While perhaps lesser-known than its competitor regions, such as the US or Europe, the Middle Eastern market is gaining traction as it emerges from the effects of the global pandemic, and could be set to dominate the financial market in the years to come.
According to analytics by EY, 71% of executives in the Middle East and North African (MENA) region believe that business will be back to pre-pandemic revenues as early as 2022. At the same time, digital investment in the region is increasing with 76% of executives planning to invest in digital services for their businesses. But what effect will this have on the market and what should businesses and investors pay attention to in the years to come? Let’s take a look.
Like most of the world, the Middle East proved no exception in the global experience that is the coronavirus pandemic. Alongside sociological changes, such as lockdowns and distancing, digital services in the region bloomed with businesses and financial providers rapidly onboarding new technology to fit the new norm. Now, as we move forward, what are the key markers for the region that we should take note of?
Interest in fintech investment is growing
In the past, financial technology in the Middle East has been something of a slow starter. Making up only ~1% of global fintech investments globally, the Middle East is currently a relatively small player on the market.
Goals of Fintech Providers
At the moment, the majority of fintech providers in the region—50%—seek to provide services that focus on efficiency, rather than exploring the market (30%), differentiating from competitors (15%) or partnering (5%). This indicates the early stages of a prospective market that is set to grow in the coming years.
Continuing levels of low financial inclusion
Financial inclusion continues to remain an issue across the Middle East. A report by the World Bank noted that just 52% of men, and 35% of women held a formal banking account, meaning 48% of men and 65% of women remain unbanked—unable to access financial services. This indicates not only a low level of financial inclusion but notable gender inequality in terms of financial inclusion. Additionally, due to the large numbers of unbanked this may raise issues in terms of small and medium enterprises with larger businesses gaining a monopoly on the international market. Increasing financial technology could prove a leveler if adopted effectively.
“48% of men and 65% of women remain unbanked — unable to access financial services.”
Focus on digital transformation
The Middle East has one of the fastest internet connection speeds in the world, meaning that initiating digitization processes should prove problematic. At the same time, the MENA smartphone market is growing, rising from a value of $69 billion in 2020 to a predicted $78 billion in 2025, and this is consistent with the number of unique subscribers indicating an overall market growth. Coupled with the aftereffects of the coronavirus pandemic and need to access services remotely, the sector has seen growth in the Middle East, and this is set to continue.
The Future of Middle Eastern Finance: Predictions & Growing Trends
Moving forward, the Middle Eastern market is primed for digital growth—the only question is how? Looking at the data, we can see a number of trends emerging, some of which are in line with global digitization and others unique to the MENA region.
Increased drive toward digital services
The MENA region may not have been leaders of digital change in the past, however, in coming years, that is set to change. Following the COVID-19 pandemic there is a renewed recognition in the region that digital is the way forward. Still at its early stages, there is an abundance of investment potential for providers seeking to access the region and for local businesses looking to adopt new technology solutions.
Currently in its infancy, at the stage of service efficiency, future fintech solutions in the Middle East could potentially focus on three key areas:
Open banking solutions—allowing wider financial democracy across the region and beyond.
AI and Big Data—utilizing the wealth of information and data held by businesses and traditional providers
Islamic finance and insurance—the development of a unique market catering to Islamic finance
Our own Middle East market experience proves the fact that digital financial services demonstrate growing popularity in the post-pandemic times. HES FinTech has vast experience in the field of lending software for the Middle East region, including the development of islamic banking solutions. Besides, HES is a software vendor of Wa’ed, the entrepreneurship arm of Saudi Aramco.
All about speed and access
As the MENA region is still at its early stages in terms of fintech growth, the trends that we will see in coming years are likely to center on the roll-out of services in general and the speed at which it can be done.
Increased access to services is a major goal for the region, and, at the same time, MENA consumers are seeking services that answer their unique financial needs. The worldwide personalization trend, based on AI and Big Data, will continue to play a role
Taking into account the cultural fit
The Middle East is a unique region. With a relatively young population compared to other areas, it is primed to take on technological advancement at a rapid pace. At the same time, the region is also subject to gender issues, meaning that future changes are likely to be implemented by the male majority with access to banking services at the moment. However, there remains the wider potential to reach out to those who are underbanked and fintech could go some way to bridging this gap.
In addition, the Islamic background in the region is likely to play a role in just how new financial solutions are implemented. Islamic finance will grow and the solutions available will increase offering wider diversity not only to the MENA region but to Islamic investors worldwide.
Growth of fintech in the Middle East was rapidly kickstarted in the last couple of years, taking it from slow and steady into hyperdrive. With the coronavirus pandemic providing a major accelerant for change, we are seeing more and more financial providers seeking fintech solutions to engage more effectively with their clients. As we move forward into the future, it’s likely that this drive to digitization will continue providing immense potential for fintech firms and their clients.
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