Fintech and payments companies in the Gulf Cooperation Council (GCC) raised an aggregate $129.7 million in 2024, a 77 per cent decline from $572.6 million a year earlier, data from S&P Global market Intelligence showed. The number of funding rounds fell to its lowest level since 2020 with only 20 transactions.
“Rising interest rates and tighter liquidity have led investors to exercise increased caution, particularly concerning riskier asset classes like startups,” Shane Shin, a founding partner at Shorooq Partners, was quoted as saying. This global trend prompted venture capitalists to take a more selective approach toward emerging markets, he said.
However, as global macroeconomic conditions stabilise in 2025, investor confidence is set to rebound, particularly in fintech startups with strong unit economics and scalability, Shin added.
Another factor in the slump in GCC fintech investments in 2024 is the rapid growth of the sector in recent years, which resulted in heightened competition and, in some cases, inflated valuations, Shin said.“In 2024, there's been a shift towards emphasising sustainable business models and profitability over aggressive growth.”
Geopolitical uncertainty was also a driver in the decline, according to a report from Acuity Knowledge Partners.
These risk factors led to the shortage of large deals and the strain on completions of late-stage deals in the region, further driving the decline in investments in the sector, Ambarish Srivastava, associate director of private markets at Acuity Knowledge Partners, has said.“While deal volume suggests an optimistic outlook, it's the absence of mega-size deals that is dragging the funding down,” Srivastava said.
Last year, only four companies received double-digit million-dollar investments, led by Bahrain-based Arab Financial Services Co. BSC, which secured a capital injection of $50 million in October.
Dubai-based Ziina FZ-LLC raised $22 million in a series A funding round led by new investor Altos Ventures Management Inc, and Saudi Arabia's Moyasar Financial Co. obtained $21 million in a round of funding led by a new investor, Jahez International Co. for Information Systems Technology. The UAE's TON Foundation raised a total of $18 million from two separate funding rounds last year.
Foreign investors took part in only eight funding rounds for GCC fintech companies in 2024 that raised a total of $40.8 million. That compares to 14 funding rounds with foreign investors in 2023 that netted $446.1 million.
Drivers for a 2025 rebound
Demand for innovative financial services is expected to persist thanks to a digitally savvy population in the region, Shorooq Partners' Shin said. This will be supported by government initiatives such as Saudi Arabia's Vision 2030, which aims to drive non-cash transactions to 70 per cent by year-end from 36 per cent recorded in 2019. Additionally, Dubai aims to make 90 per cent of its transactions cashless across the government and private sectors.
Regulatory frameworks in the region are also evolving to better support new branches of fintech, such as virtual assets and open banking, while also ensuring consumer protection, Shin added.
Among some of the developments in fintech regulation last year were the establishment of a new regulatory framework for digital banks and digital assets such as tokens in Qatar and an open finance framework in the UAE, the release of a second open banking framework by the Saudi Central Bank, and most recently, the Central Bank of Oman's approval of the regulatory framework for open banking.
These new rules may pose short-term challenges to smaller fintech firms but would enhance their resilience and competitiveness in the long run, according to Shin.“The GCC fintech sector is undergoing a period of recalibration, with a focus on sustainable growth and regulatory alignment. Companies that adapt to these changes and demonstrate robust business models are likely to thrive in the evolving ecosystem,” Shin said.
Cryptocurrency scenario
Digital assets are thriving in the Gulf due to its ties with blockchain technology, which aligns with Islamic finance principles, Moody's said in a report. However, some countries are still on the fence about unbacked cryptocurrencies and whether they are compatible with sharia principles and suitable for adoption into Islamic finance, according to the report.
The UAE and Bahrain allow cryptocurrency and digital asset trading while Oman and Saudi Arabia restrict banks from trading these assets, according to a report from Manmore Mena Intelligence. Meanwhile, Kuwait and Qatar take a stricter approach to cryptocurrencies due to their inherent risks, with Qatar only permitting tokenised securities trading under specific conditions.
The UAE has the largest number of fintech and payments companies with 184 firms, followed by Saudi Arabia with 34, according to Market Intelligence data as of December 18, 2024.