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We live in a world where online payments, mobile banking, automated markets and contactless transactions are being done seamlessly. Both businesses and consumers are conducting their financial processes with the use of specialized software and algorithms, on either desktops or smartphones.

It is evident that as people become used to a faster, more convenient lifestyle, having the capability to send or receive money, buy products or invest assets digitally is the best option. Manifesting financial inclusion and literacy in a resource-driven economy, fintech is expected to grow bigger in time.

At its core, fintech has driven a more rapid pace of technology innovation that impacts the delivery of customer expectations. As a result, the standards behind a quality customer experience shift to a different level, affecting operational efficiencies, new product developments and an improved churn rate.

Being a young and dynamic sector, fintech developments are surging and providing a basis for more sophisticated financial services such as digital lending, insurance, advisory assistance, wealth management and many more. Traditional institutions and startup companies within the industry are figuring out smarter and more efficient ways to operate and lead the commercial evolution within digital natives.

Finance Goes Digital

Digital banking is gaining traction, with over half of consumers nowadays opting to utilize digital channels for their financial transactions. Moreover, digital payments’ overall transaction value is projected to reach $8.5 trillion in 2022.

Fintech has entered a new phase of its evolution with the ongoing wave of new digital financial services. These include digital payment providers, financial connectivity providers, digital insurers and peer-to-peer (P2P) platforms. Digital technologies like cloud machine learning, digital ID, APIs and big data are widely integrated by these players.

Within a short timeframe, fintech companies are no longer seen as competitors but as partners for new capabilities and offerings. The viewpoint has evolved from seeing fintech as a source of threat to revenue to seeing it, instead, as a prospect for greater performance and higher customer retention and satisfaction.

With digital becoming more a way of life than just a mindset, the stage is set for the next phase of fintech growth. In fact, the financial technology industry remained the highest funded sector across emerging venture markets in the first half of 2022, tripling to a value of almost $2 billion.

A Magnitt report also states that Payment Solutions is the top subsector for investors in 2022, attracting 42% of all investments made into fintech, with an annual funding growth of over 150%.

Mobile Money

The adoption of mobile money has already disrupted the financial services market. In the regions that do not have adequate access to finance, registered mobile money accounts have crossed 850 million across 90 countries, with $1.3 billion in transactions done to date.

Driven by smartphone popularity and new technologies, mobile financial services – with anticipated market size of $60 billion by 2025 – are expanding beyond basic e-wallets to encompass ecosystem payments and microfinance.

According to GSMA data, it took the industry ten years (from 2006-2016) to reach 100 million active users. But in the past five-year period (from 2017-2021), the numbers have doubled, showing a golden window of opportunity to scale fintech businesses.

In this context, network availability for mobile money services is vital to ensure user participation and effective service delivery. Today, mobile-based fintech brings banking capabilities into the end user’s pocket. It is the service providers' and operators’ role to ensure 24/7 access to these financial services via wireless networks and mobile app integration.

Figures show that there are over 300 global mobile fintech providers, of which nearly 200 are telecom operators with cross-border operations. The innovation of mobile money amounted to a network-based account ledger provided by non-bank players and mobile network operators, leveraging ubiquitous mobile connectivity infrastructure.

Working from this, seamless connectivity to safe, open ecosystems for fast onboarding of users, merchants and partners is now provided. This also bridges the gap between the mobile phone penetration rate and access to digital financial services.

Consumer interfaces are indeed changing from physical branches to more convenient digital access where they can utilize their own bank accounts and gain more personalized services. Another key advantage of mobile money is that KYC requirements are less tedious than those for opening a typical bank account. This attracts more people to sign up and thus no longer be a part of the unbanked population.

Regulatory Updates

More regulators in more countries are embracing the essence of fintech due to high investor confidence and market sentiment. The adoption of technology is not new in the financial sector, but constraints had negatively influenced the operating environment until recently.

New entrants avoided highly regulated, capital-intensive activities and focused instead on activities such as payments, cards and financial advice. As regulators caught up, fintech strategies shifted with these newly granted licenses.

An example of this is the Saudi Central Bank (SAMA) announcing the licensing of various companies to provide payment services as well as e-wallet services through SADAD. In this manner, the efficiency of work adheres to the regulatory and supervisory requirements related to corporate governance, risk and compliance management, and customer protection.

SAMA has also updated the framework of its regulatory sandbox as part of its efforts to promote the regulatory sandbox’s involvement in the Financial Sector Development Program (FSDP). The updated framework will also support the objectives of the fintech strategy, fulfilling Saudi Arabia’s position as one of the world’s leading countries in the field.

Initially launched as an Electronic Money Institution (EMI), stc pay received a digital banking license from SAMA in 2021. It then proceeded to license Etihad Fintech Co. (Mobily Pay) in 2022 to offer comprehensive individual and corporate fintech solutions.

Qatar Central Bank has also recently embarked on its digital payments journey as it announced licenses for digital payment services to both Vodafone Qatar and Ooredoo. Furthermore, Qatari banks are now ready to launch payment services utilizing Google Pay, Apple Pay and Samsung Pay.

Booming Fintech Landscape in MENA

It appears that the Asian and American markets dominate the global financial technology sector. Yet, the Middle East market is on track to follow the lead. Half of the roughly 500 million people in the region are under the age of 25, which affects the push for digital-first solutions across sectors like payments, banking and lending.

According to Deloitte’s Middle East fintech study, from the year 2022 until 2025, the third wave of deploying fintech-oriented solutions toward innovative value propositions will take place. These include Islamic fintech, open banking as well as AI and data analytics for a front-to-back digitization approach.

The Global Islamic Fintech Report (GIFT) 2021 showed also that out of 64 key Islamic fintech markets, the Organization of Islamic Cooperation (OIC) member countries dominate the top 10, including Saudi Arabia and the UAE.

Due to this, the booming Islamic fintech landscape is projected to grow to $128 billion by 2025 at a 21% compound annual growth rate (CAGR). In detail, Saudi Arabia ranked second in the GIFT Index, having the largest estimated Islamic fintech market size in 2020, valued at $17.9 billion. This market value is expected to grow by 22% annually to reach $47.5 billion by 2025.

SAMA earlier noted that in 2021, electronic payments exceeded cash transactions in Saudi Arabia. They rose significantly to encompass 57% of the total number of executed transactions and were valued at SR15.6 trillion.

Magnitt reported that fintech also led the MENA region in terms of both funding and the number of deals in the first half of 2022. The UAE was the leading market for venture capital funding, while Nigeria also emerged as the top destination for fintech funding.

As per S&P Global, the GCC countries appear the most ready for fintech adoption in MENA, thanks in part to the preference of clients for digital banking, the ready availability of financial capital and the support from regulators. Conversely, African countries are lagging behind due to the poor quality of their infrastructure, a lack of capital and limited digital adoption.

Despite a slowdown in funding in line with global trends, McKinsey expects significant growth and value creation to lie ahead for the fintech industry in Africa.

MTN is currently running several initiatives aimed at stimulating the adoption and usage of mobile money to facilitate payments via MoMo Pay. Beyon Money, the first digital financial super app in Bahrain, has been growing fast since its launch in December 2021 and has gained over 20,000 active subscribers. Vodacom Financial Services has launched its latest product, VodaLend Cash Advance, to give customers quick and secure access to money when they need it most.

In additional support, sirar by stc has offered a digital signature service package discounted by 60% that will benefit SMEs, fintech companies and entrepreneurs.

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