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The Fintech Landscape in the Kingdom of Saudi Arabia

Over the past few years, the Kingdom of Saudi Arabia has emerged as a significant player in the financial technology (fintech) sector. Recognising the potential of fintech to transform the financial landscape, the Saudi Central Bank (SAMA) and the Capital Market Authority (CMA) launched Fintech Saudi in April 2018. Fintech Saudi operates under the Financial Sector Development Program (FSDP) and is dedicated to fostering the growth of the fintech industry in the Kingdom.

One of the pivotal steps the regulatory authorities took was the establishment of a regulatory sandbox. This sandbox allows fintech companies and banks to test and certify their products in a secure and controlled environment. Since its inception, the regulatory sandbox has enabled fintech businesses to develop and thrive in the Kingdom.

SAMA and CMA have significantly progressed in developing fintech regulations and licensing frameworks. They have introduced new fintech licenses and experimental sandbox licenses, which have provided fertile ground for fintech companies to flourish. Initiatives such as the Fintech Accelerator Program, the Fintech Ecosystem Directory, and the Fintech Job Portal have further supported the growth of the Fintech sector in the Kingdom. Additionally, Fintech Saudi has undertaken the Fintech Data & Research Initiative and the Fintech Regularity Assessment Tool to enhance transparency in Fintech data and regulations.

As a result of these efforts, the fintech ecosystem in Saudi Arabia has experienced rapid growth. The number of fintech businesses has increased by an impressive 14.7 times since the launch of Fintech Saudi. By the end of 2022, there were 147 fintech businesses registered with Fintech Saudi, and investments in fintech companies had reached SAR 1,508.4 million ($401.56 million).

Open banking has been a significant driver of fintech growth in the Kingdom. Open banking lets Customers securely share their financial data with third-party fintech companies. This data access enables fintech firms to offer innovative financial products and services, allowing customers to manage multiple accounts and conduct transactions from a single dashboard.

To support open banking, SAMA introduced the Open Banking Lab in 2022. This sandbox environment allows banks and fintech businesses to experiment with their product offerings and ensure compliance with the Open Banking Framework. The Open Banking Framework, released by SAMA in November 2022, comprises legislation, regulatory guidelines, and technical standards that enable banks and fintech companies to provide open banking services to customers in Saudi Arabia.

In January 2020, SAMA introduced the Payment Service Provider Regulations (PSP Regulations) to oversee the operations of PSPs within the Kingdom. These regulations encompass various payment services, including direct debits, credit transfers, payment execution, electronic money issuance, etc. The PSP Regulations are modelled on the European Union’s Payment Services Directive, making it easier for international PSPs to establish operations in Saudi Arabia.

Introducing the PSP Regulations led to a surge in the PSP industry in Saudi Arabia. The establishment of Saudi Payments (SADAD) and the launch of Apple Pay contributed to a significant increase in smartphone payment transactions in the Kingdom. From 9 million transactions in 2019, the number of transactions skyrocketed to 54 million in 2020 and 128 million in 2021, as SAMA’s April 2022 Bulletin reported.

The Kingdom has also made notable strides in digital banking. The Council of Ministers approved digital banking licenses for STC Bank and the Saudi Digital Bank in June 2021, followed by the approval of a third bank, D360, in February 2022. These three banks are the first digital-only banks in Saudi Arabia, offering low-cost customised services to customers by leveraging data collection and analysis.

Furthermore, crowdfunding has seen significant developments, particularly with SAMA’s introduction of rules for debt-based crowdfunding in January 2021. Reward-based crowdfunding is exempt from licensing requirements.

Although the Kingdom has been receptive to emerging technologies like blockchain, it exercises caution about crypto-based businesses due to the high volatility and lack of supervision in cryptocurrency markets. SAMA conducted a joint initiative with the central bank of the United Arab Emirates called Project Aber to explore the viability of a dual-issued digital currency. While trading in cryptocurrency remains restricted, a survey by the KuCoin exchange revealed that three million Saudis either own cryptocurrencies or have traded them in the past.

Saudi Arabia’s fintech landscape is evolving rapidly, driven by a proactive regulatory approach, innovative initiatives, and growing investments. The Kingdom’s commitment to fostering the fintech sector will likely attract more businesses and drive further advancements in the financial technology industry. As fintech continues to gain traction, it is set to play a pivotal role in shaping the future of Saudi Arabia’s financial services.