Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
AfricaMarch 1 2021

Fintechs drawn to underdeveloped Middle East and Africa markets

The underdeveloped banking markets of Africa and the Middle East offer plenty of scope for digital and mobile expansion, attracting the interest of remittance giants Western Union and WorldRemit. 
Share the article
twitter-iconcopy-link-iconprint-icon
share-icon
Fintechs drawn to underdeveloped Middle East and Africa markets

Africa and the Middle East are the world’s least developed markets when it comes to retail banking services and financial inclusion. While mobile money services have had a dramatic impact in many African countries, sub-Saharan Africa as a whole remains underserved, with just 43% of adults over the age of 15 holding a bank account in 2017, according to the World Bank’s Global Findex Database.

The picture remains broadly true for the Middle East as well. Overall account ownership in 2017 stood at just 48% of adults across the region, according to the World Bank, despite high levels of account ownership in affluent countries such as the United Arab Emirates (UAE), Israel and Saudi Arabia.

Co-operation to drive change

The picture across both regions is beginning to change, with financial and telecoms regulators working together to promote the growth of digital finance, building on high levels of mobile and smartphone penetration in even the lowest income countries.

The technology sector has been one of the bright spots for deals [in MENA] amid the Covid-19 pandemic

Siddesh Mayenkar, Mergermarket

This new operating environment has created significant opportunities for a new generation of homegrown fintech start-ups in both regions looking to benefit from increased uptake in digital financial services. Mobile payment volumes in the Middle East and Africa are set to increase by 13.7% on a compound annual growth rate basis between 2019 and 2023, according to forecasts from Capgemini.

Such growth potential has not gone unnoticed outside each region. Fintech acquisitions have dominated markets and acquisitions activity within the technology sector in the Middle East and Africa, with others likely to follow suit in 2021 and beyond.

“The technology sector has been one of the bright spots for deals amid the Covid-19 pandemic and global lockdowns,” says Siddesh Mayenkar, head of Middle East and north Africa (MENA) coverage at Mergermarket. “Additional drivers are set to emerge from the freshly emerging relationship between the UAE and Israel following the Abraham Accords, on the back of which we expect to see several more inbound and outbound deals this year.”

paystack

Big purchase: Nigeria's Paystack was acquired by Stripe in 2020

Silicon Valley interest

Perhaps the most important African fintech acquisition of 2020 was the purchase of Nigerian payments firm Paystack by Silicon Valley payments giant Stripe in October. While the terms of the deal were not disclosed, the Financial Times reported that it was worth over $200m in cash and stock.

Founded in 2015, Paystack was the first Nigerian company to participate in Silicon Valley’s ‘Y Combinator’ accelerator programme, and processes over half of all online payments in Nigeria. Stripe, valued at $36bn in 2020, participated in Paystack’s $8m funding round in 2018, alongside other global payment giants Tencent and Visa.

“In absolute numbers, Africa may be smaller right now than other regions, but online commerce will grow about 30% every year,” Patrick Collison, Stripe’s co-founder and chief executive, said in an interview with TechCrunch. “We are thinking of what the world will look like in 2040-2050.”

East Africa was at the centre of one of 2020’s largest deals within the global remittance sector. Online remittance giant WorldRemit announced in August it was acquiring app-based remittance firm Sendwave in a cash and stock deal reported by Bloomberg to be worth over $500m. Sendwave was founded in the US in 2014 with an initial focus on East Africa, but has expanded its remit to other African markets, including Nigeria, Ghana and Senegal. A fellow participant in Y Combinator, the company has a user base exceeding 400,000.

On the opposite side of the region, UAE-based payments firm Network International announced the $288m acquisition of Kenyan fintech Direct Pay Online (DPO) group in July 2020. DPO provides payments services to nearly 50,000 merchants in 19 African markets. The deal (which has attracted controversy due to DPO’s alleged links with a former Wirecard executive) is part of Network International’s expansion into Africa, which it hopes will account for 40% of the London-listed company’s total revenue by 2024.

Also noteworthy within Kenya was a €12m deal struck by mobile operator Safaricom and its South Africa-based parent Vodacom to acquire the intellectual property rights for mobile money pioneer M-Pesa from the UK’s Vodafone. The move is designed to reduce royalty fees paid by both operators to Vodafone, and enable them to expand the service beyond its core East African footprint.

Saudi Arabia’s first unicorn

Another significant fintech deal in the MENA region came in November, when global remittance giant Western Union announced it was acquiring a 15% stake in Saudi Arabia’s STC Pay for $200m. The deal makes the mobile wallet provider Saudi Arabia’s first tech ‘unicorn’, valuing the company at $1.3bn.

Western Union’s investment in STC Pay reflects both the importance of Saudi Arabia in the global remittances sector, together with the rapid growth of digital payments in the country. Despite the country’s efforts to reduce its reliance on expat labour, non-Saudis still account for around 75% of the overall workforce. Expat remittances from Saudi Arabia grew by 19.3% in 2020 to SR149.7bn ($39.9bn), according to the Saudi Central Bank, SAMA.

With remittances as part of its product portfolio, STC Pay has witnessed an explosion of growth since its launch by local telco STC in 2018. The first mobile wallet provider to be formally licensed by SAMA, STC Pay had over 4.5 million users as of late-2020. The rise in users comes as Saudis have embraced digital payments during the coronavirus crisis, with local news outlet Arab News reporting a 75% increase in digital payment transactions during 2020.

National initiatives to digitise payments have also driven a surge in mobile transactions in Egypt, the MENA region’s most populous market. The number of Egyptian e-wallets in the country rose by 17% to 14.4 million between March and October 2020, with transaction volumes increasing by 156% to 9.9 million per month over the same period, according to the country’s National Telecom Regulatory Authority.

January 2020 saw private equity firm AfricInvest enter into a partnership with Egyptian payment solutions provider Masria Digital Payments (MDP). The deal, in which AfricInvest took a 40% stake in MDP, was intended to boost MDP’s presence within the payments value chain in the country.

Was this article helpful?

Thank you for your feedback!

Read more about:  Africa , Middle East
John Everington is the Middle East and Africa editor. Prior to joining The Banker, John was the deputy business editor of The National in the UAE, and has also worked for Dealreporter, Arab News and The Telegraph. He has also covered the telecom sector in Africa and the Middle East, living and working in Qatar and the UK. John has a BA in Arabic and History and an MA in Middle Eastern Studies from the School of Oriental and African Studies (SOAS) in London.
Read more articles from this author