The Middle East has seen a rapid rise in fintech in recent years, transforming the region’s financial services landscape. Fintech makes the playing field increasingly dynamic and diverse, with various players, including financial institutions (FIs), offering innovative solutions across areas such as payments, lending, and wealth management.
Governments in the region are actively supporting the development of fintech through regulations, investments, and initiatives to promote cashless payments.
The region has also seen a boom in fintech investment, with several large deals and funds established to support startups. There is also a growing trend of collaboration between traditional banks and fintechs, as well as partnerships between regional fintechs and global players, to bring new solutions to the market.
The focus on digital transformation and financial inclusion has also helped improve access to financial services for underbanked populations.
In addition, the region has an excellent opportunity to leapfrog traditional banking infrastructure and develop innovative payment solutions that meet the needs of a young and digital population.
The rise in digital banking in the Middle East
Digital banking in the Middle East has seen significant growth in recent years, driven by the increasing adoption of technology and the need for FIs to keep up with changing customer demands.
According to a recent report, the region is home to 25 digital banks serving a combined 25 million people, the first being Saudi Telecom Bank.
The United Arab Emirates (UAE) currently stands as the region’s most prominent digital banking hub, housing the most digital challengers across the Middle East with nine players. Turkey follows with four players, and Saudi Arabia and Israel have three companies.
“Digital banking has the potential to greatly simplify the relationship between new companies and incumbent banks in the Middle East,” said Séba Daher, Lead Solutions Consultant of Payments at Finastra.
By offering online and mobile banking services, digital banks can provide more convenient and efficient customer services, reducing the need for in-person visits to traditional banks. Additionally, digital banks can offer a broader range of financial services, including peer-to-peer lending, digital wallets, and other solutions.
Séba said the rapid adoption of open banking could build the foundations for digital banking to thrive. The region has recently seen the emergence of several open banking players, such as Lean technologies, Dapi, Fintech Galaxy, and Bankable API.
“In the Gulf Cooperation Council (GCC), countries such as Saudi Arabia, Bahrain, and the United Arab Emirates (UAE) have emerged as open banking leaders and are recognised for their efforts in setting up the foundation for open banking,” said Séba.
Payment and banking trends in the Middle East
The Middle East is shifting towards digital payment methods, with an increasing number of consumers using mobile and online banking services.
According to a recent report, the number of mobile banking users in the region is expected to reach 150 million by 2023, with a compound annual growth rate of 11 percent. The use of digital wallets is also on the rise, with a projected value to reach a certain billion Euros by 2025.
Additionally, the implementation of real-time payment systems, such as the Saudi SARIE Instant Payment has dramatically improved the speed and efficiency of financial transactions in the region.
In a consumer survey, 58 percent of Middle East consumers expressed a strong preference for digital payment methods, while only 10 percent strongly preferred cash.
Cross-border payments are a critical component of the financial landscape in the Middle East, particularly given the presence of two of the world’s most significant remittance corridors in the UAE and Saudi Arabia. The rise of digital and mobile payments has increased the need for more efficient, secure, and convenient cross-border payment solutions in the region.
Three major initiatives have been launched in the Middle East to meet this demand. The AFAQ system connects the real-time gross settlement systems of the six countries in the GCC, enabling real-time cross-border payments and supporting financial stability in the region.
The Buna payment platform supports multi-currency payments among members of the Arab Monetary Fund, improving the flow of funds between countries in the region.
Project Aber is a joint digital currency proof of concept between Saudi Arabia and the UAE, designed to improve cross-border payments and support economic integration between the two countries.
“We see tremendous interest in payments across banking incumbents, Central Banks, and fintech players,” said Séba citing that the Central Bank of the United Arab Emirates is participating in a multi-CBDC initiative coined mBridge for cross-border payments involving the central banks of China, Hong Kong, and Thailand.
The Power of Payments Data
With the increasing adoption of digital payment solutions, the volume of payment data generated is expected to increase significantly. This presents a massive opportunity for the financial sector to leverage payment data to drive growth and innovation.
This is enabled by the adoption of ISO 20022 which enables the exchange of more detailed payment information, reducing manual intervention, minimising errors, and improving the efficiency and accuracy of payment processing.
It also facilitates the development of new payment services and enhances the customer experience.
“Payment data can also be used to enhance financial inclusion by better understanding the unbanked population and the financial services they need,” said Séba.
For businesses, payment data can help identify consumer preferences and purchasing habits, allowing them to tailor their products and services to meet customer needs.
Financial institutions can use payment data to assess credit risk, detect fraud, and improve risk management processes. Governments can use payment data to monitor economic activity and support macroeconomic stability.
Fintech investment with a strong focus on payment solutions and digital banking
According to a recent report by Magnitt, fintech investment in the Middle East and North Africa (MENA) region reached US$819M with a strong focus on payment solutions.
Countries in the region, especially UAE, Saudi Arabia, Egypt, and Bahrain, support the fintech ecosystem with initiatives ranging from free zones, such as the Dubai International Financial Centre (DIFC). This includes regulatory sandboxes such as DIFC’s Innovation Testing License, Egypt fintech sandbox, and Saudi Central Bank (SAMA) regulatory sandbox in Saudi Arabia.
The fintech market in the Kingdom of Saudi Arabia is expected to grow by a further 55 percent before 2033. Moreover, the Saudi Cabinet last year approved the Kingdom’s financial technology development strategy focused on nurturing fintech players from 90 in 2022 to 525 by 2030.
“This trend is expected to continue, with the number of fintech startups and investment in the sector increasing. The region’s focus on digital transformation and financial inclusion is also driving the growth of fintech as more consumers seek convenient and accessible financial services,” said Séba.
Finastra role in the payments landscape in the Middle East
Infrastructure modernisation is a top priority for FIs of all sizes in the Middle East. As the demand for automation, tools, and choice of payment tools increases, FIs must modernise their infrastructure to keep pace with their commercial clients’ expectations.
Without careful consideration, FIs risk falling behind the competition and losing critical business to more modern, innovative competitors.
In this context, hub vendors that can offer the latest capabilities and continually invest in their product roadmaps have the potential to gain a competitive advantage. These vendors can provide FIs with the tools and services they need to modernise their payment infrastructure, meet client demands, and stay ahead of the curve.
With its focus on innovation, investment in its roadmap, and commitment to customer satisfaction, financial software company Finastra is well-positioned to help FIs in the region modernise their payment infrastructure and keep pace with the latest technological advancements.
“We aim to provide a range of payment solutions to FIs and businesses in the region, from simplifying payment operations and increasing efficiency to promoting innovation,” said Séba.
Finastra’s payment solutions align with open banking and finance frameworks, enabling FIs to access a broader ecosystem of services and partners.
This collaboration with multiple parties allows Finastra’s clients to benefit from a diverse range of services and leverage the full potential of the payments landscape.
“By doing so, Finastra is helping to drive the adoption of digital and mobile payments in the Middle East and ensuring that our clients have the tools they need to succeed in an increasingly competitive and rapidly changing financial landscape,” said Séba.
Discover how Finastra can revolutionise your payments landscape and give you a competitive edge. Partner with them today and take advantage of their innovative payments’ solutions designed to drive growth, increase efficiency, and gain a competitive edge in the Middle Eastern market.
