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Why Launch a Digital Bank in the Middle East?

Updated: Sep 20, 2023

The Middle East and North Africa region is well-known today for its great potential for the FinTech industry thanks to a variety of factors from the relatively low competition and expansion to favourable regulations and rapid internet and technology penetration. Not surprisingly, this region attracts more and more FinTech entrepreneurs. Let’s see why it is such a desirable venue for numerous digital banking startups.

Factors making the Middle East and Africa an attractive market for FinTech solutions

1. Growing investors’ interest

In comparison with the global FinTech market development, the growth in the MENA region is coming off a globally low base. The Middle East has attracted only about 1% of global FinTech financing in 2018, however, it is growing at a compounded annual growth rate (CAGR) of 30%. Furthermore, it is projected that by 2022, some 465 FinTech companies in the Middle East will raise over $2 billion in venture capital funding, compared to the 30 FinTechs that raised nearly $80 million in 2017.

Investments in Fintech in MENA

2. Low financial inclusion

Demand for mobile FinTech solutions across MENA is primarily driven by the low financial inclusion rates across the region. More than 180m, which is about 43%, adults are without access to bank accounts in the Arab world.

Financial Services in MENA

There are several segments of the market that tend to be largely excluded from Middle Eastern banking access. Firstly, most women don’t have access to financial services due to cultural considerations. A significant part of small, medium and micro-sized enterprises accounting for 63% is also isolated from finance because banks find it more profitable to do business with the large companies.

3. High internet and digital services adoption

Also critical to the growth has been the level of internet penetration in MENA, which has paved the way for customers to be in a position to adopt the wide range of mobile payment options and other financial services. The Middle East region has the fourth-highest internet penetration rate worldwide, 70.8% in 2020, and Africa behind other regions with 47.1%. However, both regions have the highest growth rates within 2 decades in the developing world: roughly 5.5% in the Middle East and almost 14% in Africa.

Growth in active accounts over the last five years highlights progress in mobile money adoption in MENA. The high internet and mobile penetration are feeding through to the growth in active accounts and percentage of total registered users, which has increased from 24% in 2014 through to 41% in 2018.

Digital Banking in MENA

4. Impact of COVID-19 and lockdown

Apart from the steady growth of financial services digitalization volumes, the year of 2020 has been experiencing a fundamental customer behaviour shift because of the increased preference for remote and contactless experience due to the COVID-19 and lockdown. For example, Abu Dhabi Islamic Bank (ADIB) has seen significant interest for its digital services during 2020. Around 94% of ADIB’s banking transactions are conducted digitally and 65% of customer updates are made through the bank’s digital channels today.

The growth in the FinTech industry has been propelled by the many regulatory initiatives across the region aimed at providing the more flexible regulatory environment required to allow innovation to flourish.

5. Attractiveness of digital finance solutions

What makes FinTech such a powerful solution to these countries is that mobile and internet access allows them to extend the services digitally rather than incurring significant expenses in building up a physical presence in distant locations.

Fintechs also offer customized solutions to different problems that confront individuals and small, medium and micro-sized businesses. They cater to unique consumption habits, as well as other savings structures in the region, such as sukuks and Rotating Savings and Credit Associations (ROSCAs). Fintech offerings also enable innovative credit reporting and scoring, fast-tracking the approval process.

The technology driving the myriad of FinTech propositions also reduces operational costs and extends the target audience remotely through channels that include social media and agents acting as in-person financial services access points.

What are the most demanding digital banking services in UAE, Qatar, Egypt and other MENA countries?

The most popular FinTech solutions in the MENA region, according to Deloitte’s research, are P2P transfers and account aggregation platforms.

FinTech Solutions in the Middle East and Africa

MENA Fintech and Mobile Banking 2021

To sum up, MENA countries have already put robust foundations in place for the future growth of the FinTech industry and thus are well-positioned to take advantage of the future growth potential offered by this huge, multi-faceted and largely unbanked region.

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