The Saudi fintech market is witnessing unprecedented growth and in recent years has begun to rival neighboring Egypt and the United Arab Emirates in startup investment, according to a report by the US-Saudi Business Council.
Saudi Arabia has one of the MENA region’s most developed and well-capitalized financial services sectors that embrace new technologies, which enhance or automate financial services such as payments, lending, insurance, data management and capital market services.
Through August 2022, the Kingdom witnessed a 79 percent year-on-year increase in the number of operating fintech firms. Of the 147 active fintech companies operating in Saudi Arabia, only 10 were operational in 2018. This rapid expansion is due to liberalized business regulations, an active investment environment and well-developed technological infrastructure.
As the private fintech sector continues to grow, 2022 marked another investment record for Saudi fintech companies. Between September 2021 and August 2022, the fintech sector in the Kingdom saw SAR1.5 billion ($402.2 million) in total investment. Meanwhile, venture capital funding in Saudi Arabia more than tripled to SAR 2.2 billion ($584 million) in the first half of 2022, surpassing the full-year total for 2021 as the kingdom continues to invest in technology and digital transformation. Accordingly, Saudi Arabia was ranked ninth globally for venture capital availability in IMD’s Global Competitiveness 2022 report, rising from 12th 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 national and international firms such as Sequoia, 500 Global and Mastercard. Well-developed technology infrastructure such as readily available 5G and cloud services, high domestic demand for financial services and continued government support have all supported ongoing growth,” said Albara’a Alwazir, director of economic research at the US-Saudi Business Council.
Saudi Arabia aims to reach a direct GDP contribution of SAR 13.3 billion (USD 3.6 billion) by 2030, up from SAR 1.2 billion (USD 317 million) in 2021. The fintech sector will account for 18,200 direct jobs and now 525 active fintech companies by 2030. Fintech is a key pillar for not only the future of the financial industry, but as a cross-cutting enabler for a number of Vision 2030 initiatives such as increasing private sector GDP, increasing small and medium enterprises (SMEs) , attract foreign investment, develop the digital economy, and make it easier to do business.
By 2025, Saudi Arabia aims to meet several benchmarks that include increasing the number of active fintech players to at least 230 companies, reaching 70 percent non-cash transactions and increasing fintech’s GDP contribution to SAR4.5 billion ($1.2 billion ).
In addition to record increases 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 ($667 million) in capital. The second involves Abdul Rahman bin Saad Al-Rashed and Sons Company, which established the Saudi Digital Bank with SAR1.5 billion ($400 million) in capitalization. Most recently, D360 bank was licensed and became the third digital bank operating in Saudi Arabia. PIF joined key investors to support D360 Bank. This development will introduce benefits that will provide payment services, consumer microfinance and insurance brokerage services without requiring a physical establishment. The recent list of digital banking licensing in Saudi Arabia brings the total number of licensed banks to 35, which includes 11 traditional Saudi banks, three Saudi digital banks and 21 foreign banks. SAMA’s new Open Banking Policy is also expected to further increase the competitiveness of the Saudi fintech sector as new financial products and business models can be developed as a result of open access to consumer financial data.
Demand for a range of financial services among Saudi residents is particularly high, including banking, insurance, investment, asset management and Sharia-compliant financing. The high level of smartphone penetration and bankable youth population enabled a relatively quick transition to a burgeoning digital economy. The use of cards and electronic payments in Saudi Arabia has increased in recent years, increasing steadily since 2016 with a further acceleration due to the COVID-19 pandemic. Saudi Arabian consumer habits have also adapted quickly to the digital economic transition. A 2022 Mastercard report found that 89 percent of people in Saudi Arabia have used at least one emerging payment method in the past year.
