Will BaaS Thrive in the Middle East?

By:  Husam Yaghi


Banking as a Service (BaaS) is a technology revolution heating up in the Middle East. But can it withstand the region’s unique challenges and emerge as a leading force in financial innovation?

Think of Baas as a kitchen for building financial services. Instead of starting from scratch, companies can “rent out” pre-built components like payments, loans, and account management from established providers. This allows them to launch innovative financial products quickly and cost-effectively, seamlessly embedded within their existing apps.

However, the BaaS kitchen in the Middle East isn’t without its heat. Let’s explore the spices adding flavor and the potential pitfalls that could burn the whole dish.

Hot Regulations, Pricey Partnerships, and Hungry Players

  • Strict Regulators Enforcing Fairness (but adding complexity). Navigating their maze of rules can be tricky, to say the least.
  • Big Banks Charge Premiums for Partnership (think fancy ovens!). This squeezes profits, especially for smaller regional players.
  • “Me-First” Baas Providers Hinder Collaboration (not sharing the spices). This creates an unsustainable system where everyone struggles to grow.

The Kingdom boasts several unique advantages:

  • Vision 2030 Prioritizes Digitalization and Financial inclusion. This creates a supportive environment for fintech innovation.
  • Young & Tech-Savvy Population Craves Digital Solutions. Baas can be the chef, cooking up innovative options.
  • Government Backs Fintech and Implements Baas-Specific Regulations. This fosters a competitive and secure ecosystem.

However, challenges remain:

  • Evoling Regulations Can Be Complex for Startups. Navigating them requires expertise and resources.
  • Limited Competition Restricts Choice and Drives Up Costs. More players are needed to heat up the competition.
  • Established Banks May Perceive Baas as a Threat. Collaboration and integration are crucial for success.

Several Saudi fintechs are making waves in the BaaS space:

  • STC Pay (payments, money transfers, micro-investments). Backed by STC, a major telecommunications company, it offers seamless integration within their ecosystem.
  • Halalah (micro-savings, financial literacy). Focused on Islamic finance principles, it caters to a significant market segment.
  • Yaqeen (Sharia-compliant Baas solutions). This platform tailors its offerings to specific user needs and preferences.
  • Fatafeat (payment, passive savings, financial literacy): This family payment app uses AI to personalize financial literacy content based on user spending habits. Passive saving is achieved through round-up with every purchase.

These examples showcase the potential of Saudi BaaS to cater to local needs and offer unique solutions for the wider region.

Headquartered in the UAE, NymCard operates in both Saudi Arabia and the Emirates. They offer:

  • Cloud-based and on-soil Baas platform for virtual/physical cards. This caters to diverse needs and scalability requirements.
  • Focus on flexibility and regional expertise. They understand the nuances of both markets and offer various plans and partnerships.
  • Constant innovation, like contactless “Tap on Phone” technology. This keeps them ahead of the curve in a dynamic market.

However, challenges remain:

  • Stiff Competition from regional and international players. Standing out in a crowded kitchen requires a distinct flavor.
  • Pricing structure might not be the most competitive for smaller players. Affordability is key for wider adoption.

While challenges exist, the potential for BaaS in the Middle East is undeniable:

  • Young, Tech-Savvy Population Craves Innovation. Baas can be the chef, cooking up exciting financial solutions.
  • Government Backing Creates a Supportive Environment. Imagine the government providing the perfect spices for the recipe!
  • Local Players Pave the Way and Inspire Others. They are adding unique flavors to the Baas dish.

Payment fintechs need to navigate the BaaS landscape strategically:

Challenge 1: Restrictive Baas Platforms & Hungry Players

  • High fees and limited flexibility can stifle growth. Negotiate, explore alternatives, and seek niche providers for better deals.
  • Collaboration is key. Form groups, partner with established players, and advocate for a more open ecosystem.

Challenge 2: Additional Costs: Bank Fees & Mandatory Services

  • Negotiate bank fees and explore challenger banks or fintech-friendly institutions.
  • Partner with other players to share resources and reduce costs.

Challenge 3: Limited Competition & Regulatory Hurdles

  • Few BaaS providers and strict regulations limit choice and innovation. Advocate for change, explore alternative non-BaaS options, and focus on differentiation.

Payment fintech startups should view BaaS as a valuable tool to integrate into their well-defined business strategy, not a guaranteed shortcut to success. By understanding the challenges and actively working towards solutions, they can leverage BaaS to their advantage and carve out their niche in the ever-changing financial landscape of the Middle East.

The future of BaaS in the Middle East is simmering with potential, but the heat is on to overcome the challenges. By fostering collaboration, innovation, and a supportive regulatory environment, the region can unlock the full potential of BaaS and create a delicious recipe for financial inclusion and progress.

Disclaimer: “This blog post was researched and written with the assistance of artificial intelligence tools.”