FinTech investment is driving growth in the Mena digital economy as consumers pivot to cashless payments amid the Covid-19 pandemic and as the sector benefits from improved regulations, according to the consultancy Redseer.
One in four deals involve the FinTech sector, which attracted about 30 per cent of all the funding raised in 2021, leaving it poised for strong activity with the new liquidity, Redseer said in an August 29th report.
"FinTech stood out head and shoulders above other sectors on funding volume and value," Redseer said. "Within FinTech, while payments and remittances secured the maximum number of deals, lending accounted for the largest share of money raised."
In 2021, there were 220 deals in the digital economy worth $2.1 billion, according to Redseer data. Of these, FinTech accounted for a quarter of the transactions (52 deals) and 29 per cent of the deal value ($600 million).
The Covid-19 pandemic has hastened the consumer shift to online shopping in the Middle East, leading to a boom in the region's e-commerce sector.
Online sales in the Mena region are set to triple to $28.5bn next year, from $8.3bn in 2017, according to research by Bain & Company and Google.
Consumers have been quick to adapt FinTech services such as digital payments, remittances, insurance and lending.
The current consumer adoption rate for digital payments is 53 per cent while that for digital remittances is 41 per cent, Redseer data showed.
FinTech start-ups scored the highest in terms of consumers' future willingness to use their services, a survey showed. About 97 per cent of consumers expressed an intention to use digital payments while 78 per cent said they were keen on digital remittance services.
"Our Voice of Consumer analysis shows FinTech to have strong adoption and the highest future willingness to use," Redseer said.
"Already adoption is very high in payments and remittances at more than 40 per cent to 50 per cent. Other FinTech sectors such as lending and InsurTech [insurance technology] are more nascent currently but future intent to use is five times the current levels."
Current consumer adoption of InsurTech is at 8 per cent while lending is at 7 per cent. However, planned future use of these services stood at 48 per cent and 38 per cent, respectively, the data showed.
Improved regulations and greater access to accelerators are among the factors enabling FinTech start-ups in the region to raise funding.
Financial free zones such as the Abu Dhabi Global Market and the Dubai International Financial Centre have promoted the growth of the regional FinTech sector through various avenues such as regulatory sandboxes, accelerators and events.
"This has allowed regional FinTech companies to innovate at a fast pace and partner with leading companies to create new products and services," Redseer said.
Several regional start-ups have raised funding recently this year, including Saudi FinTech company Tamara – a buy now, pay later company – that raised $110 million in early stage venture capital funding earlier this year.