RIYADH: Fintech firms across the region secured more funding in the first half of 2024 than they managed in the entirety of 2020 as the sector’s investment appeal grows, according to new data.
MAGNiTT, the leading venture capital data platform for emerging markets, reported that firms in the industry raised $186 million across 50 deals in the six months to the end of June, marking a significant milestone for the sector.
This is up from the $170 million secured across the Middle East and North Africa region in 2020.
The report, released ahead of the 24 Fintech Summit 2024 this week in Riyadh, highlights a nearly flat 3 percent year-on-year decrease in non-mega funding and a 2 percent decline in deal activity.
Despite these slight declines, the fintech sector remained a dominant force in the MENA region, accounting for 24 percent of all venture investments during the period.
The analysis also revealed that the industry experienced approximately 650 percent growth in regional funding between 2020 and 2023.
Evolution of fintech
Funding throughout the last four years grew from $170 million in 2020 to $623 million in 2021, $990 million in 2022, and $1.27 billion in 2023. These deals were spread across 79, 127, 146, and 111 transactions, respectively.
In the second half of last year alone, funding reached $850 million thanks to Saudi Arabia’s Tabby and Tamara buy now, pay later services, which collectively garnered over $500 million.
In the first half of this year, fintech experienced a 59 percent year-on-year decline in total funding compared to the same period in 2023, largely due to the absence of mega deals.
However, excluding the impact of these large transactions, the sector saw a modest 3 percent year-on-year decline in non-mega funding and a 2 percent decline in the number of deals, indicating continued interest in early-stage startups.
On a quarterly basis, funding saw a 66 percent increase in the second quarter of this year to reach $116 million, up from $70 million in the previous period.
The UAE captured the largest share of fintech funding in the first half of the year, securing 39 percent of the total, an increase from 25 percent in the same period in 2023.
Although the UAE experienced a 36 percent year-on-year decrease in its overall funding levels, the country led the region’s fintech landscape, driven by a 15 percent rise in the number of deals, particularly in seed and series A funding rounds.
Saudi Arabia also emerged as a significant player in the MENA fintech sector, showing a remarkable 391 percent year-on-year increase in funding in the first half of 2024.
This growth was propelled by three of the top five deals in the region, involving companies such as Moyasar, Abyan Capital, and SiFi, which together accounted for 74 percent of Saudi Arabia’s total sectoral funding.
The Kingdom saw $66 million in total funding during the first half of the year, up from just $13 million last year.
In terms of deal count, the nation saw a slowdown of 27 percent to close the first half at 11 transactions.
Philip Bahoshy, CEO of MAGNiTT, said: “2024 is a year of shifting investor patterns across the Middle East, Africa, and Southeast Asia, yet one trend remains clear: fintech continues to lead in these emerging venture markets mimicking investor appetite at a global level.”
He added: “Over the past five years, we’ve seen a consistent rise in fintech, and even amidst a global slowdown in venture investment over the last two years, interest in the sector has remained strong.”
Bahoshy highlighted the importance of events like Abu Dhabi Global Market’s FinTech Week, Dubai International Financial Center’s FinTech Summit, and Saudi Arabia’s inaugural 24 Fintech Summit in shaping policy and supporting company founders.
He emphasized the crucial role these gatherings play in strengthening the ecosystem and showcasing the industry’s potential in the region.
Valuation and deal size trends
Reflecting regional trends, the $0 to $1 million and over $20 million MENA fintech rounds in the first half of the year dropped by 30 percentage points and 10 percentage points, respectively, compared to the same period last year.
In contrast, mid-sized rounds ranging from $1 million to $5 million and $5 million to $20 million, increased by 23 percentage points and 17 percentage points, respectively.
This shift indicates a cautious approach among investors, who are favoring more stable mid-range investments.
In 2020, backers were pouring money into a much smaller deal size, with rounds ranging from $0 to $1 million, garnering 67 percent share and just 20 percent going to $1 million to $5 million.
In the first half of 2024, MENA fintech seed valuations experienced a 4 percent rise in the mean and a 70 percent surge in the median, narrowing the gap between them by $6.6 million compared to 2023.
The upward trend in seed valuations mirrors similar increases in Southeast Asia and Africa, where both mean and median valuations rose at an even higher rate than in MENA.
In contrast to seed valuations, series A calculations in the MENA region saw a 14 percent drop in the mean and a 13 percent decline in the median during the same period, further reducing the gap between them to $2.3 million.
This trend diverges from Southeast Asia, where series A valuations increased, but aligns with patterns observed in Africa.
A sectoral comparison
Fintech was the second most funded sector in the MENA region in the first half of this year, coming after e-commerce, mainly due to Saudi-based platform Salla’s $130 mega agreement.
When looking at the deal count, fintech led the way with 50 transactions, nearly twice as many as those in the e-commerce sector.
Investor analysis
The sector saw a 31 percent year-on-year increase in unique investors in the first half of the year, with a significant 93 percent surge in international investors to reach 54, up from 30 last year.
In 2020, the sector saw 26 percent participation from international investors and 74 percent from MENA-based backers across 93 deals.
Investors from the US, Singapore, Hong Kong, and the UK made up 67 percent of all international backers, underscoring the global interest in MENA’s fintech market.
Among these, 500 Global emerged as the most active investor in MENA fintech startups, reflecting their commitment to fostering innovation and growth in the region.
Eight of the top 10 investors by deal count in the region were local, compared to five in Africa and six in Southeast Asia, highlighting the crucial role of regional investors in supporting MENA’s ecosystem.
Local investors are also dominated by estimated capital deployed in the first half of the year, with eight of the top 10 being local, up from five in the same period in 2023.
Of these, six are based in Saudi Arabia, doubling from the first half of last year, underscoring the Kingdom’s growing regional influence.
Meanwhile, US-based investors dropped from three in the first half of 2023 to just one in the first half of this year.
Sub-sector breakdown
Within the fintech sector, Payment Solutions remained the leading area for funding, accounting for 44 percent of total sectoral financing in the first half of 2024.
This performance was bolstered by four of the top 10 deals during the period. Additionally, Financial Research and Consultancy made notable progress, climbing seven spots to rank third, driven by Saudi Arabia’s Abyan Capital’s $18 million deal.
