The Saudi fintech market is witnessing unprecedented growth. In recent years, it has begun to rival neighbouring economies Egypt and the UAE in startup investments, according to a report by the U.S.-Saudi Business Council.
Saudi Arabia has one of the MENA region’s most developed and well-capitalised financial service sectors. It encompasses new technologies, which improve or automate financial services. These include payments, lending, insurance, data management, and capital market services.
Through August 2022, the Kingdom witnessed a 79 per cent YoY increase in the number of operating fintech firms. Of the 147 active fintech companies operating in Saudi Arabia, only 10 were operating in 2018. This rapid expansion is due to liberalised business regulations. This is in addition to an active investment environment and well-developed technology infrastructure too.
While the fintech private sector continues to grow, 2022 marked another record level of investment for Saudi fintech companies. Between September 2021 and August 2022, the fintech sector in the Kingdom saw SAR1.5 billion ($402.2million) in total investments.
Meanwhile, venture capital funding in Saudi Arabia surged more than threefold to SAR2.2 billion ($584million) in H1 2022. This surpassed the full-year total for 2021 as the Kingdom continues to invest in technology and digital transformation. Consequently, Saudi Arabia was ranked ninth globally for venture capital availability in IMD’s Global Competitiveness 2022 report, rising from 12th in the previous year.
“In the first half of 2022, fintech accounted for the highest number of total investment deals. Fintech companies attracted investments from leading domestic and international firms such as Sequoia, 500 Global, and Mastercard,” said Albara’a Alwazir, director of economic research at the U.S.-Saudi Business Council.
“Well-developed technology infrastructure such as widely accessible 5G and cloud services, a high domestic demand for financial services, and continued government support have all supported ongoing growth.”
The market is expected to grow 3x by 2030
Saudi Arabia is aiming to reach a SAR13.3 billion ($3.6billion) direct GDP contribution by 2030, up from SAR1.2 billion ($317million) in 2021. The fintech sector will account for 18,200 direct jobs and reach 525 active fintech companies by 2030.
Fintech is a key pillar of not only the financial services industry’s future, but as a cross-cutting enabler of numerous Vision 2030 initiatives such as:
- Raising private sector GDP
- Boosting small and medium enterprises (SMEs)
- Attracting foreign investment
- Developing the digital economy
- Enhancing the ease of doing business
By 2025, Saudi Arabia aims to meet several benchmarks that include raising the number of active fintech players to at least 230 companies, reaching 70 per cent of non-cash transactions, and boosting fintech’s GDP contribution to SAR4.5 billion ($1.2billion).
Rise of digital services
In addition to record rises in licensed fintech companies, the Saudi Cabinet approved the licensing of three local digital banks. The first involves the conversion of STC Pay into a digital bank with SAR2.5 billion ($667million) in capital. The second involves Abdul Rahman bin Saad Al-Rashed and Sons Company, which established Saudi Digital Bank with SAR1.5 billion ($400million) in capitalisation. Most recently, D360 bank was licensed and became the third digital bank operating in Saudi Arabia.
The PIF joined key investors in backing D360 Bank. These developments will introduce advantages that will provide payments services, consumer microfinance, and insurance brokerage services without requiring a physical business.
The recent slate of digital bank licensing in Saudi Arabia brings the total number of licensed banks to 35. This includes 11 Saudi traditional banks, three Saudi digital banks, and 21 foreign banks. SAMA’s new Open Banking Policy is also expected to further boost competitiveness in the Saudi fintech sector. Especially as new financial products and business models may be developed as a result of open accessibility to consumer financial data.
Demand for a variety of financial services among Saudi residents is particularly high, including banking, insurance, investment, asset management, and Shariah-compliant financing. The high level of smartphone penetration and banked youth population enabled a relatively rapid transition to a burgeoning digital economy.
The use of card and electronic payments in Saudi Arabia has surged in recent years. It has risen steadily since 2016 with a further acceleration due to the Covid-19 pandemic. Saudi consumer habits have also adapted quickly to the digital economic transition. A 2022 Mastercard report found that 89 per cent of people in Saudi Arabia have used at least one emerging payment method in the last year.
