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.
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.
The study, by MENA Research Partners (MRP), coincides with recent regional events celebrating entrepreneurship and the start-up ecosystem in the Gulf Cooperation Council countries (GCC).
Anthony Hobeika, CEO of MRP, said: “Early on, 90 per cent of the regional FinTech startups were offering payment solutions, and then came the FinTech providers offering lending and capital raising solutions.
“By 2020, there will be a clear shift towards FinTech companies operating in the money transfer, wealth management, insurance and blockchain solutions sub-sectors, which will expand their market share of the FinTech market to 31 per cent.
“FinTech companies operating in the payments’ space will still have around 36 per cent of the market, and those offering lending and capital raising solutions will have a 33 per cent share.
“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.”
The call on private capital in the FinTech space remains largely untapped, although there have been recent deals completed, added Anthony.
The MRP research indicates that 35 per cent of the total investments in FinTech start-ups 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: Bahrain FinTech Bay, Dubai’s FinTech Hive, ADGM’s Reglab 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 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.
Anthony said: “While 64 per cent of private investments in 2017 went to start-ups 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 start-ups, at an average of 12 per cent of all private investments last year.”
MRP estimates that the number of FinTech companies in the MENA region will more than double in the next three years, to reach around 260 FinTech startups from the current 130. However, Anthony says that there will be consolidation in the market, which will drive larger transactions.
He anticipates that this will result in the creation of at least one regional FinTech unicorn (a start-up company valued at more than $1 billion upon exiting) in the next five years.
Today, the trend is shifting from the payments and lending FinTech companies towards start-ups operating in the second wave sectors: these are companies offering money transfer, wealth management, insurance and blockchain solutions.
Source: http://www.gulfweekly.com/Articles/39877/A-soaring-market
