Against a backdrop of global and regional economic turmoil and limited access to capital, fintech start-ups in the Middle East and North Africa (MENA) region have raised $100 million over the last decade.
This is according to a report by business support organisation Wamda, in partnership with online payment gateway Payfort, titled "State of Fintech: Unbundling the financial service sector in MENA," which identifies key drivers and barriers for MENA's fintech industry.
The report reveals although a significant amount of funds were invested in MENA start-ups in the past decade, 28% failed in their initial years. It also estimates about $50 million in investments are expected to go to fintech start-ups in MENA this year alone.
The region was home to 105 fintech start-ups by the end of 2015, with half of these having been launched since 2012. In all, 30 firms are situated in North Africa. In terms of countries, the UAE leads, with 30 fintech start-ups, followed by Egypt with 17 and Jordan and Lebanon with 15 each. Just 10% of fintech start-ups in the region account for 43% of investments and employ 55% of the 1 600 employees in the sector.
These start-ups mainly provide a wide range of services to private, corporate and governmental partners. Payments is the most developed of the sectors, with start-ups offering bill payment, electronic wallets, mobile and online payment solutions, including integrated payment services platforms, adds the report.
Despite the rapid growth in the fintech sector, the research found the sector still faces several core challenges in the region: government and financial sector regulations, hiring and retaining talent, and funding. In fact, about one in four fintech start-ups shut down, with just 10% accounting for the majority of funding and hiring. However, the research also sees light at the end of the tunnel, with new developments across the region promising to improve the chances for new fintech start-ups.
"We're seeing the drafting of a wide range of reforms and new regulations, around the region, at a government and financial regulatory level, indicating policy-makers are now better informed and have a clearer vision for innovation and what drives innovation," says Omar Soudodi, MD of Payfort. "We're also seeing more talented people choose entrepreneurship over corporate employment and more professionals from the financial sector identifying fintech opportunities."
Meanwhile, a PwC report titled "Redrawing the lines: FinTech's growing influence on Financial Services," found a large majority of global banks, insurers and investment managers intend to increase their partnerships with fintech companies over the next three to five years, and expect an average return on investment of 20% on their innovation projects.
The report found 88% of financial services respondents globally and 88% in Africa, say they are seeing fintech firms as a real threat. In SA, more than half of respondents (63%) said they are presently engaging in partnerships with fintech companies, and 96% are expecting to increase partnerships over the next three to five years.
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