30 May 2023
The Middle East, North Africa, and Pakistan (MENAP) region, with Abu Dhabi and Dubai at the helm, is embarking on a fintech revolution. This vibrant landscape is fueled by a young demographic and bolstered by a surge in venture capital, particularly in the United Arab Emirates (UAE), Saudi Arabia, Egypt, and Bahrain. The UAE, driven by the strategic efforts of Abu Dhabi and Dubai, remains an attractive investment destination, securing 37% of total funding directed to the region in 2022. Saudi Arabia followed with 25%, Egypt accounted for 20%, Bahrain for 12%, and Pakistan secured 5% of the total funding in 2022.
While the UAE’s share of total MENAP funding has seen a slight dip - from around 80% in 2017 to roughly 35% in 2021, this trend did not undermine Abu Dhabi and Dubai’s status as prime investment destinations. Rather, it underscores the expanding opportunities across the region. Despite the gradual diversification in investment, the UAE, with its advanced infrastructure and progressive regulatory frameworks, has successfully sustained its position as a leading beacon for investors in the MENAP region.
The sector’s growth potential over the next three years is substantial, with a projected annual growth rate of approximately 7%. The fintech sector’s revenue in the region is expected to triple by 2025, increasing from an estimated $1.5 billion in 2022 to between $3.5 billion and $4.5 billion. This upward trajectory reflects an increasing fintech penetration, suggesting a steady alignment with global benchmarks over time.
With governments fostering technological innovation in financial services, the region has witnessed regulatory reforms, improvements in banking infrastructure, and the launch of new enterprises in free-trade zones like Abu Dhabi Global Market (ADGM) and Dubai International Financial Center (DIFC). This has not only included the UAE as regulatory bodies across the MENAP region have responded to the digital evolution with agility and foresight. They have introduced digital-bank licensing regimes in countries like Egypt, Pakistan, and Saudi Arabia, along with open banking and payments licenses in Bahrain and Saudi Arabia. Central banks are also modernizing their infrastructure to support the growth of digital transactions. These developments indicate the proactive and progressive approach of regulators in embracing and adapting to the digital shift.
For firms operating in MENAP, this dynamic environment presents both opportunities and challenges. One of the key challenges is navigating the uneven pace of regulatory change across different markets in the region. Companies seeking to scale across MENAP must grapple with variations in the legal frameworks for setting up a business and obtaining a license to operate as a digital bank, payment service provider, or payment systems operator. This has led to calls for greater collaboration and alignment across markets, with some stakeholders suggesting a “passporting” system similar to that of the European Union, where firms authorized in any member state can trade more freely in another.
At the heart of this fintech boom is a cadre of talented founders who have received global recognition. The region has witnessed notable milestones such as Amazon’s acquisition of Souq, Uber’s acquisition of Careem, and the IPOs of Swvl and Anghami. However, attracting experienced engineers, product managers, programmers, and designers to the region remains a challenge. This has led to calls for industry veterans, universities, and governments to collaborate on developing training programs, competitions, and internships that would help build skills and professional networks tailored to financial services technology.
Partnerships, both within the region and with global entities, play a crucial role in the MENAP fintech ecosystem. While there have been successful collaborations, there is a clear need for a more aggressive approach to partnering with start-ups. Despite the numerous types of organizations active in the ecosystem and their growing impact on the broader financial services sector, collaboration between incumbents and start-ups in MENAP is yet to reach its full potential.
Fintech start-ups bring a wealth of innovative ideas and solutions to the table, pushing the boundaries of what traditional financial institutions offer. They can help accelerate digital transformation, deliver customer-centric solutions, and create new revenue streams. Meanwhile, incumbent banks and financial institutions offer a deep understanding of the financial landscape, a large customer base, and robust infrastructure. By fostering partnerships, incumbents can infuse innovation into their operations, while start-ups can leverage the established infrastructure and customer trust of incumbents.
Government-mandated localized hiring targets, such as those implemented in Saudi Arabia, are putting pressure on firms to upgrade the skills of current employees and train local talent to take on leadership roles in tech-centric initiatives. This presents an opportunity for organizations to build a workforce that is equipped to navigate the rapidly evolving fintech landscape.
The MENAP region, led by Abu Dhabi and Dubai, is at the precipice of a fintech revolution. The combination of a young, digitally-savvy demographic, untapped market potential, and supportive regulatory frameworks present an ideal environment for fintech growth. However, the path to sustained growth and innovation requires a collective effort. Industry stakeholders, including incumbents, new entrants, investors, and regulators, must seize collaboration opportunities to strengthen the foundation for innovation and value creation. They must also focus on overcoming challenges related to regulatory harmonization, talent acquisition, and diversity in leadership. With these efforts, the MENAP region can truly unlock the vast potential of fintech and transform the landscape of financial services.
Read the full report at Mckinsey here.
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Starting a business in Abu Dhabi, particularly within the Abu Dhabi Global Market (ADGM), involves several stages. ADGM, like the DIFC in Dubai, is an international financial center that provides an efficient and secure platform for businesses and financial institutions. It extends over the entire 114-hectares of Al Maryah Island and also includes Al Reem Island, making it one of the largest financial districts in the world. To start a business in ADGM, you first need to determine the nature of your business.
How do you start a business in Dubai?How do you start a business in Dubai?
Starting a business in Dubai, specifically in the Dubai International Financial Centre (DIFC), involves a well-defined process that caters to a range of business and financial services. As a globally recognized free zone and an excellent business hub, DIFC offers numerous benefits to companies planning to establish their presence in this cosmopolitan city. Strategically located between the East and West, DIFC bridges the time-zone gap for a global financial centre between the leading financial centres of London and New York in the West and Hong Kong and Tokyo in the East.
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