and we know we cannot achieve that without simplifying financial services. We have a clear ambition to become the leading digital financial services provider of the MENAP (Middle East, North Africa, and Pakistan) region. To do this, we’ll add everyday payments use cases on our Super App as well as enabling usage of Careem Pay outside the Super App. We’ll do this for consumers, captains (our ride-hailing and delivery drivers) and merchants before adding other financial services.
How do you view the digital payments landscape in the region? Is there a country that stands out to you in terms of level of digital payments penetration? What excites you about the fintech opportunity in the region?
The opportunity for digital payments in MENAP is incredibly exciting. Our region is home to some of the largest unbanked populations in the world, including Pakistan and Egypt; these markets can leapfrog over traditional banking and card set-ups. And the more banked markets such as the UAE and KSA still have room for disruption through super-simple UX and building trust in online payments — the level of digital payments in these markets has significant room for penetration given how digitally connected their populations are. In both cases, we feel Careem Pay has an important role to play given our expertise in understanding local needs and delivering great tech to meet them. I would call out a couple of opportunities in particular, beyond the obvious consumer payments use cases such as P2P and bill payments. Even smaller merchants in our region are increasingly relying on a range of offline and online channels to generate income. We could make it a lot easier for them to manage their payments across this spectrum. And for international remittances, the UAE and KSA are the largest sender markets in the world after the USA, so we see a huge opportunity to help people transfer cash in a simpler and more affordable way.
The Careem/Uber deal in 2019 crystallized a lot of value in the startup scene in the region, helping increase investment flows into the space. This also saw an emergence of fintech startups focusing on digital payments. How does a larger organization like Careem navigate competition from these startups?
We are super proud that Careem’s success served as a springboard for entrepreneurial talent and innovation across the region. Part of our mission has always been to build an awesome organization that inspires but we never imagined our impact would be this great. We welcome a competitive ecosystem because it ensures that we continue to innovate for the customer.
That said, we are fortunate to be coming from a position of scale while also maintaining an agile mindset and energy. Careem benefits from a huge existing user base and a brand that is known and trusted across the region. We have almost a decade’s headstart on these topics, which should make it faster and cheaper for us to scale vs. new entrants. Our operating model has been structured to empower each of our businesses so they operate autonomously with speed and specialism. We’ve built up the Careem Pay team with specialists from banks, payments providers, and fintechs, while we continue to benefit from the product and engineering expertise that is in our DNA.
We’re only getting started and there is a lot of opportunity for awesome talent to become a part of our fintech journey in some of the world’s fastest-growing emerging markets.
The 2019 deal also made the tech/startup scene more attractive from the talent perspective. How do you view the talent in the region now vs 10 years ago? Do you see more expats moving to the region in pursuit of tech roles? In what ways is the MENAP region attractive for tech talent? What would you like to see change?
The 2019 deal definitely helped to boost ambition levels and place a greater spotlight on the regional opportunity for tech. Today entrepreneurs in the region benefit from world-class infrastructure and thriving communities as well as better access funding. We’re seeing a reverse brain drain with a lot of people originally from our region that have built their careers in other global tech hubs returning to start companies and make an impact in their home countries.
From a culture perspective, we have been able to attract talent from across the world through our remote-first culture which we committed to last year. Flexible working is deeply aligned with our values of ownership and trust. It allows us to work with a greater diversity of tech specialists who are looking to make a meaningful impact on development in MENAP.
We are also tapping into local talent by investing in internship programs and college graduate engineering schemes in countries like Palestine and Pakistan. These programs are part of our strategy to build a lasting engineering institution and further support the development of the ecosystem that we have helped to grow.
How has the change in regulation in the region helped shape Careem Pay? What more would you like to see being done from the regulatory/government side?
Many of the markets we operate in are relatively young in their fintech journeys, but several governments are publishing frameworks, providing sandbox approvals and supporting incubators, accelerators and funding.
What this means is that in most or all of our priority markets, we now have regulatory frameworks to work with and an ongoing dialogue with regulators around our core consumer and merchant payments products.
There is also a clear trend in our region towards data localization. We believe that for these economies to reach their potential, start-ups and global tech companies need equal access to world-class technology tools, including those provided by global cloud service providers, as well as the ability to transfer data across borders for efficient processing.
We are in conversations with governments across our region to advocate for business continuity and new business launches while ensuring that individuals and their data are protected. Our customers, captains and merchants trust us to deliver secure digital payments, so we feel our insights can help support the development of the ecosystem in this regard.
Stay tuned for more!
The fintech landscape in the region is rapidly changing, with new exciting ventures announced regularly. There is a lot more to discover about fintech in the space, and we will continue to explore it going forward.
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