A Guide To Understanding The MENA Payments Landscape
Exploring the MENA Region: A Gateway to Global Expansion for Payments Companies
In this newsletter, I will share why the Middle East and North Africa (MENA) region is emerging as a key market region in the global payments landscape and what elements make it crucial for a payments company to be active there.
In the fiercely competitive global payments landscape, finding new growth territories after solidifying your foothold in familiar markets is essential for those aiming to rise to unicorn status. The MENA region, with its unique blend of rapid digital transformation and strategic market positioning, offers fertile ground for such expansion.
Understanding the trajectory of the MENA payments industry can inform your decision on whether this region could be your next big move or an ideal site for pioneering efforts in untapped markets. While most traditional payment companies tend to focus on well-established markets, recycling the same solutions for existing businesses, we are seeing that this has been leading to saturation and limited growth potential.
However, companies willing to venture beyond conventional boundaries frequently uncover vast, untapped "Blue Ocean" markets.
Convincing your team to take a leap into a rapidly growing but fairly unknown area like MENA may be challenging, but with significant advancements and successes already notable in the region, it is not just a promise that this is the next frontier for robust growth and innovation, but rather a given.
As legacy systems continue to become obsolete, those who approach the MENA area with a flexible and innovative approach stand to not only succeed locally but potentially also dominate across broader horizons into Africa or SouthEast Asia.
“Whatever You Might Think of Dubai, the UAE or Saudi Arabia, It Is Time To Reevaluate”
The payments landscape in the MENA region is undergoing a transformative boom, propelled by several critical developments that are converging to create unprecedented opportunities:
Exceptional Digital Connectivity: The MENA region boasts some of the highest mobile penetration rates in the world, with a significant surge in internet usage facilitated by advanced network infrastructure. This digital expansion is crucial for fintech innovations and the adoption of mobile payment solutions.
Demographic Advantage: The region has a predominantly young and digitally literate population that is readily adopting new technology. This demographic shift drives demand for more innovative, convenient, and accessible financial services.
Proactive Regulatory Frameworks: Governments across the MENA area are actively enhancing their financial landscapes to support fintech growth. Initiatives include the establishment of fintech hubs, regulatory sandboxes, and digital-only banking licenses, which collectively foster a conducive environment for payment innovations.
These factors are shaping the MENA region into a fertile ground for both domestic and international payments companies looking to capitalize on this opportunity, and or expand beyond saturated markets.
Let me explain...
Why the MENA Region?
The MENA region represents a unique intersection of rapid technological adoption, progressive regulatory frameworks, and strategic geographic positioning, making it an ideal hub for businesses looking to penetrate the area, as well as a launching path to the African and Southeast Asian markets.
[Disclaimer: While I may refer to MENA as a region, I have chosen to focus on the countries that make up the GCC to ensure the scope of my research wouldn’t expand too much. This is by no means that I don’t believe the other countries are important.]
The MENA Region is Strategically Positioned and Still Has Huge Economic Growth Potential
Strategically located at a crossroads between East and West, the UAE and Saudi Arabia offer access to expansive markets across Africa and Asia. Their robust economic environments complement this geographical advantage. The UAE’s GDP growth reached 3.8% in 2022, with projections remaining strong, driven by non-oil sectors, including fintech and digital services. Similarly, Saudi Arabia’s Vision 2030 has catalyzed economic diversification, attracting foreign investment with its dynamic market reforms.
Local Governments Are Incentivizing Innovation and Rapidly Changing Their Regulations
Both the UAE and Saudi Arabia have implemented forward-thinking policies that enhance their attractiveness to international businesses. The UAE’s introduction of special economic zones, offering benefits like tax incentives and business support services, along with Saudi Arabia’s significant reforms under its National Transformation Program, create a conducive environment for business expansion.
The Region Has Completely Transformed to Adopt New Technologies and Digitization
The rapid adoption of digital technologies in both countries is noteworthy. In the UAE, digital transactions are set to grow by 30% annually, reflecting a shift towards a cashless society. Saudi Arabia, too, has seen a surge in mobile connectivity, with over 70% internet penetration, which facilitates a wide adoption of digital payment platforms.
The Attractiveness of MENA for International Merchants
Money Goes Where Money Flows
The increasing inflows of venture capital, especially in fintech, highlight investors' confidence in the MENA region. In 2023 alone, fintech investments in the UAE surpassed $400 million, underscoring the region's growing prominence as a tech hub. This trend is supported by regulatory advancements such as open banking in Bahrain and Saudi Arabia, which encourage innovation and competition among financial service providers.
For merchants, this translates to a vibrant ecosystem where innovative payment solutions are not just welcomed but rapidly adopted. The proliferation of digital payment methods, including mobile wallets and contactless payments, is driven by a tech-savvy population and supportive government policies aimed at reducing cash dependency.
Expansion Gateway to Africa and Southeast Asia
Leveraging the strategic locations of the UAE and Saudi Arabia, international merchants can tap into the local consumer base and use these countries as launchpads for further expansion into neighboring regions. The UAE and Saudi Arabia offer connectivity to major African and Asian markets through established trade routes and robust digital infrastructures, providing a streamlined pathway for scaling operations across continents.
Additionally, the region's emphasis on cross-border payment solutions and financial inclusion further enhances its attractiveness. Initiatives to facilitate seamless cross-border transactions, driven by a significant expatriate population, are crucial for merchants looking to expand their reach beyond MENA. As digital literacy and smartphone penetration continue to rise, the adoption of digital payments is expected to grow, offering merchants a fertile ground for innovation and growth.
What Are The Challenges To Consider When Expanding To MENA?
When considering the expansion of payment systems into the MENA region, it is essential to understand the varying regulatory landscapes and adoption trends across different countries.
UAE is one of the most advanced in terms of payment technology adoption, with a high penetration of contactless and mobile payments. The regulatory environment is supportive, with a clear framework for digital banking and payment services. However, while many payments companies have already expanded to the UAE, most of them still have to collaborate with the legacy players, as getting a license to operate has several levels, of which the highest are only granted to well established firms.
Saudi Arabia has witnessed significant growth in digital payments, partly due to regulatory initiatives such as the launch of open banking in 2022. The country’s telecom giant STC Pay capitalized on its existing customer base to scale rapidly, and its partnership with Western Union has been pivotal in digitizing remittances. Additionally, the national payment network Mada has enhanced its infrastructure with contactless payment capabilities and integrated global digital wallets, facilitating a significant shift towards cashless transactions in Saudi Arabia.
Despite popular belief, foreign companies can set up a payments company in Saudi Arabia, provided they obtain the necessary licenses from the Ministry of Investment of Saudi Arabia (MISA) and comply with relevant regulations, though it can be challenging due to stringent regulatory requirements; however, companies like BayanPay and Loop have successfully navigated this process, reflecting Saudi Arabia's efforts to attract foreign fintech as part of its Vision 2030 initiative
In Bahrain, open banking regulations were introduced in 2018, aiming to promote data sharing among financial institutions to foster innovation. Bahrain's regulator has been proactive in supporting fintech through a regulatory sandbox that allows companies to test new ideas under a controlled environment. However, the most popular payment method is the local card scheme known as Benefit, which dominates both online and in-store transactions. Benefit has also introduced a digital wallet solution called BenefitPay, further enhancing its convenience and usage among consumers.
Oman is enhancing its digital payment ecosystem by focusing on infrastructure improvements and regulatory support. The country has been working on initiatives to increase the adoption of mobile payments and reduce reliance on cash, especially driven by the government-owned debit scheme OmanNet.
Qatar is progressing towards a cashless society, driven by the government's push for digital payments. The country's regulatory framework supports fintech innovation, which includes initiatives to streamline the use of e-wallets and mobile payments. Similar to other countries in the region, Qatar has its own local payment platform called QPAY.
Kuwait is also advancing in digital payment adoption, driven by the widespread use of the local payment scheme KNET, which facilitates both online and in-store transactions. The Kuwaiti government supports fintech innovation through various regulatory measures and infrastructure improvements, encouraging the adoption of mobile and contactless payments.
Across the region, the adoption of account-to-account (A2A) payments and NFC-enabled contactless payments is increasing, driven by convenience and security, but also due to the history of cash and its adoption to banking.
While payments with Credit cards are available via existing international schemes such as MasterCard and Visa, few issuers offer credit-based solutions domestically. This has given BNPL providers, such as Tamara and Tabby, room to grow quickly, especially focusing on a younger, technical, and fashion-focused demographic.
The growth of e-commerce also pushes the demand for fast and secure checkout processes. Open banking and fintech innovations are gaining traction, facilitating financial inclusion and offering more flexible payment solutions.
Overall, while there is a strong push toward digitalization, regulatory environments differ significantly, and tailored strategies are necessary to navigate each country's unique landscapes.
Should Your Payments Company Expand To MENA?
Expanding your payments company to the MENA region can be a strategic move with substantial rewards, provided certain conditions are met. The region's rapid digital transformation, supportive regulatory frameworks, and strategic positioning as a gateway to African and Southeast Asian markets make it an attractive destination.
Companies that are flexible, innovative, and prepared to navigate varying regulatory landscapes will find ample opportunities for growth.
Key to success will be understanding local payment preferences, securing necessary licenses, and leveraging the region's technological advancements and young, tech-savvy population. With the right approach, your company could thrive in the dynamic MENA payments landscape, positioning itself as a leader in both local and international markets.
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