Inside Riyadh’s plan to be a global fintech player

Reuters

• Three digital banks to be launched in Saudi Arabia in the next year
• Goal of 500 fintechs by 2030, adding $3.5bn to economy
• Most Saudi fintechs are based in Riyadh while 13% are overseas

Saudi Arabia is poised to launch three digital banks over the next 12 months, plus new regulations, as part of its aim to become a major player in the financial technology (fintech) industry.

The sector is “on the cusp of being propelled onto the global stage,” said Nezar Alhaidar, director of Fintech Saudi – an initiative set up by the kingdom’s central bank – as it forges closer links with the UK, the second-largest fintech hub after the US.

The UK and Saudi Arabia made moves to deepen fintech ties this week when a 25-strong delegation visited Riyadh, supported by the UK’s Department for International Trade and led by the Saudi British Joint Business Council.

• Fintech competition means UAE banks must change to survive
• Britain ‘just scratching the surface’ of Saudi trade potential

The three-day programme, which concluded on Wednesday, included meetings with key stakeholders, policy makers and potential partners.

The UK registered $11.6 billion in fintech investment in 2021. In the first half of 2022 alone, investment into UK fintech stood at $9.1 billion, a 24 percent increase.

Around 2,500 fintechs operate in the UK with the number of specialisms growing each year. They include digital payment technologies and Islamic fintech.

In the same way that the UK and Singapore have positioned themselves in Europe and Asia respectively, Saudi Arabia is seeking to become the gateway for fintech activity in the Middle East.

The kingdom aims to host over 500 fintechs by 2030 and offer 18,000 related jobs, with the sector contributing $3.5 billion to the economy.

Chad Woodward, director of trade and investment at the British embassy in Riyadh, said the Vision 2030 targets meant there was “no better time to be in Saudi Arabia” in terms of trade and investment opportunities for fintech companies.

Fintech Saudi’s Annual Report 2021-22 showed that the number of fintech companies active in Saudi Arabia had risen by 79 percent. Investment into Saudi companies for the year exceeded $400 million, up 11 percent on an annual basis. 

Sixty-seven percent of the funding deals took place at Series B and above, with a total of 20 deals reported between September 2021 and August 2022.

Nearly four in every five active fintechs (114) are headquartered in Riyadh while 13 percent are based overseas, in locations including the UK, India, the US, Kuwait, Jordan and Bahrain.

These make up 30 percent of the total number registered in Fintech Saudi’s database. Another 37 percent are at the idea stage and 33 percent are pre-commercial.

“We have seen the development of a maturing fintech industry in the kingdom,” said Alhaidar.

“This year has been a significant year for the development of the industry with the launch of the fintech strategy, which will drive Saudi Arabia to become a global fintech hub.

“We are pleased that we are on the way to achieving this target with 147 fintechs now active in the kingdom.”

He added: “This is a really exciting time to be in the Saudi fintech industry. History has shown that when the Saudi government sets a target to focus on and there is the right buy-in from stakeholders, there is momentum and drive to achieve the target.

“The Saudi fintech industry is on the cusp of being propelled onto the global stage. It is now not a case of if but when Saudi becomes a globally recognised fintech nation.”

The annual report showed growth in almost all fintech-related areas and in particular infrastructure activities as the kingdom prepares for open banking. 

In the past year a new overall strategy has been approved. There have also been a number of regulatory developments including the approval of a third digital bank, enhancements to the central bank’s regulatory sandbox and the release of a framework for equity crowdfunding licences.

Since the first recorded investment in 2012, more than $1 billion has been invested in fintech companies in Saudi Arabia while capital market fintech companies such as Manafa, Wethaq, Dawul and Malaa have all completed fundraising rounds. 

Fintech Saudi was launched in April 2018 by the central bank in collaboration with the Capital Markets Authority, to support the development of the industry. Since its formation, there has been a 14.7 times increase in the number of fintechs and over 100,000 people have engaged in related events, training courses and internships.

The three digital banks – STC Bank, Saudi Digital Bank and D360 Bank – have all been licensed and are due to start operations over the next year. Alhaider said: “2022-23 is expected to be another significant year … with the launch of three new digital banks.”

A survey on consumers’ adoption of banking tech, conducted by Fintech Saudi in 2021, found that 93 percent of respondents do most of their banking electronically, while only 5 percent prefer to make transactions by visiting their local branch.

According to Fintech Saudi, the three digital banks are launching during an “exciting period” for the financial services industry in the kingdom. 

Its report added: “Fintech activity continues to develop from strength to strength, open banking regulations are expected to be released shortly and the fintech strategy has been approved by the Council of Ministers. The launch of the digital banks will only add to the exciting progress.”