Investments in Gulf fintech firms are likely to recover in 2025, as a strong global economic forecast for the year revives investor interest in the sector, according to a report released on Wednesday. Fintech and payments companies in the Gulf Cooperation Council (GCC) raised a total of $129.7 million in 2024, down 77% from $572.6 million the previous year, according to S&P Global Market Intelligence. The number of investment rounds has dropped to its lowest level since 2020, with only 20 deals. Rising interest rates and tighter liquidity have caused investors to be more cautious, particularly with riskier asset classes such as startups,” Shane Shin, a founding partner at Shorooq Partners, was reported as saying. According to him, this global trend has driven venture capitalists to be more selective in their investments in emerging areas.
Factors Behind the Decline in GCC Fintech Investments in 2024
The rapid growth of the fintech sector in recent years led to intensified competition and, in some cases, inflated valuations, according to Shorooq Partners’ Shin. “In 2024, there’s been a shift towards emphasising sustainable business models and profitability over aggressive growth,” Shin said.
Geopolitical uncertainty also contributed to the decline, as highlighted in a report by Acuity Knowledge Partners. These risks resulted in fewer large deals and delays in completing late-stage funding rounds, further dampening regional investments.
Ambarish Srivastava, associate director of private markets at Acuity Knowledge Partners, noted, “While deal volume suggests an optimistic outlook, it’s the absence of mega-size deals that is dragging the funding down.”
In 2024, only four companies in the GCC secured double-digit million-dollar investments:
- Bahrain-based Arab Financial Services Co. BSC raised $50 million in October.
- Dubai-based Ziina FZ-LLC secured $22 million in a Series A round led by Altos Ventures Management Inc.
- Saudi Arabia’s Moyasar Financial Co. raised $21 million in a funding round led by Jahez International Co. for Information Systems Technology.
- The UAE’s TON Foundation garnered $18 million through two separate funding rounds
Potential Drivers for a 2025 Rebound
Shin, despite the challenges, demand for innovative financial services remains strong, fueled by the region’s digitally savvy population. This is further supported by government initiatives such as:
- Saudi Arabia’s Vision 2030 aims to increase non-cash transactions to 70% by year-end, up from 36% in 2019.
- Dubai’s cashless goal is targeting 90% cashless transactions across government and private sectors.
Evolving regulatory frameworks also play a pivotal role. In 2024, notable developments included:
- Qatar is introducing new rules for digital banks and digital assets.
- The UAE is launching an open finance framework.
- The Saudi Central Bank releasing its second open banking framework.
- The Central Bank of Oman approves open banking regulations.
Cryptocurrency Growth and Challenges
Digital assets continue to thrive in the Gulf, partly due to their compatibility with blockchain technology and Islamic finance principles, according to Moody’s. However, opinions remain divided over the adoption of unbacked cryptocurrencies in Islamic finance due to sharia compliance concerns.
The regulatory landscape for cryptocurrencies in the GCC varies:
- The UAE and Bahrain allow cryptocurrency and digital asset trading.
- Oman and Saudi Arabia restrict banks from trading these assets.
- Kuwait and Qatar enforce stricter controls, with Qatar permitting tokenized securities trading only under specific conditions.
