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The Middle Eastern Digital Banking Landscape: A Fertile Ground for Fintech

Oleg Patsiansky Jan 11, 2023 8:25:00 AM

Following on from our introduction to the digital banking market in the Middle East, this article takes a closer look at the current landscape, and why it’s ready for a flourishing digital banking ecosystem.

Demand for digital banking solutions has been growing rapidly across the Middle East. Consumers are used to digital services, particularly since the COVID-19 pandemic. Not only are new players entering the market (with over 20 digital banks now operating in the Middle East since 2012), but banking incumbents are also exploring digital solutions to meet customer demand.

The digital landscape is thriving

The Middle Eastern market is more than receptive to new fintech solutions, partly because of low financial inclusion rates and high internet penetration in the region.

Different segments of the market face barriers to accessing financial services. Many women just don’t have access to the banking system, and smaller- to medium-sized businesses often struggle with banks that don’t see them as profitable customers.  

In terms of internet penetration, the Middle East ranks extremely highly. Thanks to this, consumers have quickly adopted digital services including mobile payment options. This is helped by the fact that most countries in the Gulf Cooperation Council (GCC) have their own innovations/initiatives supporting digital banking, including more flexible regulatory environments.

Opportunities for new arrivals to the market

Incumbent banks in the Middle East are starting to develop their own digital propositions, albeit slowly. This leaves plenty of room for fintech organisations to deliver their own solutions that meet the needs of the underserved market segments previously mentioned.

The main advantage for fintechs looking to penetrate the Middle Eastern market is technology. They’re more likely to have the automation and AI needed to deliver the services consumers need. It’s also likely to be less costly for them to implement and deliver digital services, compared to the incumbents that will have to set up a whole new presence.

The current digital banking landscape

There are three types of organisation currently offering digital banking services in the Middle East. The incumbent banks, seeing the potential threat from more flexible financial service providers, are boosting their existing digital strategies to launch digital greenfield banks.

The other two segments are neobanks, backed by technology and more agile than traditional banks, and non-financial institutions such as payment companies and investment companies.

As you can see, the Middle East already has strong digital foundations for the banking industry in the future. In a market that’s largely unbanked or underserved, a landscape that’s both supportive and competitive is fertile ground indeed.  

With the demand and foundation already there, what’s the next step for players looking to enter the Middle Eastern digital banking market?  Next time we’ll be sharing some of the key trends across the region, highlighting the growth potential there. 

To read more about the current situation and future potential you can download our new report, Digital Banking in The Middle East. Check out our digital banking platform, learn from neobank stories including Tymebank, Tonik, and contact our team should you want to know more.

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