Experimentation drives innovation in KSA

PYMNTS recently reported on the state of the FinTech ecosystem in the Kingdom of Saudi Arabia (KSA) as part of a series on the Gulf Cooperation Council (GCC). This report highlighted the integral role that the Kingdom’s financial authorities have played so far in cultivating Saudi Arabia’s promising FinTech sector.

Among initiatives such as FinTech Saudi’s accelerator scheme, which celebrated the graduation of its second cohort of startups last month, KSA authorities have also invited local and international firms to test new financial technologies in their controlled regulatory sandboxes.

Read more: PYMNTS GCC Series: Saudi Arabia, at the intersection of technology and Islamic finance

While it may not have been the first GCC country to do so – others are the UAE, Kuwait, Bahrain, Oman and Qatar – since it originally launched its regulatory sandbox in 2018, the KSA has taken the idea and run with it.

In addition to the Saudi Central Bank’s (SAMA) sandbox that allows experimentation in banking and payment technology, the country’s Capital Markets Authority (CMA) runs its own initiative, the “FinTech Lab”, which deals with innovative approaches to securities markets.

As stated on their website, the aim of SAMA’s regulatory sandbox is to invite “local as well as international firms that wish to test new digital solutions in a ‘live’ environment with a view to deploying them in KSA in the future.”

Meanwhile, the CMA website says that “the [FinTech] lab is a legislative experimental environment that allows FinTech products and services to test their innovative business models within specific criteria, time period, regulatory requirements and under the supervision of the Capital Markets Authority.

Digital ROSCAs

Since the launch of SAMA’s regulatory sandbox in 2018, KSA has ushered in a new era of financial technology. As successive cohorts have graduated from the initiative, notable innovation clusters have emerged in the areas of ePayment solutions, digital-first Islamic lending – especially crowdfunding – and an exciting generation of mobile-focused revolving savings and credit associations (ROSCA).

A ROSCA is a model of financial management and savings that is popular in Saudi society. ROSCAs have traditionally been operated among friends and family, and consist of a group of individuals who pool resources to provide financial services to their members.

But while traditional Saudi ROSCAs are usually informally organized among members, mobile and online ROSCAs have in recent years brought the concept into the digital age, adding a degree of formality and security often absent in less formal alternatives.

As Khaled Hassoun, CEO of a ROSCA, Circlys, told Arab News: “Our circles’ plans are no different from what people are used to. The only new thing is that you join the circle of strangers; however, they are qualified and we ensure their ability to be part of the service.”

Circlys is not the only saving circle technology to emerge from Saudi Arabia’s regulatory sandbox. A look through SAMA’s current sandbox alumni list reveals that many such digital ROSCAs have passed through the central bank’s FinTech initiative in the few years it has been in operation.

Equity Crowdfunding at FinTech Lab

Not to be outdone by the central bank, the CMA’s FinTech Lab has fostered a thriving community of start-ups developing investment platforms, robo-advisory tools and equity crowdfunding solutions.

Equity crowdfunding, and online funding platforms in general, have proven particularly popular in Saudi Arabia, where the likes of Scopeer and Manafa have moved on from the CMA FinTech lab to deliver innovative platforms that connect investors with small and medium-sized enterprises (SMEs). with a need for financing.

Related: Covering the loan gap for SMEs in the United Arab Emirates

In a country that boasts over 750,000 SMEs, according to Saudi SME authority Monsha’at, the equity crowdfunding model has great potential for growth.

At the end of Q1 2022, Monsha’at also reported an 884% year-on-year increase in SME loans on its own online funding platform, Funding Gate. With that kind of demand for SME financing solutions, it’s no wonder that platforms that connect investors with businesses are one of the prominent success stories of the CMA FinTech Lab.

Sandboxes for new technologies

Since the UK launched the first FinTech sandbox in 2016, the concept has branched out. These days, sandboxes have been launched that facilitate experimentation in a variety of technology sectors, from HealthTech to Artificial Intelligence (AI).

See also: Inside the UK’s Regulatory Sandbox: How It Fosters FinTech Innovation, Drives Multisector Growst

While the SAMA sandbox is designed to test financial services in banking and payments, and the CMA FinTech Lab is intended for experimentation in the capital and securities markets, Saudi Arabia also has two sandboxes that are not directly related to the financial sector. .

In 2021, the Saudi Digital Government Authority launched a sandbox initiative that aims to find regulatory solutions for digital platforms and services to overcome challenges such as intellectual property rights regulation and data sharing.

In addition, KSA’s Communications and Information Technology Commission (CITC) last month closed applications for the first round of its own “Emerging Technologies” regulatory sandbox.

The CITC sandbox has the stated intention of “fostering a supportive regulatory environment that will enable service providers to test and deliver innovative business models, solutions and services that accelerate digital transformation and maximize the beneficial use of new technologies across sectors.”

It showcases the most targeted technologies such as the Internet of Things, blockchain, cloud computing, digital twins, 3D/4D printing, augmented reality, virtual reality and mixed reality.

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