December 2020

Nadine Chehade

Fintechs Across the Arab WorldA look at the region’s 400+ fintechs and their multi-billion-dollar opportunity to

advance financial inclusion

This study was conducted in close collaboration with Alice Negre and Michele Touma, with

support from Alexander Reviakin and Sabaa Notta, all CGAP consultants.

2 2

Table of Contents

I Executive Summary

II Introduction

III Key Findings: Fintechs in the Arab World

IV Fintechs and Financial Inclusion

V Conclusion

Annex Selected Inclusive Fintechs

Executive Summary

I

• As of November 2020, CGAP has identified 400 fintech solutions across the 22 countries of

the Arab world, nearly half of them having a financial inclusion mandate• 75% of the fintech solutions are found in six countries: United Arab Emirates (UAE), Egypt, Morocco, Tunisia, Jordan, and

Lebanon

• 84% are offered by independent providers, and 44% operate in the payments space. With half of these payments solutions

offering store of value, fintech is creating new avenues for several countries to expand financial inclusion in the coming years

• 66% of the fintech solutions rely on a business-to-customer (B2C) model, and 75% of these B2C solutions focus on

individual retail clients. Most require users to have a smartphone, a potential barrier for low-income populations

• 20% cater to small and medium enterprises (SMEs), focusing on digitizing payments, financing and business processes

• Despite a large gender gap in access to financial services, only 2% of fintech solutions are gender-focused

• In the six markets where most fintech solutions are concentrated, the revenue potential of

enabling 50% of unserved or underserved individuals and SMEs to access financial

services is $7 billion

• Three factors will influence the ability of fintech solutions to reach the untapped market:• Policy-makers must proactively support innovation and competition

• Investors must provide sustained financing, especially at the angel and post-Series A stages

• Qualified talent must be more widely available to fintech companies

4

Introduction

II

6

Too many people and small businesses remain

financially excluded across the Arab world

63%of ~20m MSMEs

do not have access to

finance (gap: 200+ bn$)

90mindividuals borrow informally, 20% of

whom use the loans for micro-enterprise

59%or 142 m adults (15+) do not have access to

an account

<2%penetration of

insurance services

Source: CGAP calculation based on available Findex, IFC, and Axco data.

Penetration for insurance defined as written premiums to GDP.

7

Regional improvement is driven by large countries that recorded a significant increase in account ownership

(Iraq, Egypt) or are included for the first time (Libya)

There has been progress in account ownership, but the

region still lags behind most of the world

Source: Findex

95%

81%76% 73%

67%64%

54%

41%

33% 33%

24%

OECD ECA GCC EAP World Middleincome

LAC Arab World Arab Worldexcl. GCC

SSA Low Income

Arab world (2014)

Arab world (2017 increase)

Income level (2014)

Income level (2017 increase)

Region (2014)

Region (2017 increase)

Account at a financial institution

The facts

• Financial exclusion is acute in the Arab world: only 41% of adults have access to an account (Findex)

• A number of countries (e.g., Egypt, Iraq, Jordan, Lebanon, Morocco, Tunisia, Yemen) have adopted

enabling regulations for fintech, allowed either e-money services or payments companies to operate

• Access to mobile & smartphones is high: 65% of the region’s population has a mobile subscription, with 2

in 3 opting for a smartphone (GSMA, 2020)

The research

Conduct a fintech landscaping study of countries to identify:

1) emerging fintech solutions in light of regulatory changes

2) the likelihood that these fintech solutions reach low-income users, women and SMEs

The scope

• 22 countries of the Arab World

• Specific focus on 6 countries with a high concentration of fintech solutions: Egypt, Jordan, Lebanon,

Morocco, Tunisia, UAE

8

CGAP conducted a landscaping study on how the

region’s fintechs might advance financial inclusion

Not only startups

Solutions combining innovative business models and

technology to enable and/or enhance financial services

provision, distribution and/or infrastructure.

Exclusions:

• Internet banking services (e-banking application) whereby people access and transact using their bank account applications

• Services offered by banks except for mobile wallets

• Large foreign companies offering services in the region, when the region is not their main operating area or headquarters

• Companies enacted by a special law

• Fintech solutions at a very preliminary idea stage (no incorporation, no proof of concept, no minimum viable product, not in a sandbox…)

What is fintech?

10

What is a fintech with a financial inclusion mandate?

• In our landscaping study, we looked not only at the fintech space as a

whole but specifically at fintechs focused on advancing financial inclusion,

i.e. fintech solutions that:

• Put forward a clear financial inclusion mandate

• Offer the same product as another fintech with a clear financial inclusion

mandate

• Offer the same product as another fintech that has already had a material

impact on financial inclusion

Key

Findings:

Fintechs in the

Arab World

III

12 12

The Arab world counted 20+ new fintech solutions per year

from 2012 to 2019, reaching a total of 400 in 2020

Take-off in 2012

+24% YoY Growth

Note: for fintechs that have an identified date of creation

012 13 15 17 24 25 28 30 35

48 54 6282

109

147172

215

272

341

370

121 2 2 7 1 3 2 5

136

8

20

27

38

25

43

57

69

29

13

PRE 2000

2000 2001 2003 2004 2005 2006 2 0 0 7 2008 2009 2010 2 0 1 1 2012 2013 2014 2015 2016 2017 2018 2019 2020

Active fintechs New fintechs

400fintech solutions

identified

13 13

These fintech solutions had a better survival rate than

fintechs in other countries, like the United States

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Tunisia Morocco Jordan UAE Lebanon Egypt

5-year survival

(US)

5-year survival rate of fintech startups

14 14

Fintech is also the top category of tech investment in the region

by number of deals

Number and value of investments in MENA fintechs

97

84

6559

5246

41

0

20

40

60

80

100

120

FinTech E-Commerce Delivery &transport

Food &beverage

IT solutions Healthcare Education

Num

ber,

2018 -

H1 2

019

346

232223

74 7151

39

0

50

100

150

200

250

300

350

400

Delivery &transport

E-Commerce Real Estate FinTech Renewableenergy

IT solutions Professionalservices

Valu

e,

2018 -

H1 2

019 (

M U

S$)

Source: MAGNiTT ADGM 2019 MENA FinTech Venture Report

Fintech Fintech

• Most fintech solutions fall under the seed or early growth stages of a business (i.e. impact is yet to be

felt)

• 75%+ of startups have raised up to Series A financing. As companies grow, there will be a need for

larger investments to help solutions reach full scale

15

Most fintech solutions in the Arab world are offered by

relatively young providers

Includes non-equity

assistance and bridge

round

17%

44%

16% 15%

8%

Pre-seed/Angel Seed Early Growth Growth Other

Includes Series BIncludes Series A

• 84% of all solutions are offered by independent providers

• Others are offered by large tech companies, FSPs and MNOs

16

Independent providers offer most of the fintech solutions

Type of organization

Tech43%

FSP34%

MNO23%

MNO: Mobile Network Operator

FSP: Financial Service Provider

• Bahrain is the fastest growing in fintech solution development and roll-out

• 24 solutions (6%) are headquartered globally though most of their operations occur within the Arab World

17

Fintechs operate primarily in the GCC, followed by North

Africa and Levant

*Other includes:

Iraq (2.5%)

Qatar (1.7%)

Somalia (1.1%)

Libya (0.8%)

Yemen (0.6%)

Palestine (0.6%)

Oman (0.6%)

Djibouti (0.6%)

Syria (0.3%)

Algeria (0.3%)

UAE23%

Egypt14%

Morocco13%

Tunisia9%

Jordan8%

Lebanon8%

Bahrain7%

Saudi Arabia7%

Kuwait3%

Other8%

Payments and Remittances

44%

Back- and Middle-office

solutions18%

Financing13%

Savings and Personal Finance

Management…

Regtech & Compliance…

Other13%

18

Payments is the top product category, consistent with global

trends

Mostly B2B solutions enabling bank services and card payments (aggregation, card acquiring, e-commerce gateways); about 1 in 2 offer a store of value

Mostly ERP and

software solutions,

including robo-advisory

Including ROSCAs,

other savings solutions,

and portfolio

management

Financial Data

Analysis25%

Banking19%Search

engines and comparison

sites18%

E-Marketplace

s16%

InsurTech16%

Financial Education

6%

Due to regulatory limitations,

a number of B2C solutions

however end up changing

their offering to B2B or

B2B2C

19

B2C Solutions represent more than half of the solutions

Including individuals (75%)

and SMEs (25%)B2C66%

B2B22%

B2B2C12%

The revenue model is still a

work in progress for the

largest number

20

As a result, transactional fees are the most prevalent

revenue model

Transaction Fee30%

Service Fee10%

Subscription-based

8%Licensing

7%

Other6%

Not readily available

39%

21 21

People in the region are tech-savvy but prefer cash over

digital payments

Source: WEF’s 2019 Global Competitiveness Report Source: World Bank’s Global Financial Development Report

66%

14%

46%

29%

GCC Non-GCC World

Adults using electronic payments (age 15+)

Some countries (e.g. Saudi Arabia, Egypt, Jordan…) are pushing for

digitization, by making cashless transactions mandatory (e.g. only

accepting electronic payments in some public sector institutions)

4.98

4.264.22

3.80

4.00

4.20

4.40

4.60

4.80

5.00

5.20

GCC Non-GCC World

Digital skills among active population(1 = not all; 7 = to a great extent)

Arab World Average

4.57

22 22

People in the region also tend to prefer informal to formal

financial services

0

5

10

15

20

25

30

0%

10%

20%

30%

40%

50%

60%

70%

So

ma

lia

Ira

q

Lib

ya

Su

da

n

Mo

rocco

Alg

eri

a

Eg

yp

t, A

rab

Re

p.

Ma

uri

tan

ia

Pa

lestin

e

Tu

nis

ia

Sa

ud

i A

rab

ia

Ba

hra

in

UA

E

Jord

an

Ku

wait

Leb

an

on

Borrowed any money (demand) Borrowed from a financial instltution (supply) Demand/Supply (x times)

People in the region are 8-10x more likely to borrow informally than formally 23+ million people in the region are participating in savings associations

Source: Findex, 2017 (Somalia, Sudan, and Yemen, 2014).

0

1

2

3

4

5

6

0%

10%

20%

30%

40%

50%

60%

70%

Su

da

n

Eg

yp

t

Ma

uri

tan

ia

Pa

lestin

e

Jord

an

Alg

eri

a

Mo

rocco

Leb

an

on

Tu

nis

ia

Lib

ya

Sa

ud

i A

rab

ia

UA

E

Ba

hra

in

Ku

wait

Saved any money in the past year (% age 15+)

Saved at a financial institution (% age 15+)

Saved using a savings club or a person outside the family (% age 15+)

Demand/Supply (x times)

This has led to the development of solutions that improve

cash-on-delivery experience in e-commerce, but COVID-19

might be shifting preferences

23

44%

57%

85%

62%

UAE KSA Egypt MENA

2018: Consumers prefer Cash-On-Delivery (COD)

Source: Bain & Company and Google, E-commerce in MENA: Opportunity Beyond the Hype, 2018

2020: Digital gains in importance over COD

Source: Checkout.com, Connected Payments, Seizing Opportunity in MENA and Pakistan October 2020

More effort is needed to increase people’s trust in the security

of digital payments for e-commerce, except among youth

24

Source: Wamda, PayFort, 2016 Source: Checkout.com, Connected Payments, Seizing Opportunity in MENA and Pakistan October 2020

Security concerns are a key reason for the

banked population’s preference for cash-on-

delivery for e-commerce.

Youth do not share the same preference for

cash-on-delivery. They have been rapidly

adopting digital payments.

Fintechs

and Financial Inclusion

IV

26 26

Findings for financially inclusive fintechs are similar to

fintechs overall, except their payments solutions are twice as

likely to offer a store-of-value

400fintech solutions

identified Payments and Remittances

57%

Financing10%

Back- and Middle-office solutions

9%

Regtech & Compliance

5%

Savings and Personal Finance

Management5%

Banking5%

Other9%

Note: Currently active fintechs with available information

46%or 183 with a

financial inclusion mandate

Smartphone and internet access requirements for inclusive

fintech solutions could be a barrier for some low-income

users

27

65% of adults in the Arab world have a mobile phone subscription, and only 66% of them have smartphones. However, GSMA expects 74% of all connections in the region to be initiated from smartphones by 2025.

86%

7%

5%

2%

Smartphone, Internet No Requirements Basic phone Unknown

Note: Based on 149 out of 183 financially inclusive fintechs targeting individuals

Technology requirements of fintech solutions

In 2019, per the GSMA:• 43% of the population in the region was

connected to mobile internet• An additional 47% lived within the

footprint of a mobile broadband network but was not using mobile internet

• Only 9% lived outside the footprint of a mobile broadband network (3G or above)

20% of the 400 fintechs support SMEs, with a focus on UAE (31%), Saudi Arabia (21%), and Egypt (20%)

28

SMEs are one of the clear target markets

Fintech SolutionSME Challenge

Manual business

processes & financial

management

Access to funds (due to high

costs, credit history, and collateral)

Other 11%

27%

28%

34%

Business management & digitization of

processes (back- and middle-office

solutions)

Financing: direct financing and indirect

financing (such as credit scoring, risk

analysis, and investor linkages)

Payment solutions and sales/inventory

analysis

E-marketplaces, InsurTech, eKYC

Sources: Enhancing the Role of SMEs in the Arab World, Some Key Considerations, IMF, 2019; Banking on SMEs, Trends and Challenges, IFC, 2019;

Customer Management in SME Banking, IFC, 2012

Operations and growth

opportunities (especially during

the COVID-19 pandemic)

29

Gender-focused solutions are hard to come by in the region

with the world’s largest gender gap

Only 9 solutions

specifically catered

to women

Women

35%

20%

14%

12%

7%

5%

2% 3%

2%

No Specific Target

MSMEs

Financial Institutions

Large Enterprises

Other market segment

Low-income

Youth

Refugees/migrants

Women

V

Conclusion

31

We computed the revenue potential of additional financial

inclusion, assuming 50% of the untapped market is

reached for individuals & MSMEs by 2024 in the

six countries of focus

getting penetration in Egypt, Jordan, Lebanon, Morocco, Tunisia and UAE to levels similar to

Uganda, South Africa, Ghana, Bolivia, Ukraine

We found a revenue potential of

~US$ 7 billion

This does not include the spillover effect, such as jobs created within

both the financial sector and the MSMEs

For detailed information about our methodology in computing revenue potential, see Appendix E (Slides 88 - 89) of “Fintech

Landscaping in the Arab World” (2020) in CGAP Background Documents

• More access to financial services means several US$ billion of additional potential revenue

• This requires US$ ~200-500 million in investment

o There remain important funding gaps at angel and post-Series A

• Quality of education / talent / employability also needs to improve

• People in the region are young and tech-savvy

• If home-grown solutions do not emerge, large international companies might reap the digitization benefits

• More enabling regulations, including pathways to innovations and cross-border collaboration, will be key

32

Selected Inclusive FintechsExamples of solutions bolstering financial inclusion in the Arab world

Annex

Fast-tracked by COVID-19, digital ID & e-KYC solutions aim at

digitizing client onboarding and identification processes, ensuring

adequate customer due diligence and proper authentication

34

Valify, Egypt, 2018

Valify is an Egyptian digital identity solution which formed part of the

Central Bank of Egypt’s regulatory sandbox on e-KYC. Their solution

allows digital onboarding in a three-step solution of information

extraction, facial recognition and authentication.

Kaoun, Tunisia, 2017

Kaoun provides an e-KYC offering to partner banks to facilitate remote

onboarding. This process is tailored to each partner individually, and

involves digitized identification, verification and later authentication.

Leveraging the popularity of ROSCAs, some fintech solutions are

digitizing informal savings and providing alternative credit analytics

35

Moneyfellows, Egypt, 2014

Moneyfellows is a digitized ROSCA solution in Egypt that builds users’

credit scores and is integrated into the payments ecosystem. It allows

users to access their ROSCAs at any time and for them to join multiple

circles.

CIWA, Morocco, 2018

CIWA is a digital platform to securely manage ROSCAs and build a credit

score. In addition to the services they provide to individuals, CIWA also

provides a ‘Pro’ offering to employers, allowing them to better understand

their employees’ needs and financial habits.

Insurtech solutions offer a digitized mode of providing access to life

and non-life insurance products and services

36

Democrance, UAE, 2015

Democrance enables insurers to access new market segments. It

provides technology to digitize and automate the entire value chain of

insurance sales from marketing to claims processing.

Ahmini, Tunisia, 2019

Ahmini is an insurtech solution that links women to the national social

security system and allows them to break up their premiums into very

small instalments leveraging airtime.

Going beyond remittances, fintech solutions are providing access to

a digital means of payments and store of value for migrant workers

and their families

37

NOW Money, UAE, 2015

Now Money offers an online account to track spending for low-income

workers in the Gulf. It also offers international remittances and exchange

services, alongside a debit card. It works with companies to provide digital

payroll and accounts solutions for companies and their low-income

employees.

Rise, UAE, 2017

Rise works with regulated financial institutions to offer migrant workers

access a range of financial products, including an online account, insurance

and savings. It also offers a cross-border buy-now-pay-later solution which

allows migrant workers in the Gulf to purchase various products which may

be delivered to the customers’ friends and family members abroad.

38

Payments aggregators act as a connector between payment

providers to collect payments on behalf of multiple entities/merchants

that want to send or receive money to/from end-customers

Fawry Pay, Egypt, 2008

Fawry Pay, which launched its IPO in 2019, provides an electronics payments

network that allows unbanked individuals and businesses to connect with the

payments ecosystem for bill payments, airtime top-ups and many other

services. It has also developed a women-centric offering called Heya Fawry to

train women as Fawry agents who can act as points of sales. Each agent who

is trained also receives complimentary micro-insurance coverage.

Thank you

شكرا ًMerci

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