Fueling the Future: Fintech's Unstoppable Surge in KSA Propelling Vision 2030 Success

In Saudi Arabia, the financial technology sector has experienced remarkable growth in 2022 as a result of myriad factors such as legal reform and increased use of Digitalisation which were stimulated by its bold Vision 2030 initiative.

The article reviews the major developments of the Kingdom's Fintech sector over the past year, examining potential in line with Vision 2030.

Vision 2030 and the Fintech Imperative

To drive transformation and promote diversity, the Kingdom of Saudi Arabia (KSA) has formulated a framework known as Vision 2030. One of the pillars of this vision is the Financial Sector Development Programme (FSDP) which aims to establish a diversified financial sector capable of supporting the country’s economic growth. The FSDP programme focuses on empowering startups in the Financial Technology sector by introducing payment systems and transitioning towards a cashless society, which will have an impact on KSA residents. The primary goal of the FSDP is to foster the growth of technology in Saudi Arabia by enhancing its efficiency, reducing costs and improving access to services. This involves establishing a framework for fintech and encouraging institutions to adopt new technologies.

Regulatory Reforms Fostering a Positive Environment:

Saudi Arabian Monetary Authority (SAMA) has created the regulatory sandbox in KSA which is one of the most remarkable developments. This has led to a complete industry shift as the sandbox allows the startups to test their products and services without complying with the regulatory requirement, in a controlled environment.

To further facilitate Fintech innovation in the region Saudi Arabia has taken proactive steps to create a favourable regulatory environment in 2022, such as the introduction of an Open Banking Policy.

Open Banking Policy, which allows financial technology companies to access customers' financial data with their consent, has been a major milestone. This helped to develop a more interconnected and competitive financial ecosystem. SAMA also announced that, compared to the previous year, a 40% increase in Fintech licenses has been issued for 2022, indicating growing interest among entrepreneurs and investors.

KSA's groundbreaking regulatory sandbox reshapes fintech, fostering innovation and growth

Growth:

Digital transformation emerged as a key driver behind Saudi Arabia's Fintech sector growth. The country experienced a rapid increase in smartphone penetration and internet usage, particularly among the younger demographic. A Statista report revealed a 25% increase in mobile banking usage in 2022, indicating a significant shift in consumer behaviour towards online banking, mobile payments, and digital financial management.

This surge in digital adoption provided fertile ground for Fintech companies to introduce innovative solutions, including digital wallets, robo-advisors, and peer-to-peer lending platforms.

The rapid growth of Saudi Arabia’s Fintech industry aligns perfectly with KSA’s Vision 2030 goals which aim at transforming the financial, economic and social structure of the landscape.  Economic diversification is of the utmost importance to Vision 2030 and the Fintech sector plays a pivotal role in realizing this vision. The rapid digital transformation, and increased smartphone penetration and internet usage, make the aspirations of the technological advancements of Vision 2030, a reality.

As the youth embraces digital financial solutions, the Fintech sector becomes a key player in achieving the goals of Vision 2030. The reported 25% surge in mobile banking usage shows the shift towards a modern, tech-savvy economy. Regulatory support for Fintech innovation along with the broader strategy of fostering a vibrant and diversified economic landscape make Saudi Arabia a land ripe with possibilities.

Furthermore, Fintech's role in financial inclusion joins hands with Vision 2030's commitment to building a more inclusive society. By leveraging innovative digital platforms, Fintech contributes to providing accessible financial services, aligning with the vision's social development objectives.

Youth-driven surge: 25% spike in mobile banking reshapes financial landscape.

Fintech Sector Growth Statistics:

The Fintech sector in Saudi Arabia has undergone an impressive 300% growth since 2021, with the number of companies soaring from 89 in 2022 to 200 in 2023. In 2022, the sector generated approximately $746 million in revenue. Investments in Fintech startups across the MENAPT region surged from $200 million in 2020 to about $885 million in 2022. Projections indicate that MENAPT Fintech revenue will triple, reaching between $3.5 and $4.5 billion by 2025. Furthermore, Saudi Arabia has ambitious plans to elevate foreign direct investment (FDI) levels by 20%, targeting $3.2 billion by 2030, showcasing the country's commitment to economic advancement.

In essence, the growth of Fintech in Saudi Arabia serves as a tangible manifestation of Vision 2030's commitment to harnessing technology for economic diversification, innovation, and inclusive development. As the Fintech sector continues to flourish, it becomes an integral component in the realization of Saudi Vision 2030.

Saudi Fintech Boom: 300% Growth, 200 Companies, $4.5B Revenue by 2025

Opportunities for Fintech in Saudi Arabia:

4.1 Financial Inclusion:

The Fintech sector in Saudi Arabia presents a unique opportunity to address the issue of financial inclusion, a key emphasis of Vision 2030. The goal is to ensure that all segments of society have access to financial services. Fintech companies can play a pivotal role in reaching underserved populations through innovative solutions such as digital wallets and microfinance platforms.

In order to promote income diversification, increase savings and offer various financing and investment opportunities, the Financial Sector Development Programme brings together a key role in shaping the future of Saudi Arabia's financial sector. The Financial Sector Development Programme focused on banking, insurance, stock market and debt markets, was established for the purpose of making a difference within Saudi Arabia's finance sector.  The programme is contributing to the growth and development of the Kingdom's financial markets, in order to help its banking institutions improve their strength and competitiveness. The Program works hand-in-hand with the Saudi Central Bank (SAMA) to provide banking services that are more accessible. The Program aims to contribute to the stability and growth of the banking system in order to make it more convenient through investments in technology and a broad range of financial products and services. To create an evolving capital market, which offers a wide range of products, the Commission also worked with the Capital Market Authority. The Program is working tirelessly to modernize the financial landscape in Saudi Arabia by updating laws and regulations to meet the highest international standards.

Fintech in Saudi: Vision 2030 Inclusion, Financial Evolution, and Regulatory Modernization—Transforming Banking, Investments, and Accessibility for All

4.2 Payments & Currency Exchange:

Nearly a third (32%) of the fintech in the Fintech Saudi database are involved in payments and currency exchange. Total AUM in the Digital Investment market in Saudi Arabia is projected to be US 1,567m in 2023. The number of users in the Kingdom is expected to amount to 37.62 million by 2027 in the Digital Payments market.

Key Stats: Fintech Focus on Payments, $1.57B AUM, 37.62M Users

4.3 Lending & Finance:

Currently, 19% of Fintech companies in Saudi Arabia are operating in the Lending and Finance sector. In order to increase the diversification of the financial services sector Saudi Arabia aims to increase the volume of Debt Instrument as a percentage of GDP to 24.1% in 2025 as compared to 14% recorded in 2019. 

Finance Focus: 19% Fintechs in Lending, Saudi Aims 24.1% Debt

4.4 Treasury Management & Insurance:

12% of Fintech companies are working in the Treasury Management & Insurance sector. KSA aims to develop a thriving and sustainable economy by contributing towards the support of private sector growth for which the program is committed to increasing gross written premiums as a percentage of non-oil GDP to 2.4% by 2025 compared to 1.9% recorded in 2019.

The Central Bank of Saudi Arabia (SAMA) granted approvals for the trial operation of several insurance brokerage firms in 2018 to keep pace with the accelerating global trends. The rules, issued in 2020, overcome the regulatory challenges of the development of electronic insurance business activities and facilitate the entry of entrepreneurs under a guaranteed regulation while preserving the rights of the beneficiaries.

Insurance Focus: 12% Fintechs, Saudi Targets 2.4% Premiums by 2025

4.5 Private Fundraising:

In the Private Fundraising sector, there are around 10% of Fintechs operating. One aim of Vision 2030 is to increase cumulative VC investments by SAR 12.2 Bn as a part of the Fintech development strategy. In Saudi Arabia's Fintech Market Size report by Mordor Intelligence, it is expected that the Fintech sector will be valued at USD 6.5 billion by 2026 which was valued at USD 2.5 billion in 2022. This Trend shows a CAGR of 16.5% over the 2021-26 forecast period.

With a mission to develop 525 active Fintech companies by 2023, KSA is aiming to reach a target of SAR 13.3 billion ($3.6 billion) towards the GDP contribution by the year 2030. The current level of GDP contribution of Fintech companies accounts for SAR 1.2 billion ($ 317 million) as of 2021.

Funding Focus: 10% Fintechs, Vision 2030 Targets SAR 13.3B Contribution

The Fintech Future:

The Fintech sector in Saudi Arabia is experiencing a transformative wave propelled by regulatory reforms, increasing digital adoption, and the ambitious Vision 2030 initiative. It is a promising hub for financial technology in the Middle East, thanks to the Kingdom's commitment to fostering innovation. A collaboration between the parties is critical to unlock the potential of Fintech and realize Vision 2030's ambition, as Saudi Arabia tries to diversify its economy and make itself globally competitive.

The youth population of almost 70 % under 35 has defined the national fintech landscape in Saudi Arabia, setting up a dynamic market for innovation financing solutions. The foundation for growth in the Fintech sector is the high use of smartphones, widespread internet connectivity and evolving consumer preferences. Saudi Arabia will be a global hub for Fintechs thanks to Vision 2030 and its supportive business environment.

The Kingdom's strategy for financial technology, which was included in the Financial Sector Development programme launched in 2018, is an essential part of this vision. Innovation, global positioning and the development of talent are prioritized in this strategy. Initiatives to attract local and international financial technology companies are supported by a regulatory sandbox provided by the Saudi Central Bank. Significant growth in revenue has been achieved by some promising startups such as Lean Technologies or Mod5r, a demonstration of the sector's potential.

Saudi Arabia's proactive approach includes incentivizing Fintech startups through streamlined licensing processes and substantial investments. The government's commitment to hosting 525 active Fintech firms by 2030 underscores the urgency and importance placed on the sector's development. The Financial Sector Development Program aligns with Vision 2030's broader objectives, targeting an increase in lending from 5.7% to 20% by 2030, contributing to GDP growth and job creation.

In terms of investment, significant financial commitments are being made to propel the Fintech sector forward. In parallel, to facilitate the introduction of new firms into the market, there has been an increase in the speed with which licenses can be obtained. In order to build a thriving ecosystem where innovation can thrive, this proactive approach is crucial so that Saudi Arabia becomes an active player on the global financial technology scene.

To conclude, based on regulatory reform, increased digital penetration and the overarching Vision 2030 initiative, Saudi Arabia's fintech sector is at the forefront of transformative change.  The Kingdom's commitment to promoting innovation stands it in a good position as a centre of finance technology in the Middle East. Cooperation between interested parties is essential to exploit the full potential of fintech and realize Vision 2030's objectives, in order for Saudi Arabia to continue its march toward Economic Diversification and Global Competitiveness.