By Elias Aad

The financial services sector within the Gulf Cooperation Council (GCC) is witnessing a transformative phase with the emergence of Embedded FinTech, heralding a new era of integrated financial services that promise to redefine the customer journey. Embedded FinTech, encompassing an array of services including payments, insurance, and lending, is ingeniously integrated into non-financial platforms, thus offering a seamless and more efficient customer experience. This innovative approach is not just a trend but a significant shift, with the Embedded FinTech market in the GCC poised for remarkable growth—from an estimated USD 250 million in 2022 to an impressive USD 2 billion by 2030. This represents an extraordinary annual growth rate of approximately 30%, creating significant opportunities for both financial and non-financial institutions.

Key drivers of Embedded FinTech growth

The strong growth of embedded FinTech in the GCC can be attributed to several pivotal factors. First and foremost, a shift in customer behavior towards on-demand services, coupled with the ubiquitous use of smartphones, is accelerating its adoption. This trend is particularly noteworthy in regions with a significant number of underbanked or unbanked individuals, where the majority of the population is digitally connected but not always financially included. Furthermore, the digitization of customer experiences and financial products, facilitated by Banking-as-a-Service (BaaS), empowers non-financial institutions (non-FIs) to tap into the expertise and technological infrastructure of established financial entities. All of this is further supported by regulatory framework such as Open Banking, which are increasingly seeing the light in the GCC region and are catalyzing.

Sectors poised for transformation

Embedded FinTech is set to revolutionize several key sectors, including Retail, Healthcare, Education, and Telecom, which are expected to constitute nearly 80% of the market by 2030. The GCC's burgeoning FinTech ecosystem, characterized by significant investments and a conducive environment for innovation, offers a fertile landscape for Embedded FinTech solutions to flourish.

Notably, Embedded FinTech's impact transcends the Business-to-Consumer (B2C) domain, with Business-to-Business (B2B) applications also gaining momentum. This enables deep integration between financial services and enterprise systems, creating unparalleled value for enterprises. However, going forward, B2B could become the dominant force of growth for several reasons; i) comparative size of B2B transactions is many times larger compared to B2C, ii) SMEs to date continue to face challenges reaching the sweet spot between managing banks, enterprise systems, and other IT infrastructure, iii) Increased digitized business transactions pave the way for Embedded Fintech to integrate across different steps of the value chain.

The role of AI in shaping the future of Embedded FinTech

The synergy between Artificial Intelligence (AI) and Embedded FinTech is poised to be a game-changer. AI algorithms are at the forefront of delivering customized financial services and streamlining operations, thereby reducing costs and enhancing efficiency. As AI technology continues to evolve, it is expected to disrupt various segments, including Consumer Finance, Retail Savings, Corporate Lending, and Wealth Management.

Navigating the future with strategic insight

As Embedded FinTech continues to carve its niche in the GCC, the potential for expansion and innovation is vast. Financial institutions (FIs) and non-FIs alike are encouraged to strategically explore how to incorporate financial offerings through Embedded FinTech, aligning with their unique strengths and objectives. At Roland Berger, we are committed to guiding you through the strategic, technological, and regulatory intricacies associated with Embedded FinTech. This report aims to serve as a foundational step on your journey towards harnessing the transformative power of Embedded FinTech in the GCC, unlocking new opportunities for growth and customer engagement.