In the last ten years, fintech startups in MENA have raised over $100 million in funding, and investments are expected to double by 2020, according to the State of Fintech report. The number of fintech startups are also expected to double to 250 by 2020, according to the same report.

Despite the rise of this innovative technology, an estimated 86% of the adult population in MENA remains unbanked. While this means that a significant segment of the population is excluded from financial services, it also represents a huge opportunity for fintech growth in the region.

Bridging the gap

Financial inclusion is an important driver for economic growth. Moussa Beidas, co-founder of Bridg, a Dubai-based mobile payment platform that connects merchants and customers via their smartphones and Bluetooth, believes fintech can help reach more people and create a financially inclusive ecosystem.

“Fintech will be the enabler. They are the bridge between the goals that governments would like to see in their country and economy, and what the population needs,” says Beidas. “Governments want to move away from cash, but it’s not an easy transition. Fintech will be able to pinpoint specifically what needs to be done to enable a cashless society, whereas banks and large conglomerates tend to have a one size fits all approach because of their size and business model.”

Fintech will also help bank the unbanked, according to Mohamed Abdelmottaleb, founder of XPay, an Egyptian-based mobile app that allows users to make payments to community activities such schools, clubs, gyms and activity centers.

“Banking is a difficult process. It costs money to onboard people, know your customers (KYC) and open branches,” explains Abdelmottaleb. “Fintechs go around that by onboarding online and handling the KYC process in a much simpler way.”

With the rise of fintech startups in the last few years, people are now embracing the digitisation of financial services even if it means giving up their anonymity.

“By digitising, you become less anonymous. However, I expect to see more people wanting to digitise cash because they will be getting more added value from fintech,” says Beidas.

Supporting fintech growth

Despite fintech’s rapid growth, it is still a relatively new concept in MENA.

When Beidas launched Bridg app in 2015, his biggest challenge was trying to educate the industry, particularly VCs, about the importance of fintech in a mature ecosystem.

“People told us to go somewhere else where the ecosystem is more mature and more adaptable to new ideas. But we were answering a need that people couldn’t get anywhere else,” says Moussa.

Today, the region is ready for fintech. Dubai is positioning itself as a fintech hub in MENA and recently launched a $100 million fintech-focused fund by Dubai International Financial Centre (DIFC) to accelerate the development of financial technology. A few months ago, Dubai Financial Services Authority (DFSA) also entered into an agreement with Japan to promote collaboration in fintech.

Meanwhile, Egypt is trying to widen its formal economy to integrate SMEs. It’s anticipated SME Act could see businesses with revenues of less than EGP 500K see their VAT rates cut to just 1%. There are also talks of establishing a $57 million startup fintech fund to further develop the industry.

“We don’t face much resistance from people wanting to do their transactions online compared to a few years ago. They actually want it,” says Abdelmottaleb. “We now have the opportunity to leapfrog to fintech. It saves us time, money and it’s convenient.”

However, to further grow the industry, VCs must be willing to invest in fintech. Although Abdelmottaleb was able to raise funds through angel investors to launch XPay, he struggled with attracting VCs.

“This is not optimal, not just because of the money, but because of the experience that VCs bring to the table.”

Moussa agrees.

“In order for these numbers that people are predicting to occur by 2020, there needs to be a lot of changes and a lot of new players in the VC space that are looking to focus not only on the idea or growth state, but on the middle part. That’s the stage where startups need an injection of cash to see their company through.”