Gulf fintech market to reach $2bn, says MRP
GCC fintech will also create at least one unicorn in the next five years, research company predicts
Investment in Gulf region fintech startups will reach $2bn over the next decade, according to a new study by MENA Research Partners (MRP).
The research company predicts that investment will grow from the $150m invested in the past ten years, with most growth seen in the UAE and Saudi Arabia.
The region will see at least one fintech unicorn - a startup valued at over $ 1 billion upon exiting - in the next five years.
MRP also expects the number of fintech startups to double in the next three years, from 130 to 260, and that startup businesses will diversify from mainly offering payment solutions into money transfer, wealth management, insurance and blockchain solutions.
The study was released today, to coincide with the Sharjah Entrepreneurship Festival, a key regional event that is celebrating entrepreneurship and the startup ecosystem in the Gulf Cooperation Council countries (GCC).
MRP expects Saudi and the UAE to lead in fintech for a number of reasons, including active private sector, high levels of connectivity and the top-down approach of the leadership of these countries for creating advanced infrastructures for smart cities and so on.
"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 $2 billion funding gap of private capital investments in fintech startups, when compared to other emerging markets. The private capital investment gap compared with the global average is much wider, at US$ 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%," said 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 $52.5 million out of the $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 $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.
In addition to that, new fintech startups are entering the market to solve the problem of financial inclusion for the unbanked. Last, but not least, the shift in consumer preferences towards digitalisation and e-commerce means that more fintech solutions will be needed to cater for customers' requirements.
Hobeika explained: "While 64% of private investments in 2017 went to startups in traditional sectors, there is a clear trend towards increasing investments in digital companies across the spectrum: e-commerce, fintech and technology in general. Private investments in fintech startups, specifically, are now on par with other tech startups, at an average of 12% of all private investments last year.
"Globally, the fintech trend is a reality. The regional economic context is conducive for a growing fintech sector: Governments have stated their visions for developing smart cities for the future, and they have the financial power to implement these visions. Similarly, the highly connected consumers in the Gulf are driving the demand for smarter solutions for all their financial needs. Traditional lenders are converging their legacy systems with new fintech solutions, and stand-alone fintech startups are finding new solutions to old problems. The fintech sector is poised to reshape the future of the financial market, creating fresh opportunities for existing and new businesses."