When Muhannad Ebwini launched payment gateway HyperPay in Jordan back in 2014, e-commerce accounted for just 1.5 per cent of total retail sales in the Middle East and North Africa (Mena) region. Back then, online shopping was dominated by a handful of players - namely Souq and Namshi - and consumers who were happy to browse and purchase goods online, preferred to pay for it offline, in cash. This cash on delivery (COD) model remains one of the biggest challenges for e-commerce and while less dominant today, it still maintains a strong grip on consumers, particularly in the less developed markets of the region. 

For Ebwini, this presents an opportunity for his payment gateway services and the wider financial technology (fintech) landscape. Last year, the fintech sector saw the biggest investment activity with 106 deals worth in excess of $558 million. The vast majority of fintech startups in the region are based in the UAE, Egypt and Saudi Arabia, with payments, lending and points of sales (POS) dominating the landscape. 

“A lot has changed. When we started, the whole online payment ecosystem, or the whole digital payment industry was in the early [stages of development],” says Ebwini who believes one of the biggest opportunities in the region lies in the Saudi Arabia market. 

HyperPay focuses on the B2B sector, providing its clients with three white-label products including payment gateway technology, e-invoicing and an AI data analytics platform. The startup raised an “eight figure” sum back in 2019 and relocated its headquarters to Riyadh that year where it benefitted greatly from the pandemic. 

When the coronavirus initially hit Saudi Arabia, the country’s government reacted swiftly by banning COD, with offline retailers requiring POS devices to accept debit and credit card payments, leading to a dramatic fall in cash transactions. This one move resulted in a flurry of new fintech startups in the digital payments sector catering to both the online and offline market. According to the Fintech Saudi Report, 82 fintech startups were registered in the country in the first half of 2021, up from just 10 in 2018.  

“It was a brave decision to digitise all transactions in the market,” says Ebwini who believes the decision was driven by not only the pandemic, but the desire to adopt the latest technologies and gain greater oversight over the remittances and payments landscape in the kingdom. 

“Saudi Arabia was ready to adopt digital payments, after years of hard work to establish a proper digital infrastructure,” he adds. “And this is why they win today, they are way ahead of anyone in the region.”

One key element of digital payments is payment gateways, the technology that allows merchants to process customer financial transactions. The payment gateways landscape in Mena has become more competitive since HyperPay first emerged, with international players like checkout.com and Stripe launching their own services in the region, enabling more retailers to accept payments online. 

For HyperPay, the region’s market is big enough to accommodate the competition, particularly in more nascent markets like Iraq and Sudan, where the startup is looking to launch as part of its regional expansion plans.

“[During the pandemic] everything moved to online,” says Ebwini who says HyperPay signed up 500 new retailers in less than three weeks into the lockdown. 

The introduction of new regulations and the establishment of the Central Bank’s SAMA fintech sandbox has also pushed the growth of fintech in Saudi Arabia. 

“Now everything is legalised in KSA and this really gives us a big push in the market as now, the trust from the banks, the trust from the merchants and the trust from the endu user is high.”

HyperPay operated for several years without a licence in Saudi, but recently obtained a permit from Saudi Payments; a new scheme for e-payment service providers to attain a licence that allows them to activate Mada services (a central payment scheme that connects all ATMs and POS across the country).

“It’s more comfortable to work under a legal framework,” says Ebwini. “One of the most critical points of payment gateways is that the customer has to share his card details online, which could expose him to fraud, hence, the Saudi Payments licence was necessary.”

Challenges

Despite the rapid rise of fintech, the sector is not without its challenges. According to the Fintech Saudi Report, access to talent, the regulatory landscape and ability to test products and services are among the top three challenges. 

For Ebwini, some of the hurdles he faced during setting up his fintech in Saudi Arabia included the high cost of doing business, as well as the market's competitiveness, with hundreds of startups contending for the allegiance of 35 million people.

“Unlike Jordan, KSA is a huge market with a wide access to cash, but doing business is easier in Jordan, where the market is hungry and various fields are up for disruption,” he says.

Ebwini also faced a shortage of technical skills in Saudi Arabia and so leaned on overseas talent to run day-to-day operations, which added to his costs.

Open banking

Nonetheless, the opportunity in Saudi Arabia is immense, where the population is among the most tech-savvy in the Middle East, enjoying an internet penetration rate of 97.9 per cent. Seventy-two per cent of the population has access to banking and financial services and according to Ipsos, 59 per cent of Saudis prefer to use mobile banking apps. Online shopping has also surged in the country, rising from $8 billion in 2021 and forecast to hit $13.3 billion by 2025. The first wave of fintech innovation typically occurs in tandem with the rise of e-commerce, so as more Saudis shop online, more will begin to demand innovation in the way they pay for their goods online. 

“Open banking is the next big thing in KSA, after blockchain and cryptocurrency,” Ebwini says, expecting it to open “huge” opportunities and change the payment landscape in Saudi Arabia, asserting that such technology should be addressed with decisive laws to protect the privacy of the customers.

The trajectory of these new innovations will rely on the regulators and whether they will open up the finance industry to such levels of disruption. So far, it appears that SAMA has the appetite to enable such innovation, with its open banking policy expected to go into effect next year, which will authorise third-party developers to access consumers’ financial data from banks and so open the finance sector up to new services like neobanks.

“You will see a wave of new startups in the market, all of them targeting open banking,” says Ebwini.