Fintech revenues in MENA and Pakistan to grow 200% to reach AED16.5 billion by 2025
Fintech companies in the Middle East, North Africa and Pakistan (Menap), which includes some 800 funded start-ups, will need around $5 billion to $7 billion (AED18.35 billion to AED25.7 billion) in new funding over the next three years, according to Global Consulting firm McKinsey said.
Currently, the region’s level of fintech funding (excluding funds raised by new digital banks) relative to GDP is well below that recorded in other markets.
“If Menap fintechs are successful in attracting the level of funding available to their counterparts in other regions, they will be better able to hire top talent, enter new segments of existing markets, and expand into adjacent markets.
It added that raising funds to increase fintech contribution from less than 1% to roughly 2-2.5% of the total regional banking revenue pool will require larger average investments and greater participation from local investors.
UAE maintains lead
The UAE maintains its lead in attracting investors to fintech, although its share of total funding has fallen to about 35 percent from about 80 percent in 2017.
The UAE has been an attractive destination for fintech thanks to its investment in infrastructure and updated regulatory regime, according to a new report by global consultancy McKinsey.
As a regional hub for fintech companies, the UAE has been home to some of the world’s most renowned startups rising to the ranks of unicorns such as Careem, Swvl, Emerging Markets Property Group and Kitopi.
The “Fintech in Menap: A solid foundation for growth” report predicts that the annual revenue of fintech companies in the Middle East, North Africa and Pakistan (Menap) is expected to grow by 200% between 2020 and 2025.
The global consultancy forecasts that fintech revenues will grow from an estimated US$1.5 billion in 2022 to US$3.5 billion (AED12.845 billion) to US$4.5 billion (AED16.5 billion) by 2025. The study estimates that regional fintech penetration will range from less than 1.0% of Menap’s total financial services revenue in 2022 to between 2.0% and 2.5% in 2025.
According to Magnitt, investor funding for Menap fintech startups more than quadrupled from nearly $200 million in 2020 to about $885 million in 2022.
Over time, it said, fintech penetration could reach 3% to 4% of the region’s financial services revenue pool, roughly in line with global benchmarks of fintech revenue relative to overall financial services industry revenue.
“The recent surge in funding has been particularly strong in Saudi Arabia, Egypt and Bahrain, as well as the UAE, where the number of companies is growing rapidly. In fact, these markets have strengthened their position as important innovation hubs, with the UAE attracting 37% of funding in 2022 ; Saudi Arabia, 25 percent; Egypt, 20 percent; Bahrain, 12 percent; and Pakistan, 5 percent,” McKinsey said.