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UAE: 800 fintech firms need Dh26 billion in funding in 3 years across Menap

Fintech firms’ revenues set to jump 200% to Dh16.5 billion in Mena and Pakistan by 2025

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Fintech companies in the Middle East, North Africa and Pakistan (Menap), which comprise approximately 800 funded start-ups, will need new funding of around $5 billion to $7 billion (Dh18.35 billion to Dh 25.7 billion) over the next three years, according to global consultancy McKinsey.

At present, the region’s fintech funding levels, excluding capital raised by new digital banks, relative to GDP are much lower than recorded in other markets.

“If Menap fintechs succeed in attracting the level of funding available to peers in other regions, they would be in a stronger position to hire top talent, reach new segments in existing markets, and expand to adjacent markets.

It added that raising the funds needed to increase the fintech contribution from less than 1 per cent to approximately 2-2.5 per cent of the total regional banking sector revenue pool will require larger average investments and greater participation by local investors.

UAE retains top position

The UAE has retained the top position as the leading magnet for investors investing in fintech, despite a drop in the UAE share of total funding, from approximately 80 per cent in 2017 to about 35 per cent.

According to the latest report by global consultancy McKinsey, the UAE has been an attractive destination for fintech, thanks to its investment in infrastructure and updating regulating regimes.

As a regional hub for fintech companies, the UAE has been home to some of the world’s well-known startups that made it to the list of unicorns, such as Careem, Swvl, Emerging Markets Property Group and Kitopi.

The ‘Fintech in Menap: A solid foundation for growth’ report projected that annual revenue for the fintech firms in the Middle East, North Africa and Pakistan (Menap) is projected to jump 200 per cent between 2020 and 2025.

The global consultancy firm forecasted that fintech revenues will reach between $3.5 billion (Dh12.845 billion) and $4.5 billion (Dh16.5 billion) in 2025, up from an estimated $1.5 billion in 2022. The study estimated that regional fintech penetration will increase from less than 1.0 per cent of total Menap financial services revenue in 2022 to a point between 2.0 and 2.5 per cent in 2025.

According to Magnitt, investor funding for fintech start-ups in Menap more than quadrupled from nearly $200 million in 2020 to approximately $885 million in 2022.

Over time, that fintech penetration will likely reach 3 to 4 per cent of the region’s financial services revenue pools, roughly in line with the global benchmark for fintech revenue relative to revenue for the total financial services sector, it said.

“The recent surge in funding has been particularly strong in Saudi Arabia, Egypt, and Bahrain as well as in the UAE with the number of firms scaling in these markets growing rapidly. Indeed, these markets have strengthened their position as crucial hubs for innovation, with the UAE attracting 37 per cent of funding in 2022; Saudi Arabia, 25 per cent; Egypt, 20 per cent; Bahrain, 12 per cent; and Pakistan, 5 per cent,” McKinsey said.

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