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‘2025’ set to mark recovery in Gulf fintech investments

Investments in Gulf Fintech companies fell sharply in 2024 but are expected to recover in 2025, driven by a resilient global economic outlook that is set to revive investor sentiment toward the sector, Standard & Poor’s said.

The agency’s data revealed that financial technology and digital payments companies in the Gulf countries raised approximately $130 million in 2024, marking a significant 77% drop from the $572.6 million raised in 2023.

The data also highlighted that the number of financing rounds in the fintech sector in the region fell to its lowest level since 2020, with only 20 deals recorded last year.

Higher interest rates and tighter liquidity have made investors more cautious about investing in the sector, particularly in riskier asset classes like startups, said Shen Shen, co-founder of Shorooq Partners.

The global economic outlook last year prompted venture capitalists to take a more selective approach toward emerging markets. However, as global economic conditions stabilize in 2025, investor confidence in fintech startups with robust economics and scalability is expected to recover.

Increased Competition

Another factor contributing to the decline in fintech investments in the Gulf countries in 2024 was the rapid growth of the sector in previous years, which resulted in heightened competition and, in some cases, inflated valuations. This prompted a shift in focus toward sustainable business models during the year. Additionally, geopolitical uncertainty played a significant role in dampening investor confidence in the region’s fintech sector.

Ambarish Srivastava, Associate Director, Markets, Equity Partners, said that uncertainty has led to a lack of large-scale fintech deals in the GCC, with pressure to close deals at later stages, further reducing investment in the sector. While the volume of deals suggests a bullish outlook, the absence of mega-deals is actually contributing to the decline in funding in the sector.

Recovery Engines

Demand for innovative financial services is expected to continue to grow in the Gulf region, driven by a digitally savvy population, and the sector will be supported by government initiatives, most notably Saudi Vision 2030, which aims to increase non-cash transactions to 70% by the end of this year, compared to 36% in 2019,” said Shen.

Shen added that regulatory frameworks in the Gulf region are also evolving to better support new branches of technology, such as virtual assets and open banking, while also ensuring consumer protection.

Standard & Poor’s noted that among the key developments in fintech regulation over the past year were the establishment of new regulatory frameworks for digital banks and digital assets, particularly in Qatar, the UAE, Saudi Arabia, and Oman. While these frameworks may present short-term challenges for smaller fintech companies in the region, they are expected to enhance their resilience and competitiveness in the long term.

Shen concluded that the fintech sector in the Gulf countries is undergoing a period of reorganization, with a focus on sustainable growth and regulatory compliance. Companies that adapt to these changes and demonstrate strong business models are likely to thrive in the evolving operating environment.

Source: Al Qabas



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