What Are the Trends Shaping the Fintech Industry in Saudi Arabia?

Saudi Arabia has made some impressive progress in fintech over the past five years. They have tried to diversify their services, which has contributed more to their national economy. However, KSA has some challenges to overcome to become a leading global fintech hub. In this Viewpoint, we look at what has been achieved and suggest priorities for KSA's fintech ecosystem to achieve its goals.

The Fintech Journey So Far

In the past five years, the fintech industry in Saudi Arabia has grown and changed a lot.

KSA's Vision 2030 plan for fintech is an ambitious one, with four key objectives that will help it become a global fintech leader.

• Establishing at least 525 fintech companies (versus 200 in 2023).

• Create 18,000 new fintech job opportunities (compared to around 5,400 in 2023).

• Account for SAR $13.3 billion in direct GDP (versus around $1 billion in 2023).

• Achieve SAR $12.2 billion in direct venture capital (VC) contributions, which is an incredible achievement! This is a 700% increase from 2023.

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Three Key Progress Areas in KSA Fintech

Saudi Arabia's fintech sector has witnessed remarkable growth in recent years, and that has been driven by significant advancements in three key areas:

1. Digital payments,

2. Alternative Financing

3. Financial product aggregation.

These areas illustrate the country's progress towards a more digital and inclusive financial ecosystem.

Digital Payments

Saudi Arabia is transforming into a less cash-dependent society thanks to strategic initiatives like the Financial Sector Development Program (FSDP). The introduction of new regulatory frameworks has facilitated the licensing and operation of payment companies, propelling the country towards its Vision 2030 goal of achieving 80% non-cash transactions. By 2021, the country had already reached 62% non-cash transactions, surpassing initial targets. Key developments include digital wallets, local transfers, QR code payments, and SADAD system bill payments.

Digital wallet usage has soared from 315,000 users in 2018 to 17 million by 2022, representing over half of the population. Initially, bank transfers dominated wallet top-ups, but by 2022, 80% of top-ups were made via debit or credit cards. The expatriate community has also increasingly adopted digital wallets for international transfers, with non-Saudi users growing from 17% in 2018 to 45% in 2022. Vision 2030 has set an ambitious goal to increase the proportion of non-cash transactions to 80% by 2030. This is a significant leap from its 18% baseline in 2016!

Alternative Financing

Alternative financing, particularly "buy now, pay later" (BNPL) and debt crowdfunding, has emerged as the second-largest fintech subsector in Saudi Arabia. BNPL offers consumers the flexibility to defer payments for online or in-store purchases, leading to a surge in adoption by both merchants and consumers. From 2020 to 2022, BNPL merchants grew from 780 to 30,000 and customers from 76,000 to over 10 million. Dominated by Tabby and Tamara, the sector has seen these companies expand their reach across the Gulf Cooperation Council (GCC).

Debt crowdfunding provides essential financing for small and medium-sized enterprises (SMEs), with platforms offering streamlined processes for selling invoices and securing funding. Since 2019, over 92,000 investors have issued loans worth more than SAR 1.1 billion, with SAR 770 million disbursed in 2022 alone.

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Financial Product Aggregation

Financial product aggregation platforms simplify the consumer decision-making process by acting as intermediaries between consumers and financial service providers. These platforms have gained significant traction, especially in the insurance sector. Although app downloads are relatively low, insurance aggregator websites saw 20.1 million visits in 2022. Health and car insurance are the primary products offered, with policy values increasing from SAR 573 million in 2018 to SAR 4.2 billion in 2022.

The role of aggregators is expected to grow, enhancing transparency and consumer-centricity in Saudi Arabia's financial ecosystem. With eight companies in the pipeline for licensing, four have received initial approval, signaling a bright future for financial product aggregation in the country.

Conclusion:

The future of fintech in Saudi Arabia is not only about new tech or financial products. It is about building an ecosystem that helps a country reach its broader economic goals and creates a culture of resilience and growth. It is also about giving consumers and businesses access to financial tools and services that are easy to use, efficient, and secure.