Dear Fintech Friends,

I hope this note finds you well, and starting to unwind and recharge for next year. I couldn’t be more excited to share a special edition of This Week in Fintech from the UAE, where we just hosted our inaugural Abu Dhabi and Dubai Fintech Trek.

For this writeup, I’m partnering with the fantastic freelance journalist Sara Hemrajani, who has written for BBC News, Reuters and CNN, and with TWIF teammate Dennis Owusu-Sem, who helped us organize four great days of discussions.

If you’re interested in joining a future Trek, check out fintechtreks.com and let us know where we should trek next.

Enjoy,

Nik

Thank you to our generous partners and sponsors, including the MENA Fintech Association, M2P, the DIFC, Hub71, Visa, iOL Pay, Baraka, Ziina, Xare, and Nclude.

مرحبا أصدقائي

Our team was thrilled to experience the winter sun and “karam” (Arab hospitality) this December in an exciting and promising fintech hub.

I am speaking, of course, of Abu Dhabi and Dubai, which are quickly becoming a locus of financial innovation within the Arab world. The UAE is home to 22 of the 50 most well-funded startups in the MENA, with a history of successful exits such as Uber’s $3.1 billion acquisition of Careem or Swvl’s listing on the Nasdaq.

For four days, This Week in Fintech brought together prominent investors, regulators, banking executives and fintech entrepreneurs from across the Middle East and North Africa. It truly was a global gathering with attendees joining from the US, UK, Egypt, South Africa, Russia, Turkey, Saudi Arabic and, of course, the Emirates. Pro-tip: It’s good to have the QR code ready on your LinkedIn app for speedy connections!

(See all the best moments from the Trek in our photo album.)

Over the course of the summit, we delved into a range of topics, including the actions of sovereign wealth funds, how to manage regional growth and worries about the “crypto winter.”

Below are a few of the key takeaways from the action-packed trek.

🌍 Expanding beyond borders

An assumption made about fintechs in the Gulf is that scaling across borders is an easy step for them. Surely what works in Bahrain will transfer over to Kuwait or Oman, right? The answer is not really.

The consensus among the founders we spoke to is that trying to operate in a neighbouring market is already hard enough, so successful regional – let alone global – growth is far from guaranteed. Remember, the MENA countries are incredibly diverse, with different regulations, banking systems, tax codes, demographics, cultures and currencies.

Case in point: The UAE’s 9+ million residents are mostly foreign-born, and the labour force is dominated by expats and migrant workers. Whereas Egypt’s 104 million population is largely homegrown. This impacts how solutions are built, advertised and sold.

For many fintechs, the best option is evaluating whether the target market has an unmet need that they can address, and then assessing if their product can be replicated with minimal adjustments. In those situations, the simplest path to scaling regionally is a software-only concept with little localisation.

If scaling up is indeed feasible, a combination of stamina, talent and networking is vital to gain investor confidence, according to the founders on our panels. Since fintechs operate in an ecosystem, entrepreneurs should actively seek support and guidance from banking partners, engage with regulators and nurture local talent to champion the product.

Finding the right banking partner, however, is a major pain point because MENA lenders tend to collaborate for the “cool” factor as opposed to seeing fintechs as bottom-line boosters, said one consultant.

💰 Capital connections

Note to fintech entrepreneurs from a VC veteran: Raising capital should always be tough, it’s part of the process. Having said that, Gulf-based fintechs are pulling in more cash than ever thanks to support from governments in the region.

Capital is increasingly coming from sovereign wealth funds with the goal of strengthening the ecosystem, and to counter the trend of outside VCs parachuting in and exiting later. A “tremendous” number of seed investors, angel investors and accelerators can now be found in the Gulf. Notably, Saudi Arabia’s budget surplus is trickling down to seed money as well.

This development is motivating for founders but it can be problematic too. Firstly, the agenda of capital sources, i.e. what strings are attached, shouldn’t be ignored. Secondly, additional capital without commensurate expertise will inevitably lead to inefficiencies. Several VCs at the trek warned about the steep learning curve and shortage of quality advisers in the region. Thirdly, the abundance of early-stage venture money is inflating startup valuations in the hopes of securing a lucrative exit.

Another challenge is understanding the landscape beyond Series B. There remains the sense that those funds will still come from external sources, such as Sequoia Capital and Tiger Global. However, MENA isn’t always a top priority for international investors since the region is generally a tech importer rather than exporter. As a result, MENA is either an opportunistic play or sort of FOMO afterthought.

But perceptions are gradually evolving as the market begins to mature. Careem’s acquisition by Uber made positive waves, for instance. Our panellists advised entrepreneurs to question the purpose of their products, the sustainability of their business models, and to take a long-term view for similar deals to materialise.

As for which areas are on the Middle East VC radar, alternative financing/credit, BNPL, eKYC and insurance were popular picks for fintech disruption.

📈 Confidence in crypto

Conversations about cryptocurrencies were especially stimulating in the wake of FTX’s implosion and the arrest of Sam Bankman-Fried. Despite the scandal and market rout, stakeholders in the Gulf appear to be shrugging off concerns about the current “crypto winter”. Instead, they point to the severity of the 2018 crash (worse in comparison) and the volatility of tech stocks this year (just look at Amazon and Tesla’s share prices).

The GCC continues to greenlight crypto licences, innovation and education, while institutional clients are also entering the space. Of course, higher oil prices and disposable income levels have helped sustain momentum in the industry. Dubai, in particular, is emerging as an attractive location with an international talent pool and state-led initiatives to foster crypto exchanges.

Elsewhere in the region, though, demand for digital assets is being driven by “sh*tty banking”. In countries like Lebanon, where banks have imposed tight controls on withdrawals amid an economic crisis, younger consumers believe it’s better to hold USDC than US currency in their accounts. Lack of trust in what’s seen as a corrupt financial system will keep fuelling an appetite for stablecoins, our speakers explained.

Although headlines on risk and compliance issues could dent confidence, ultimately the ways in which money is earned, spent and moved are shifting to the digital realm. Assets will get tokenised, decentralised ledgers have huge potential, and a few bad actors shouldn’t distract from the power of blockchain technology.

🤔 Conclusion

The UAE is an incredibly rich tech ecosystem, where talent has grown significantly over the last few years since covid-19, driven largely by government initiatives such as the DIFC and Hub71, which provide funding, coworking spaces, and corporate connections.

However, there is still a lot of work to be done. The mark of a true innovation hub is whether it can become a net exporter of tech, not just a replicator of technology companies that exist elsewhere or a nexus for local technology builders. But fintech is moving quickly in the region! Just in the last week, Iraqi fintech Blue debuted a super app for the Middle East and Saudi Arabia’s sovereign wealth fund entered advanced talks to acquire Egypt’s United Bank for $600 million. I expect the UAE to become a fintech powerhouse over the next decade, serving not just the MENA, but Europe, Asia, and Africa.

Here’s to the future 🚀

See our Trek Overview below