How the Saudi government has streamlined the kingdom for Fintech

In 2016, Saudi Arabia’s Vision 2030 was launched, followed by several comprehensive programs designed to achieve specific goals and objectives set out in the broader strategy, and the Financial Sector Development Program (FSDP) is one such program.

The FSDP has made several commitments to be achieved by 2025, which include supporting financial institutions, promoting new fintech companies, financing SMEs and increasing cashless operations. It aims to digitize the economy and convert 70% of all transactions in the Kingdom into cashless payments by 2025. The program’s efforts have had a major impact on Saudi citizens, especially supporting Saudis through the trying times the world has been through during COVID-19. -19 pandemic, which has accelerated the use of digital solutions, many of which require e-payment gateways.

Before 2016, there had been a very small number of fintech players in the Saudi market; one reason for this inactivity identified by the Saudi government was the lack of clarity in the guidelines, and the unregulated nature of the fintech market up to that point. The main stakeholders that have really paved the way for the development of the fintech ecosystem since then are the Saudi Central Bank (SAMA) and the Capital Market Authority (CMA). The two institutions have different responsibilities, but share a common goal: to regulate and develop the financial sector.

Established in 1952, SAMA was previously known as the Saudi Arabian Monetary Authority before changing its name in 2020. Its mission is to maintain monetary and financial stability in the Kingdom, as well as to support balanced economic growth. In 2019, the central bank officially established its digital payments arm, Saudi Payments, which operates the technological infrastructure of various payment systems for the government and Saudi institutions, such as Mada, SADAD, SARIE and Esal.

Mada was established in 1990 as the Saudi Payments Network (SPAN). It connects automatic teller machines (ATMs) and point-of-sale (POS) terminals to a central payment switch, and it has succeeded in boosting their growth, as the number of cards increased by 11% on average between 2018 and 2021, and the number of POS terminals during of the same time has increased with a compound annual growth rate (CAGR) of 42%.

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Meanwhile, Esal is a national electronic platform for business payments (e-invoicing) that provides services to public entities and businesses. In 2019, 99.9% of public payment activities were cashless. As for SADAD, it is a national electronic bill presentation and payment (EBPP) service provider that facilitates payment transactions such as energy, telecommunications and other government bills. Finally, SARIE is an instant payment system to facilitate cash transactions across local banks and is available 24/7.

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As a result of these four platforms, the Kingdom is set to reach the goal of 70% cashless transactions by 2025. In 2021, the Kingdom hit a milestone when cash was no longer the most common means of payment, as 57% of transactions had gone cashless. In 2018, SAMA also launched a regulatory sandbox to attract local and international fintech companies to infuse new fintech technologies into the Saudi market. Today, 42 firms have received permission to operate under the sandbox, of which 15 have received fintech licenses from SAMA to operate in the great kingdom.

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The Capital Markets Authority regulates the Kingdom’s capital markets by developing an appropriate and transparent investment environment, protecting investors and dealers from illegal actions. One of the most important initiatives it has launched is the Fintech Lab, which is a legislative experimental environment that attracts local and international firms, and allows fintech products and services related to securities activity to test innovative business models.

SAMA and CMA gave birth to Fintech Saudi in 2018, which is tasked with supporting the development of the Kingdom’s fintech ecosystem and positioning the Kingdom as an innovative fintech hub. The Fintech Accelerator Program provides support, coaching and mentorship to fintech companies. 12 fintech startups participated in the program this year, and the three winners were awarded a financial grant of SAR50,000 each by Wa’ed’s incubation program.

Venture capital firms such as Wa’ed Ventures have shown confidence in the fintech sector even before it took off. Ali Abussaud, chairman of Hala Ventures, echoes the sentiments of many Saudi venture capitalists, stating that he believes the fintech sector will continue to grow. “Payments and SMEs will continue to lead, and crowdfunding will be the next area of ​​development for Saudi’s fintech sector,” he says.

Learn more about the most prominent venture capitalists in Saudi’s startup ecosystem by checking out the report, The Evolution of Saudi Arabia’s Startup Ecosystem 2010-2022.

This article was originally published on Lucidity Insights, a partner of Entrepreneur Middle East to develop special reports on the Middle East and Africa’s technology and entrepreneurial ecosystems.