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The economic impact of the pandemic and the tightening of monetary policy to push down inflation is just one of many challenges faced by the financial services industry in the Middle East. Despite this, the industry remains just as strong as it was pre-pandemic.

As it stands there are over 470 fintech unicorns globally, with 40 of them added in Q1 2022. McKinsey recently reported that in Africa alone, fintechs could grow by up to eight times by 2025 if penetration levels meet those of market leaders.

With strong figures being reported from several sources, it’s time we took a closer look at the fintech opportunity in the Middle East.

The emergence of fintech hubs across the region

The Middle East’s fintech ecosystem is still in its infancy with fintech startups first being founded in 2015. At this time there were a total of 105 fintech startups in the entire Middle East and North Africa (MENA) region, 45 of which were founded within the Gulf Cooperation Council. Today, the MENA region is home to over 800 fintech startups summing up to $15.5 billion worth, the majority coming from  the United Arab Emirates.

Moreover, research from MAGNiTT found that fintech startups in the MENA region recorded a 183% year-over-year growth in funding in 2021, the highest yearly growth rate over the past five years. Trends in the first half of 2022 indicate that by the end of Q4, this year would have surpassed forecasted growth. Research from Saudi Arabian technology venture capital fund predicts that MENA will see 45 unicorns worth over USD 100 billion by 2030.

Government initiatives and support with financial inclusion

Middle Eastern governments have embarked on major reforms and launched initiatives to privatise assets, increase public-private partnerships, monetise infrastructure assets and drive financial inclusion. In addition they are supporting fintech friendly regulations and initiatives to foster home-grown startups and entrepreneurs in the region, but also to attract global players.

Our Disruption Diaries report on Islamic banking showed that 70% of respondents think it is important that they can make an investment without seeing someone in person, with 74% citing a mobile banking app as important. As well as this, the uptake of digital wallets and account aggregation is reported to be close to 40% for customers.

Fintech growth in the Middle East has been fuelled by the infrastructure needs to address its large number of financially excluded people. Over 70% of people in the region don’t have access to bank accounts, and the emergence of fintechs has helped bridge the gap where traditional banks previously had limited success. Governments have also launched several initiatives of regulatory sandboxes across the region to drive the adoption of digital financial solutions and further accelerate fintech growth.

As a result, in February 2022, it was reported that the region is now home to more than 3,600 financial firms, up 25% from the previous year, and including 1,000 new company registrations in 2021 compared to 735 in 2020.

Driving future fintech growth in the region

Saudi Arabia and the UAE Central Banks have launched, or are about to announce, their National Instant Payments Platforms (IPPs) to accelerate the digitalisation of payments and drive financial inclusion. Raising the accessibility of financial services reflects the customer-first approach to inclusion that is becoming core for many financial services providers in the Middle East region. Government support and initiatives are expected to continue and the accelerated growth of fintech hubs isn’t forecasted to slow down any time soon.

As we continue to see strong fintech hubs develop, government backing and promising figures continuing to be reported, investors should be paying attention to the significant growth and continued fintech expansion in the region.

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