Cairo: Saudi Arabia’s fintech sector has made significant progress as it moves closer to its goal of becoming a regional financial hub, according to a report by Arthur D. Little.
In its latest study titled “Realizing the Potential of Fintech in the Kingdom of Saudi Arabia”, the international management consulting firm highlighted the rapid growth and innovation within the sector led by initiatives such as FinTech Saudi.
Launched in April 2018 by the Saudi Central Bank, also known as SAMA, and the Saudi Capital Markets Authority, FinTech Saudi has been a key force in promoting the Kingdom as a leading fintech hub in the Middle East and North Africa .
The initiative includes programs such as accelerators, career fairs, fintech tours and summer sessions, contributing to a 20-fold increase in the number of fintech companies in the Kingdom since the inception of the programme.
To date, more than SR4 billion ($1 billion) has been invested in local fintech companies, with more than 100,000 individuals participating in related programs and training programs, the report said.
The adoption of a national strategy in May 2022 marked a significant advance in the country’s fintech sector.
The strategy is built on six pillars, including establishing the Kingdom as a regional fintech hub, fostering a regulatory environment conducive to growth, providing funding for startups, enhancing skills training, accelerating support infrastructure and Involves promoting local and international cooperation.
ambitious goals
The goals of Vision 2030 include the establishment of at least 525 fintech companies by 2030, more than 200 in 2023, creation of 18,000 fintech job opportunities, approximately 5,400 in 2023, contributing SR13.3 billion to GDP, Which is a substantial increase from SR3.75 billion in 2023, and achieving SR12.2 billion in direct venture capital contributions in 2023 compared to SR5.2 billion.
Fintech Saudi has catalyzed this growth through various initiatives including the Fintech Accelerator Programme, the Fintech Saudi Innovation Hub and an online Fintech Directory.
Additionally, the establishment of the Fintech Regulatory Sandbox by SAMA has allowed controlled live testing of Fintech innovations, easing their transition to the open market. In a further boost to the sector, Saudi Venture Capital Company, supported by the CMA and the Financial Sector Development Programme, has launched a SR300 million fund focused on fintech startups, with plans to invest an additional SR6 billion in various startups and small and medium enterprises. Is. Area.
To date, SVC investments have facilitated over 900 deals and SR1.9 billion investments across 35 VC funds. Additionally, the Saudi National Technology Development Program has launched the Technology Development Financing Initiative, which provides debt financing to support startups.
a cashless society
“Saudi Arabia has embarked on a journey to make society less dependent on cash transactions,” the report said, noting the FSDP has been instrumental in this transformation by fostering a favorable regulatory environment for the growth of payments companies.
The ambition of Vision 2030 is remarkably high, aiming to increase the proportion of non-cash transactions from just 18 percent in 2016 to 80 percent by 2030.
Notably, by 2021, cashless payments accounted for 62 percent of all transactions, significantly exceeding interim targets, the report said.
Saudi Arabia has embarked on a journey to make society less dependent on cash transactions.
Mohammed Nikkar, Principal of Arthur D. Little
This rapid adoption has been supported by the integration of innovative payment solutions including digital wallets, local transfers, QR code payments and the SADA system for bill payments.
“According to data released by SAMA, the use of digital wallets is expected to grow from 315,000 in 2018 to 17 million by 2022, representing more than half of Saudi Arabia’s population,” the report said.
Initially, bank transfers dominated as the primary method for topping up these wallets, but by 2022, nearly 80 percent of top-ups began to be done through debit or credit cards, reflecting a change in consumer behavior. Gives a signal.
The report also highlights the growing reliance on digital wallets among expatriates for international transfers, with non-Saudi users of digital wallets increasing from 17 percent in 2018 to 45 percent in 2022.
Among the leaders in this emerging market are STC Pay and Eurpay. STC Pay, in particular, has positioned itself as the first fintech unicorn in the Kingdom, with a notable 25 percent year-on-year growth in profits in 2022, the report said.
alternative financing
The report, co-authored by Arthur D. Little principal Mohammed Nikkar and the firm’s partner Arjun Vir Singh, highlights Saudi Arabia’s alternative financing sector, particularly buy now, pay later and debt crowdfunding, which has become the second Has gone. -The largest fintech subsector after Saudi Payments.
BNPL usage has grown from 76,000 customers in 2020 to more than 10 million in 2022, including market leaders such as Saudi-based Tabi.
and Tamara’s expansion into the Gulf Cooperation Council, the report said.
Debt crowdfunding is also growing as an important funding source for SMEs. Since 2019, investors have issued more than 1,800 loans worth more than SR1.1 billion, with SR770 million disbursed in 2022 alone.
However, challenges remain with rising interest rates and fluctuating approval rates.
Challenges
“Although the future of fintech in Saudi Arabia looks bright, there are still some significant challenges to overcome,” the report said.
It is important to increase Saudi Arabia’s visibility on the international stage. The report emphasizes the need to raise the Kingdom’s global profile by articulating its unique fintech ecosystem offering to attract more global entrepreneurs and investors.
“Streamlining the regulatory framework. Efforts are underway to simplify setup and licensing processes to create a more navigable regulatory environment for fintech entities. “Continued growth in this sector will support both local and international enterprises,” the report said.
Apart from this, expansion of funding avenues is also necessary. The report notes that the development of more accessible financial mechanisms such as accelerators and grants is expected to strengthen the investment climate, allowing a variety of fintech initiatives to flourish.
Addressing the talent gap is also a priority as strategies must be implemented to develop local expertise and address challenges such as high turnover and competitive salary demands.
Additionally, optimizing investments in infrastructure to reduce the cost of the required technology while ensuring compliance with local data regulations is also an important aspect.
Ultimately, fostering international partnerships is key to the long-term success of Saudi fintechs, helping them adapt and thrive in the global market, the report noted.
“By thoughtfully addressing these areas, Saudi Arabia can enhance its fintech ecosystem, ensuring strong growth and sustainable development in the years to come,” it added.
transformational driver
The consultancy identified six transformational drivers needed to overcome current challenges and ensure strong growth in the Kingdom’s fintech landscape.
The report emphasizes the need to elevate Saudi Arabia’s global position in the fintech sector. The Kingdom aspires to enhance its international presence by showcasing its unique value propositions and inviting participation from global fintech innovators.
This can be achieved through forming international alliances and showcasing Saudi progress at global fintech seminars, potentially increasing its influence not only in the MENA region but globally.
On the regulatory front, the report suggests Saudi Arabia refines its regulatory processes and aligns them more closely with international best practices, especially in emerging areas such as open banking.
Strengthening angel investor networks and deepening public-private partnerships are also seen as important steps to provide foundational support for early-stage initiatives and strengthen growth for mature firms.
Additionally, the report advocates significant investment in educational programs tailored to fintech and related industries.
Finally, the report highlights the importance of managing infrastructure costs by encouraging a competitive technology provider market and local data-hosting solutions, supported by government incentives for technological progress.