The financial technology landscape in Saudi Arabia is approaching a pivotal milestone, aiming to establish itself as a dominant financial hub in the region. A recent study by a renowned management consultancy firm highlights the country’s rapid progress in the fintech sector, driven by key initiatives like Fintech Saudi.
Initiated by the Saudi Central Bank and the Saudi Capital Markets Authority in April 2018, Fintech Saudi has been instrumental in promoting the Kingdom as a top fintech center in the Middle East and North Africa. Programs such as accelerators, careers fairs, fintech tours, and summer sessions have resulted in a 20x increase in fintech firms since the initiative began.
An investment exceeding SR4 billion has been poured into local fintech enterprises, with over 100,000 individuals engaging in associated events and training. The Kingdom’s fintech strategy, launched in May 2022, is founded on six pillars aimed at fostering a growth-friendly regulatory environment, startup funding, skills enhancement, infrastructure acceleration, and both local and global collaboration.
Ambitious goals
As part of the Vision 2030 objectives, Saudi Arabia is targeting the creation of at least 525 fintech firms by 2030, a significant jump from 200 in 2023. The nation also aims to generate 18,000 fintech jobs, contribute SR13.3 billion to GDP, and achieve SR12.2 billion in direct venture capital contributions. Fintech Saudi’s initiatives, including the Fintech Accelerator Program and the Fintech Saudi Innovation Hub, have been pivotal to this growth.
The introduction of a fintech regulatory sandbox by SAMA, along with a SR300 million fund focused on fintech startups by the Saudi Venture Capital Co., have further energized the sector. Investment by SVC in 35 VC funds has enabled over 900 deals, amounting to SR1.9 billion, with additional support from the Saudi National Technology Development Program’s financing initiative for startups.
A cashless society
The Kingdom’s transition towards a cash-free society is underscored by the Financial Sector Development Program’s efforts to nurture a suitable regulatory climate for payment companies. Vision 2030’s lofty goal is to boost non-cash transactions to 80 percent by 2030, a leap from 18 percent in 2016. Impressively, by 2021, cashless transactions made up 62 percent of all payments. The proliferation of digital wallets, QR code payments, and the SADAD bill payment system have supported this rapid adoption.
Digital wallet usage has skyrocketed from 315,000 in 2018 to 17 million by 2022. A shift in consumer behavior is evident, with a majority of digital wallet top-ups occurring through debit or credit cards by 2022. The use of digital wallets by expatriates for international transfers has also risen.
Alternative financing
The Saudi alternative financing sector, particularly ‘buy now, pay later’ (BNPL) and debt crowdfunding, has seen substantial growth. BNPL customer numbers soared from 76,000 in 2020 to over 10 million in 2022. Debt crowdfunding has emerged as a crucial funding source for SMEs, with over SR1.1 billion in loans issued since 2019.
Challenges
Despite the bright prospects for Saudi fintech, challenges remain. Enhancing the Kingdom’s global stature, simplifying regulatory frameworks, expanding funding avenues, addressing talent gaps, optimizing investment in infrastructure, and fostering international partnerships are key to ensuring sustainable development.
Transformational drivers
To overcome challenges and secure growth, the consultancy identified six transformational drivers. These include boosting Saudi Arabia’s international fintech reputation, refining regulatory processes, strengthening the angel investor network, investing in tailored educational programs, and managing infrastructure costs through competitive technology markets and local data-hosting solutions.