Saudi Arabia has set out ambitious fintech goals as part of its Vision 2030 strategy, striving to considerably boost the number of fintech companies operating in the country, increase the sector’s contribution to the gross domestic product (GDP), and increase the volume of venture capital (VC) investments.

But to reach these goals, the country must tackle the key challenges hindering the growth of the sector, including issues related to global positioning, its regulatory frameworks, market conditions and funding levels, talent acquisition, technology infrastructure, and collaboration. These challenges are not just obstacles, but also provide opportunities for innovation and growth, a new report by Arthur D. Little (ADL) says.

Released in April 2024, the report looks at the state of fintech in Saudi Arabia and delves into the journey so far. The report also formulates a number of recommendations designed to address the challenges to overcome in order for Saudi Arabia to reach its fintech goals.

Saudi Arabia must embrace a comprehensive and nuanced strategy focusing on enriching and diversifying the fintech ecosystem, the report says. This strategy should be designed to broaden the landscape and integrate the ecosystem with other international hubs.

An emphasis should be put on expanding underdeveloped verticals such as regtech and insurtech, and drive technological advancement, the report says. It should also include initiatives designed to support maturing fintech pioneers in their expansion or initial public offering (IPO) aspirations.

Several recommendations are formulated to ensure that the current challenges plaguing the Saudi fintech industry are effectively overcome. First, Saudi Arabia should work on enhancing its global positioning and increase its international presence, ADL says. Efforts should involve highlighting the country’s unique contributions to the global fintech landscape, forging international alliances and showcasing advancements at global fintech events, thereby influencing the fintech narrative in the MENA region and globally.

Secondly, with the regulatory landscape being an essential component to the development of fintech, Saudi Arabia should align its regulatory processes with international standards, especially in emerging areas like open banking. This will facilitate the integration of global fintech firms into the Saudi market and support the growth of local fintech companies, the report says.

Thirdly, efforts should be put on developing the investment ecosystem. This should include creating a robust landscape for investment, including mobilizing VC and expanding investment opportunities across fintech sectors. Efforts should also be deployed to strengthen Saudi Arabia’s angel investor network and foster public-private partnerships to support early-stage initiatives and sustain growth for established firms.

ADL also advises Saudi Arabia to invest in educational programs tailored to fintech and related industries, form collaborative partnerships to nurture local talent. In the interim, initiatives to facilitate the integration of international expertise should be introduced to contribute to the sector’s expansion.

Saudi Arabia should also introduce incentives for technological advancements. These incentives should be designed to encourage a competitive tech provider market and local data-hosting solutions, ultimately helping fintech companies manage infrastructure and operational expenses.

Finally, fostering collaborative frameworks is key. Against this backdrop, the government should focus on enhancing the role of Fintech Saudi as a facilitator. Fintech Saudi is an initiative launched by the Saudi Arabian Monetary Authority (SAMA) in collaboration with the Saudi Capital Markets Authority (CMA) to support the development of the fintech ecosystem through initiatives like the Accelerator program, Career Fair, Fintech Tour, and Summer Sessions.

Saudi Arabia should also establish platforms for domestic and international partnerships, and promote financial literacy. Efforts should also be put on strengthening public-private partnerships and expanding regulatory sandbox initiatives to nurture broader fintech innovations.

The growth of fintech in Saudi Arabia

Over the past five years, fintech has significantly advanced in Saudi Arabia, achieving rapid growth, diversifying its services, and increasing its contribution to the national economy. Since the establishment of Fintech Saudi in 2018, the number of fintech companies in the country has increased 20-fold to reach approximately 200 in 2023. The industry has attracted over SAR 4 billion (US$1 billion) in investments and engaged with over 100,000 people in fintech-related events, trading and internships, according to ADL.

Digital wallet is one vertical that’s witnessed significant growth, fueled by booming usage of cashless payments. In 2021, non-cash payments accounted for 62% of all transactions, up from 18% in 2016, data from SAMA show. Adoption continued to increase in 2023, with non-cash payments reaching a share of 70% last year.

Digital wallet mobile app downloads in Saudi Arabia reached 17 million in 2022, 10 million more than in 2021, according to Statista. The figure implies that over half of Saudi Arabia’s population used a digital wallet in 2022.

Alternative financing, including buy now, pay later (BNPL) and debt crowdfunding, has also grown significantly. According to Statista, the total number of registered users of BNPL in Saudi Arabia was recorded at 10 million people in 2022, up from just 76,000 in 2020.

In the crowdfunding vertical, the investor base rose from 302 in 2019 to over 92,000 in 2022, according to ADL. These investors have collectively issued over 1,800 loans worth more than SAR 1.1 billion (US$293 million) since 2019, with about SAR 770 million (US$205 million) in loans disbursed in 2022 alone.

Finally, financial aggregation and comparison platforms have also seen a rise in usage, especially those focusing on insurance products. According to ADL, although only about 375,000 people have downloaded insurance aggregation apps, the websites in this sector recorded an impressive 20.1 million visits in 2022. Further reflecting the sector’s growth, the total value of policies issued through insurance aggregators escalated from SAR 573 million (US$153 million) in 2018 to SAR 4.2 billion (US$1.1 billion) in 2022.

Saudi Arabia’s Vision 2030

Saudi Arabia’s Vision 2030, a national plan unveiled in 2016, aims to diversify the country’s economy and promote non-oil sectors including finance and technology. The strategy has set out clear objectives for fintech, including having at least 525 fintech companies operating in Saudi Arabia by 2030, creating 18,000 fintech job opportunities, contributing SAR 13 billion (US$3.5 billion) to GDP, and achieving SAR 12 billion (US$3.2 billion) in direct VC contributions.

To reach these goals, several initiatives have been launched under Vision 2030. These include the SAMA Regulatory Sandbox, which allows fintech startups to test their solutions in a controlled environment; the Investment in Fintech VC Fund, an investment vehicle managed by government VC Saudi Venture Capital Company (SVC), which invests in high-growth fintech startups; as well as the Sarie instant payment system, which allows bank customers to send and receive money in real-time using a wider range of services and transfer options.

Featured image credit: edited from Unsplash