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GCC fintech startups to attract $2bn in private funding

DUBAI, November 20, 2018

Investments in Gulf-based fintech startups are expected to reach $2 billion in the next decade, compared to a mere $150 million invested in the last 10 years, according to a new study by Mena Research Partners (MRP), a leading research company in the region.

The study was released today (November 20) coinciding with the Sharjah Entrepreneurship Festival, a key regional event that is celebrating entrepreneurship and the startup ecosystem in the GCC.

The UAE and Saudi Arabia are expected to play a key role in unlocking the region's growth potential and shaping the Mena fintech sector, it stated.

MRP suggests that both countries will be at the heart of the evolving fintech transformation, powered by many factors: adopting a top-down approach for creating advanced infrastructures for the smart cities of the future, having the highest online connectivity per capita in the region, and representing 45 per cent of the Mena economies.

The private sector in both markets is also stepping up its investments in fintech, said a statement from the research company.

"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," said its CEO Anthony Hobeika.

The private capital investment gap compared with the global average is much wider, at $10 billion, it stated.

"In the last 10 years, private capital investments in GCC-based fintechs was a mere 0.007 per cent of the GDP, below the emerging markets average of 0.07 per cent for that period and the global average of 0.3 per cent," added Hobeika.

The MRP research indicates that 35 per cent 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 per cent of these companies have access to a line of credit from financial institutions, compared to an average of 42 per cent 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 said: "While 64 per cent 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 per cent of all private investments last year."

MRP estimates that the number of fintech companies in the region will more than double in the next three years, to reach around 260 fintech startups from the current 130.

However, Hobeika said that there would be consolidation in the market, which will drive larger transactions.

"This will result in the creation of at least one regional fintech unicorn (a startup company valued at over $1 billion upon exiting) in the next five years," he added.-TradeArabia News Service

Tags: Saudi | Funding | Mena research |

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