Why Saudi Arabia is emerging as a leading Fintech hub in MENA

Saudi Arabia’s fintech sector is booming. While fintech across the MENA region may be growing rapidly, it is growing exponentially in Saudi Arabia, especially compared to previous years.

In 2022, fintech emerged as the most funded industry in the Kingdom with $239 million raised, a 167% increase compared to 2021, according to Magnitt’s 2022 Saudi Venture Capital Report. This growth can largely be attributed to the extensive digital transformation taking place in the country as part of Saudi Vision 2030.

Fintech wasn’t the kingdom’s only growing sector in 2022 – Saudi Arabia’s startup ecosystem also witnessed record funding of nearly $1 billion, a 72% increase compared to 2021, according to Magnitt. With investments only set to increase, the country’s startup ecosystem is expected to continue its acceleration over the next few years.

“The market has grown significantly in Saudi Arabia,” Mourad, a partner at Global Ventures, a VC firm based in Dubai, tells StartupScene. “It has been driven by several factors, the most important of which is the support that companies in the technology and startup ecosystem have received from governments and government-related entities. There is a lot of focus on how this sector can actually help transform and grow the economy significantly. Fintech specifically is a reflection of growth in advancements from technology and service providers, as well as from a regulatory perspective.”

The new open banking framework introduced by the Saudi Central Bank (SAMA) last November will allow companies to test their products and services against established frameworks, further boosting financial innovation and positioning Saudi Arabia as a leading fintech hub in the region.

DEVELOPING BEYOND DIGITAL PAYMENTS

Despite the rapid growth of fintech in the country, the sector was not always thriving as it is today. Fintech only started gaining momentum in the Kingdom soon after the COVID-19 pandemic hit, leading to a permanent shift in spending habits and the embrace of digital financial services.

“Everything changed when the pandemic came,” Muhannad Ebwini, founder and CEO of HyperPay, a Saudi-based fintech startup, tells StartupScene. “It took us three years ahead in terms of growth.”

According to Ebwini, HyperPay experienced 179% growth during the pandemic. And as the startup grew, so did the fintech solutions. Founded in 2014, HyperPay went from being a standard service payment provider (PSP) to becoming a full fintech B2B service provider.

“We provide our clients across the Middle East with multiple B2B fintech services,” adds Ebwini. “We are now far beyond just payments. We offer many services such as lending, cash advances from sellers, card issuing, and soon we will be in open banking.”

But like any rapidly growing market, increased opportunity often leads to increased competition as more market share becomes available. For Ebwini, this meant he had to focus on two market niches, public merchants and B2B customers, to create customized products. By pivoting to new business opportunities, HyperPay began to see 80% to 100% year-over-year growth.

“We started to win really big sellers and see a really healthy growth rate on an annual basis,” says Ebwini. “We also started expanding into different product lines, and some of them we were able to roll into separate companies.”

FIND TALENT

Although the industry is growing and developing rapidly in Saudi Arabia, finding and recruiting talent remains a challenge for many fintech startups.

According to the Fintech Saudi Annual Report 2021, almost 40% of fintechs in Saudi Arabia consider talent and recruitment their biggest challenge, with 88% stating that finding the right skills was one of the main challenges in hiring talent.

“Finding talent can be difficult,” Hany Soliman, Regional Head at PayTabs, a Saudi-based payment solutions platform, tells StartupScene. “Today it can still be a bit challenging, because there is talent available, but it is not as great as the demand in the market.

At the same time, however, several initiatives are emerging to bring in more talent to the market.”

One of these initiatives is Fintech Saudi. Fintech Saudi was launched in 2018 by the Saudi Central Bank in collaboration with the Capital Market Authority, and works to enable the development of fintech in the country. From supporting infrastructure to upskilling talent, Saudi Fintech aims to transform financial technology and innovation in the Kingdom.

“Fintech Saudi is a very important initiative,” adds Soliman. “They’re not only trying to support new companies in the sector, but they’re also supporting new talent that is actually interested in entering the fintech space.”

For PayTabs, which operates in the Middle East, Africa and South Asia, it doesn’t appear to have much of an impact on the talent acquisition startup as it rapidly expands across the region. Last year, the startup acquired Saudi’s Digital Pay to provide POS terminals to e-commerce businesses and brick-and-mortar retailers, and acquired Turkey’s social commerce platform Paymes to enable freelancers, home-based business owners and micro-suppliers to receive instant payments.

Alongside the expansion, the start-up is also working on introducing new solutions to the financial industry. “My market is not only sellers and retailers, but our vision for 2023 is going to focus on the financial industry,” says Soliman. “We are focusing on how we can deploy our solutions and technology that we have built over the last eight years to serve financial institutions and banks, helping them improve their infrastructure and even optimize the cost of transactions, in addition to many other services. “

CHANGING THE FINANCIAL LANDSCAPE WITH OPEN BANK

Open banking, broadly defined as enabling customers of financial institutions to share their data with a third-party provider, is set to be a game changer for Saudi’s fintech sector.

Soliman believes that this will not only facilitate new and innovative services for customers, but that it will enable more people to use digital financial services. “Open banking will help with onboarding,” he says. “The advantage is that open banking provides a unified infrastructure between the entire financial industry to have a kind of seamless, instant and dynamic transactions, as well as movement between different sectors.” Soliman is not the only one who is optimistic about the launch of the new open framework for banking services. “It will attract other fintechs and other founders to start and launch their businesses in the Kingdom,” says Global Ventures’ Said Mourad. “Several companies from the global venture portfolio have actually looked at it, so we’re pretty positive about what we’re seeing there.”

As fintech continues to evolve, so will its growth opportunity in Saudi Arabia’s startup landscape. Today, more and more fintechs are expanding in the country, whether by launching new products or services, or entering new markets. This growth is expected to continue in the coming years.

“We expect to see continued growth, continued development, continued collaboration, as well as companies entering more verticals,” says Mourad. “Overall, there is a very positive sentiment in what we will see in terms of fintech in Saudi over the next year or two.