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March 15, 2024

Fintech in MENA is ready for its breakthrough moment

The Middle East and Northern Africa (MENA) region is ripe and flourishing.

That’s the biggest single takeaway I have after spending a week in Riyadh, Abu Dhabi and Dubai with QED's fintech stalwarts Nigel Morris, Bill Cilluffo and Chuckie Reddy.

During our visit, we co-hosted a breakfast with UK/Saudi VC 9900 Capital, an afternoon tea with Saudi home-grown fund Outliers VC and an industry networking event with our friends at VentureSouq. I also attended an investor dinner organized by Saudi fund of funds SVC and got an opportunity to meet the Saudi Government Minister for Communication and Information Technology.

In addition, we met many companies including payments and procurement SaaS Pluto, payments fintech Pemo, SME neobank Ziina, SME payments business Mamopay and BaaS provider Nymcard. Of course, there were plenty more that we didn’t meet this time that we look forward to getting to spend some time with as we get more acquainted with the region.

There is a massive opportunity here. The opportunity and excitement is palpable and it felt as if this region was on a different time schedule to the rest of the world. There’s real GDP growth, very high (and growing) GDP per capita, an abundant supply of downstream capital and a flourishing early VC ecosystem.

The ‘fintech gap’ – the lack of digital-first financial products enabled by technology – also exists, and we heard similar messages about incumbents’ reluctance to innovate because of few competitors compelling them to raise the bar as we have in many other geographies across the world.

Fintech funding represented $1.4 billion in MENA in 2023. Since 2021, there have been twice as many fintech deals closed compared with the next most popular sector, e-commerce.

Fintech's huge opportunity

While the TAM is generally small compared with other geographies in the QED portfolio (the combined Gulf Cooperation Council of Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and the UAE is about 60 million people, smaller than Nigeria, Brazil, Mexico, Kenya or Egypt), opportunities are apparent.

Between the UAE and Saudi Arabia, there is a young, growing population of digitally native consumers with high spending power. Fifty-five percent of the population is under the age of 30, smart phone penetration is at 95 percent and high-net-worth individuals are flocking to the region. Both countries have a long-term vision to catalyze a growing tech sector with billions of dollars in state support.

Sixty-eight percent of the Middle Eastern population remains unbanked, and 85 percent of transactions in MENA are still cash based. Open banking infrastructure remains nascent, and while e-commerce is booming in places like the UAE (98 percent growth in 2002), a large percentage of transactions online require cash-on-delivery, demonstrating the opportunity there still is to transition more to pure digital payments.

The UAE has a population of 10 million, 90 percent of which are immigrants. The opportunity to serve this group with frictionless financial products is limitless. In addition, a very open regulatory environment with forward-thinking regulators is attracting incredible talent, capital and companies. Entrepreneurial talent is huddled around the region and we’ve already seen many large global companies like Visa and Google use the UAE as base for the region.

In Saudi Arabia, meanwhile, the country is opening up massively with a lot of investment both into physical and digital infrastructure.

Don’t forget, the GDP per capita in Saudi Arabia is $25,000 and UAE is $45,000. By comparison, the GDP in Brazil and South Africa is $7,500. In Nigeria and India it’s $2,500. This translates into generally much higher average revenue per user which, in turn, manifests in very interesting ways in sub-verticals like wealth management or SMEs.

The SME sector is growing fast (170 percent growth since 2016; 30 percent growth since last year) and is the highest non-oil contributor to GDP in the UAE, but it is still highly underserved from banks. The share of loans given to SMEs in the MENA region ranks as the lowest in the world, standing at an average of 7.6 percent of total bank loans.

All of that is to say there are so many tailwinds across a number of verticals and sectors that we know so well. All in all, it was a great trip and we left more bullish than we went in and we’ll continue to work to build lasting relationships in the region. Maybe we'd find a diamond (or Unicorn) in the rough!