Fintech development in the Middle East is on the rise, with investment in the region’s digital finance ecosystem surging from nearly approximately £158 million to around £701 million from 2020 to 2022.
At Archie, a fintech accelerator founded to provide ‘intellectual capital’ to startups in the Middle East, U.K., and Australia, the goal is to help the growing number of startups in the region scale quickly in a market set up for growth. Paul Pester, the chairman of U.K. challenger bank Tandem Bank, non-executive director at the National Bank of Bahrain and one of the co-founders of Archie, thinks there are unprecedented opportunities as international demand increases for easy-to-access digital banking and finance.
“When I look at the Middle East, there is an underlying optimism and drive for the future, the way those economies are transforming themselves,” he says.
He pointed to Dubai and Bahrain, where he serves as an adviser to the country’s sovereign wealth fund, as examples of the shifting economic focus in the region.
“Seeing how Dubai is transforming itself from an oil economy into a knowledge economy is inspiring. Bahrain is doing the same thing. They’re transforming their economy from a hydrocarbon economy to a knowledge economy.”
Part of Archie’s mission, says Pester, is to combine the push for innovation and investment in digital technology in the Middle East with the fintech industry expertise of experienced founders and leaders with a track record of success in the U.K. and Australia.
“The combination of the fintech heritage in the U.K. and Australia, and the optimism and financial muscle that’s coming out of the Middle East, make a really great pairing,” he notes
Can Fintech Democratise Access to Finance in the Middle East?
The fintech ecosystem in the Middle East now spans the financial services that consumers in the U.K. have become accustomed to, ranging from mobile wallets and payment services to retail investment platforms and insurance technology, or insurtech.
Platforms such as Sarwa and Thndr aim to democratise access to investment and money management opportunities for the region’s young and underbanked populations. This is the same goal that fintech founders in the U.K. espouse.
Paul Pester, who founded the money-sharing app Loop in 2021, says that Generation Z and millennials, who are usually just starting to build savings, often have a hard time establishing credit or accessing the sorts of lending and investing opportunities available to older, more wealthy consumers. With fintech, generations that have grown up with one-click access to so many consumer services on a smartphone can have the same access to finance.
“I think technology can certainly be helpful in giving access to debt in a sensible, balanced, careful way to individuals who may otherwise struggle,” Pester says. “It’s much more difficult for young consumers to build credit in a world where pretty much all credit decisions are made using backward-looking data.”
He went on to explain that fintech apps can facilitate a more “personal understanding of the customer,” providing them with easier access to financial services and a means of establishing the data needed to build credit, even if that data is a series of small microloans among a group of friends and family members made through a money-sharing app.
This kind of user-oriented, democratic approach to digital finance has connected with consumers in the U.K., and it’s quickly gaining traction in the Middle East.
According to a recent McKinsey & Company report, investor backing of fintechs in the Middle East, North Africa, and Pakistan — or MENAP — region increased by approximately 36% annually from 2017 to 2022. The same report projected a near-triple increase of fintech revenue from 2022 to 2025, climbing from $1.5 billion to between $3.5 billion to $4.5 billion and elevating fintech’s contribution to overall financial services revenue in the region from under 1% to about 2% to 2.5%.
Archie’s ‘Intellectual Capital’ Model
Given the enthusiastic investment in fintechs in the Middle East and the boom in innovative startups already taking hold in the region, there’s a distinct opportunity to grow businesses to reach more users and increase access to the benefits of digital finance.
Archie’s goal is to leverage the intellectual capital of its team, which is composed of seasoned banking and fintech founders and leaders, to accelerate this growth.
The intellectual capital model differs from that of traditional venture capital firms. Archie adopts an equity-first approach in its collaborations, wherein it contributes expertise and connects companies with firsthand access to networks with a track record of fintech success in exchange for equity stakes in the fintech startups it supports.
This model is designed to ensure a deep alignment of interests and foster a partnership ethos, with Archie actively participating in the startups’ operational and strategic development.
Archie’s leadership, which — in addition to Paul Pester — includes fintech veterans Anthony Thomson and Steve Brennen, brings a wealth of experience from their tenures building and running companies like Atom Bank, Uber, and PayPal.
Unlike the venture capital model, which usually involves spreading money around to dozens of companies in the hope of hitting it big with one or two successes, Archie’s model involves an active focus on a smaller number of companies.
“We look at all those businesses that a traditional venture capitalist would look at but we say, ‘We think there are one or two or three or four winners in there, and we are going to put all of our effort into making those businesses successful,’” says Paul Pester.
“We sit on the boards, we put our people into the businesses, we invest our time and effort, our intellectual capital, in driving that business forward. And we know from experience this will generate a much higher likelihood of success than just giving a business money.”
Archie plans on complementing this hands-on approach with an international scale, even looking for opportunities for crossover success for the companies it backs in different regions.
“We have a team in Dubai, we have a team in Australia, we have a team in the U.K., and we are constantly looking for ideas and concepts with businesses that may be in one of those territories,” says Pester. “But it could be applied to all of those territories, whether that’s taking a business from the U.K. and looking at its potential across the Middle East and North Africa, or taking a business from the Middle East and North Africa and bringing it here to the U.K.
“We all know that businesses, even businesses with great ideas, often fail for lack of the right sort of support and experience and capability at the right time,” he continues. “With Archie, we’re bringing together some more experienced leaders together with some younger, enthusiastic people we can put into these businesses, and provide both the experience and the capability to help the businesses succeed.”
Read more:
Paul Pester Wants to Help Bring Fintech Innovation to the Middle East
