MENA Companies Embrace Embedded Finance

In the Middle East and North Africa (MENA), embedded finance is picking up steam among telcos, tech startups and retailers.

These companies are rapidly embracing the concept to tap into new revenue streams and enhance customer experiences, a new report by Mingzulu, a Dubai-based management consulting company, says.

Embedded finance, a concept referring to the integration of financial services into non-financial platforms or products, has recorded remarkable growth in recent years, driven by various factors reshaping the financial services landscape including advancements in technology, the rise of open banking initiatives, and consumer demand for seamless experiences across all aspects of their lives.

A study conducted in 2023 by Dutch payment firm Adyen and the Boston Consulting Group found that demand for embedded financial products is increasing among small and medium-sized enterprises (SMEs), with 64% of the SMEs surveyed expressing interest in financial services integrated into a platform.

And yet, the SME embedded finance market is still nascent, with less than 5% of the SMEs polled sourcing financial services through platforms, and showing promising growth prospects. Estimates by Juniper Research predict that the global embedded finance sector will grow by 148% through 2028 and reach a value of US$228 billion.

Embedded finance in MENA

In MENA, the embedded finance market is currently worth US$10 billion, a valuation that’s projected to grow by 45% to 2030, the Mingzulu report says. This growth will be driven by the desire to capitalize on digital transformation, leverage fintech innovation, and gain a competitive edge in the market, it says.

Looking at the current state of the market, the report says that the MENA embedded finance market comprises a considerable number of regional and global players. These companies operate under various business models and offer different value propositions, with commerce and acceptance being the most crowded segment, followed by payout and cross-border payments, and payment-as-a-service (PaaS) and account-to-account (A2A) payments. Other specialties present include open banking enablers, business-to-business (B2B) financing enablers, and issuing-as-a-service (IaaS).

Notable players in the MENA embedded finance market include Tamara and Tabby, two buy now pay later (BNPL) unicorn startups from Saudi Arabia and the United Arab Emirates (UAE), respectively; Wio Bank, an integrated digital banking platform from the UAE; and Rasan, a Saudi Arabian provider of insurtech and banking solutions.

MENA embedded finance market map, Source: Embedded Finance 2024: MENA Market Map, Mingzulu and Findexable, Apr 2024

The report notes that the number of embedded finance integrations has risen significantly over the past years, with technology companies, retailers and telcos being the biggest adopters.

It highlights key partnerships inked in MENA, including the integration of BNPL arrangements from Tamara and Tabby into Ikea and Nike, the partnership between Saudi Arabian payment platform PayTabs and both FlapKap and SecurePay to offer business financing solutions and more payment options, as well as the collaboration between Uber and Axa to provide insurance plans for drivers and delivery partners in Saudi Arabia.

MENA embedded finance key partnerships, Source: Embedded Finance 2024: MENA Market Map, Mingzulu and Findexable, Apr 2024

Open banking push drives embedded finance adoption

In MENA, open banking initiatives are playing a significant role in driving the adoption of embedded finance by the providing the foundation for data access and seamless integration.

Open banking, which refers to the practice of banks and financial institutions opening up their data and infrastructure to third-party developers, is being pushed by governments all across the region to foster innovation and encourage competition in the financial services ecosystem.

A 2023 paper by AFS, Brankas and Whitesight, offers an overview of the MENA open banking landscape, highlighting Bahrain as an open banking pioneer in the region, and spotlighting progress in jurisdictions such as Saudi Arabia and the UAE.

Bahrain was the first jurisdiction in MENA to issue an open banking regulation back in 2018, mandating retail banks in the country to open access to their data. The country has also established the Open Banking Committee and launched the Bahrain Open Banking Framework to spearhead and ensure open banking implementation.

Open banking in Bahrain, Source: The Future of Financial Services and Trust in the MENA Region, Whitesight, AFS and Brankas, Oct 2023

Following Bahrain’s lead, other MENA jurisdictions introduced their own open banking initiatives. Saudi Arabia issued its Open Banking Policy in 2021, with the formal Open Banking Framework released in November 2022.

Open banking in Saudi Arabia, Source: The Future of Financial Services and Trust in the MENA Region, Whitesight, AFS and Brankas, Oct 2023

In the UAE, the central bank recently issued a comprehensive regulatory framework for Open Finance, demonstrating the country’s commitment to promoting innovation and enhancing competition in the financial sector. Last year, the Central Bank of the UAE launched the Financial Infrastructure Transformation Programme (FIT Programme) to accelerate the digital transformation of the financial sector. The program comprises nine key initiatives, including an instant payment platform, central bank digital currency, and open finance.