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Digital Banking Grows 52% in the Middle East

In the Middle East, traditional lenders and fintech startups are racing to launch digital banking offerings, viewing the market’s rapid adoption of mobile technology, economic growth and relatively low adoption of neobanking as a massive opportunity up for grab.

About 38 digital banking offerings are currently available across the region, new data released by C-Innovation, a French fintech-focused research firm, show. The figure implies that 13 new neobanking solutions had been launched between 2021 and mid-2023, and suggests a growth rate of 52% for the sector.

Data from Swiss software company BPC Group and the Fintech Consultancy Group (Fincog), compared with those of C-Innovation, reveal that the United Arab Emirates (UAE) added the largest number of new players during the period, welcoming a total of five neobanking brands. These newcomers include Wio Bank, a licensed digital banking platform launched last year that boasts over 45,000 customers; Zand, a retail and corporate digital bank that received its banking license in July 2022; and Bankiom, a lifestyle banking app launched in March 2022 that has so far amassed more than 30,000 users.

While the UAE was undoubtedly the most dynamic digital banking market during the period, other countries across the region also saw their digital banking market expand. Egypt, for example, is now home to four prominent digital bank offerings, up from just one in 2021. These ventures include Blnk, a fintech that specializes in instant consumer credit; MNT-Halan, a digital ecosystem and super-app; Kashat, a lending app helping micro-businesses; and Telda, a consumer money app. Saudi Arabia, meanwhile, is gearing up for the launch of its fourth digital bank, D360 Bank.

Digital banking industry in the Middle East, Source: C-Innovation, Aug 2023

Neobanks in the Middle East are currently serving around 32 million customers, up 28% from 2021’s 25 million customer pool, the data show. The figures suggest a penetration of less than 10% and is lower than the 17% usage rate estimated by the International Monetary Fund (IMF). These metrics are below other locations. In the US, for example, 60% of consumers are using digital banking, according to the IMF. This gap suggests a substantial market opportunity and growth prospect for the sector in the Middle East.

The rise of fintech in MENA

The advent of digital banking in the Middle East comes at a time when young fintech startups and tech companies are venturing into the space, eyeing the region’s massive addressable market, favorable demographic characteristics and a supportive stance from local governments.

MENA has one of the world’s highest mobile, Internet and smartphone penetration rates and is home to a young, educated and growing population. A third of the population is under 30, and the number of unique mobile subscribers reached 412 million in 2021, data from the GSM Association, a non-profit industry organization representing mobile network operators worldwide, show, implying a 66% penetration rate. By 2025, that number is expected to grow to 456 million and reach a penetration rate of 68%.

The mobile economy of the Middle East and North Africa, Source: The GSM Association, 2022

Regulators in the region have also recognized the potential of fintech to improve economic growth and financial inclusion, and are committed to creating a favorable regulatory environment. Recent announcements from Qatar, Saudi Arabia and Egypt regarding buy now, pay later (BNPL) arrangements, open banking, digital payment regulations, respectively, are positive step towards a more conducive regulatory climate.

Bullish on the growth prospects of fintech in MENA, investors are pouring millions of dollars in the sector and ramping up their investment in the space each year. In 2022, fintech venture capital (VC) funding in the MENA region rose to US$925 million, growing by a staggering 57.6% from US$587 million in 2021, data from Magnitt, a startup data platform focusing on the Middle East, show.

For the past three years, the sector has been the dominant sector for VC investment, making up for 21% of venture funding in 2021 and 29% in 2022.

MENA quarterly fintech funding, Source: FY2022 MENA Fintech Venture Investment Report, Magnitt, Jan 2023

These drivers have helped the MENA fintech sector expand substantially over the past years, and reach an estimated 3,000 fintech solutions.

The fintech landscape of the Middle East and Africa in 2023, Source: The Middle East and Africa Report 2023- Economic Development Through Prosperity With Fintech, The Fintech Times, May 2023

Fintech revenue in the Middle East, North Africa, and Pakistan (MENAP) region reached US$1.5 billion in 2022, according to McKinsey.

The consulting firm expects that amount to increase almost threefold through 2025 to US$3.5- 4.5 billion, owing to the region’s positive macroeconomic outlook and the strong performance of MENAP’s financial services industry.

Featured image credit: edited from freepik