In H1 2022, fintech was the preferred industry for startup investors in the United Arab Emirates (UAE), accounting for 34% of total capital during the period and 22% of transactions, a new report by Magnitt and the Emirates Development Bank (EDB) shows.
UAE fintech companies raised a total of US$234 million in the first six months of the year through 28 deals. The figures represent a threefold year-over-year (YoY) increase in total funding amount, and a 65% increase in the number of deals.
Fintech’s predominance in the UAE startup scene is further evidenced by the large rounds of funding closed by companies in the sector. In H1 2022, two of the top five largest startup fundraisings were secured by fintech startups: Tabby, a buy now, pay later (BNPL) startup that closed a US$54 million Series B in March; and Wahed, a wealthtech startup that secured US$50 million in a Series B in June.
The UAE is home to the largest fintech ecosystem in the Middle East and North Africa (MENA) region, a position that’s been enabled by the government’s continued efforts to encourage innovation and digital adoption in the financial services industry.
At the Dubai International Financial Centre freezone, initiatives to support fintech have multiplied this year to foster innovation, attract foreign startups and nurture talent.
In April, the DIFC unveiled its so-called venture studios, an initiative that seeks to build and invest in promising startups. This was followed in June by the launch of the Open Finance Lab, a six-month program for banks and fintech companies to collaborate on open finance use cases.
The rise of digital banking
One of the biggest developments in the UAE’s fintech sector over the past few years has been the emergence of the digital banking industry, a sector which has historically been dominated by incumbent banks.
Last year, the country saw the launch of its first independent digital banking platform, Yap. Yap is a digital banking application with banking services provided by RAKBANK. Users can open an account in seconds from their smartphone for free, with no minimum balance or salary requirements necessary.
Features provided through the mobile app include spending analytics, card controls, money transfer and bill payment service, real-time notifications of purchases, withdrawals and transfers. Yap also offers a virtual card for online shopping. It claims 130,000 users.
This year, at least two digital banks were granted a banking license, paving the way for greater growth in the sector. Zand, a digital banking startup, obtained regulatory approval in June. The company offers corporates a range of services, including easy onboarding, fast account opening, and automated loan approval. It aims to launch personal banking solutions later this year.
Wio, a digital banking platform, was granted in-principle approval in February. The first product it will introduce is Wio Business, a dedicated app for SMEs, entrepreneurs, and freelancers. Wio Business will offer a full suite of business banking solutions to small and large companies in the region, equipping business owners with the tools and support they need for efficient financial management.
Fintech funding picks up in the Middle East, Africa, Turkey and Pakistan
Trends observed in the UAE are similar to those seen over the broader Middle East, Africa, Turkey and Pakistan market. A separate study by Magnitt found that fintech was the industry of choice across the region in H1 2022.
Fintech funding activity accelerated considerably this year, aggregating a total of nearly US$1.7 billion in funding through 192 rounds in the first six months of 2022. The sum represents a staggering 220% YoY increase.
Nigeria, UAE, South Africa, Kenya, and Egypt led the region in fintech funding, accounting for 75% of the total investment in fintech. These locations also hosted the three largest rounds and mega-rounds of the period: Flutterwave’s US$250 million Series D and Interswitch’s US$110 funding round in Nigeria; and Rain’s US$110 million Series B in Bahrain.
Featured image credit: edited from Unsplash