Following a booming Q1 of 2022 which saw many victories for the fintech sector, the Saudi Cabinet on Tuesday granted its approval for the Kingdom’s financial technology (fintech) strategy. This strategy is included as a new pillar within the Saudi Vision 2030’s Financial Sector Development Program (FSDP), which is aimed at developing the national economy, diversifying sources of income, and enabling financial institutions to support private sector growth by giving new companies the opportunity to provide financial services.
It is made of the following six key factors: highlighting the Saudi identity globally, strengthening the regulatory framework, supporting the sector, developing human resources, advancing technical infrastructure, and enhancing cooperation at the local and global levels.
The Fintech strategy was designed within the FSDP through collaborative efforts among the Saudi Central Bank (SAMA), CMA, Ministry of Finance, Ministry of Communications and Information Technology, Ministry of Investment, Small and Medium Enterprises General Authority (Monsha’at), and Fintech Saudi.
“The Cabinet’s decision to approve the financial technology strategy is an embodiment of leadership support for the financial sector, for financial technology, and for innovators from the private sector in this important field in order to fund our plans for economic diversification and improve the services provided to citizens,” Minister of Finance Mohammed Al Jadaan tweeted enthusiastically last Tuesday.
Aljadaan had more than one reason to rejoice. So far, 2022 has been momentous and fateful for fintech in Saudi Arabia. Firstly, the fintech sector gained tremendous momentum whereby the number of fintech companies operating in Saudi jumped by 37% according to Fintech Saudi. Secondly, according to Wamda, the fintech sector saw the biggest investment activity with 106 deals worth in excess of $558 million. More than half of this number ($347 million) went into venture capitals that fund Saudi-based fintech entities. This number is expected to be much higher this year with Saudi startups like SiFi, EdfaPay, Arib, Lean Technologies, Lamaa, and others raising multi-million-dollar investments so far, leaving expectations high for a burgeoning fintech economy.
Numbers on Saudi’s growing digitization
13 bank branches and 81 ATMs shut down this year in a further sign of growing digitization in the sector and the discarding of human interaction, data from the Saudi Central Bank revealed. Also, the number of bank branches in the country dwindled by 6% (124 in total) between 2017 and 2021, while Point-of-Sale transactions increased 5.8% in terms of sales value in the first quarter of 2022 compared to the final three months of 2021. Over the same period, mobile phone sales grew 13.6% compared to only 3.6 % growth for cards, while e-commerce sales using Mada cards- a debit card issued by local Saudi banks- rose 14% in the first quarter of this year.
Perhaps the most significant data is that by Fintech Saudi which states that fintech transaction values jumped by over 18% between 2017 and 2019 year-on-year, reaching over $20 billion in 2019 and expected to surpass $33 billion in 2023.
Indeed, according to the kingdom’s Digital Government Authority, spending on digital transformation by Saudi Arabia alone reached $3.19 billion in 2021.
These numbers point to the presence of the necessary infrastructure of the expanding fintech sector in the Kingdom as well as the readiness of the clients to digitize their payments and operations.
Saudi more willing to invest in Fintech
Saudi Arabia has introduced several laws covering a variety of fintech activities, including an instant payment system known as Sarie and the Capital Market Authority’s (CMA) fintech lab, all of which have given the investment community the confidence and certainty to devote more capital to fintech startups.
The Saudi Central Bank (SAMA) has also granted 35 fintech companies the permit to operate and test their finance solutions in the Saudi market under its Regulatory Sandbox.
The launch of Open Banking in Saudi Arabia, set to occur sometime this year and which allows firms and startups to share consumer current account data once permission has been granted, is another factor expected to speed up the pace of fintech development.
The opportunity for open banking 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%. 72% of the population has access to banking and financial services and according to Ipsos, 59% 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 parallel 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.