Neobank Licensing Sets the Stage for Saudi FinTech Acceleration

In the development of FinTech in a given market, there are certain phases and milestones that can be observed. For example, the development of payment applications typically triggers a wave of digital banks that cater to increased consumer appetite for digital payments.

In Saudi Arabia, for example, the central bank-backed organization responsible for cultivating the kingdom’s FinTech sector, FinTech Saudi, stated in its recently published Annual report 2022 that 30% of the FinTechs currently registered in their database are involved in the development of payment solutions.

But as the report also notes, the granting of banking licenses to three homegrown neobanks – STC Bank and Saudi Digital Bank in June 2021 and D360 in February this year – promises to accelerate the pace of innovation across the FinTech sector, as well as create new opportunities that extend far beyond payments.

The three newly approved banks also mark the first time since Alinma Bank was licensed in 2006 that new locally based banks have launched in the Kingdom, signaling a new maturity in the country’s FinTech landscape.

Following a pattern witnessed elsewhere, the new banks have their origins outside the traditional banking sector.

Learn more: PYMNTS Digital-First Banking Tracker

The first, STC (Saudi Telecom Company) Bank, started life as a digital wallet – STC Pay when it launched in 2018.

Since then, the mobile wallet has evolved to include a full suite of payment services, including virtual and physical card issuance and multiple accounts. International transfers are enabled via a partnership with Western Union accepted get a 15% stake in the company in 2020.

And after this $200 million Western Union deal, STC Pay became the first Saudi unicorn and one of the first FinTechs in the region to be valued at over $1 billion.

The firm is currently upgrading from a financial app to a full-fledged digital bank, and will then be able to offer its 8 million private customers and over 120,000 business customers a wider range of services, including lending and savings products.

The other neobank licensed in Saudi Arabia is Saudi Digital Bank (SDB), which is financed by Speciesa holding company with investments spanning property, construction, technology and food.

Although the project is currently under wraps, with few official statements on plans for the new bank, some clues can be found in FinTech Saudi’s annual report, which states that SDB was licensed to provide “hyper-personal financial services and products” to local retail customers – and the small and medium-sized business market (SMB).

Finally, D360, which was granted its license by the Saudi Central Bank (THE SAME) earlier this year, is a sharia-compliant neobank backed by the kingdom’s public investment fund along with a number of private investors.

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

With partial public ownership, the new digital bank is expected to cater to segments of the Saudi population that traditional financial institutions have underserved.

Neobank’s role in digital transformation

Once a cash-heavy economy, KSA is undergoing significant changes thanks to the growth of FinTech in recent years.

From just 18% in 2016 have government projects that 70% of all payments in the country will be non-cash transactions by 2030.

Moreover, thanks to a FinTech-friendly regulator that spearheaded the establishment of FinTech Saudi in 2018 and the implementation of a national FinTech strategy this year, the wider ecosystem is also developing rapidly.

This strategy seeks to increase the number of FinTech companies in the Kingdom to 525 by 2030. The FinTech Saudi Annual Report notes that there are already 147 firms operating in the sector, an increase of 79% since last year.

Ultimately, the fresh perspective and agile operating model embodied by neobanks has the potential to drive innovation in Saudi’s digital financial sector and beyond.

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