Returns on Zeros and Ones

Today's financial services industry is an amalgam of ATM and card transactions, with comprehensive online banking, payment, and investment services no further than one's mobile phone. The Kingdom of Saudi Arabia is riding the trend.

Fundamental to the wider objectives of Saudi Vision 2030, in a bid to expand its international footprint and attract FDI, Saudi Arabia is successfully revamping its financial sector into an intelligent ecosystem. One mainstay is the Financial Sector Development Program (FSDP), which has been tasked with galvanizing an economy diversified beyond energy with an aggressively competitive private sector.

Safety in Numbers

The Saudi Arabian Monetary Authority’s (SAMA) goal within the FSDP program is to boost economic development by fostering greater financial participation, notably in terms of savings and investment. The program factors in the sheer scope and potential of fintech in facilitating transactions, shoring up security and, in doing so, securing investor confidence in a well-regulated environment. This becomes all the more significant when one considers that one of the leading crimes in the Kingdom is payment fraud—Kryptonite to customer and investor alike. The race is now on to meet present needs, identify future trends, and adopt fintech solutions accordingly.

Establishing the Ecosystem

As a core part of the smart economy, the KSA aims to build a smart financial center sharpened by cutting-edge technology. Back in 2018, the KSA launched FintechSaudi, a program of education on and promotion of the fintech revolution. Then, early in 2019, SAMA set about creating a sandbox regulatory environment to incubate leading-edge technologies for the financial services market. Innovation by its very nature relies on that stab in the dark. The sandbox, then, provides the freedom to either fail or strike oil before entering the highly regulated “real world” of costly consequences. On the testing range have been e-wallet services, as well as P2P transfers, point of sale (POS) devices, and SADAD bills, among others. SAMA launched the SADAD Payment System as the KSA’s national Electronic Bill Presentment and Payment (EBPP) service provider. The ultimate purpose of the sandbox is the commercialization of useful fintech in the local market. Importantly, too, foreign innovators are welcome.

By February 2019 SAMA had authorized 11 local and international banks to open accounts, while seven firms were providing diverse digital payment services through the sandbox. And by June 3, 2019, the Central Bank had issued trading licenses to 14 fintech firms active in lending and payment services, raising the grand total of fintechs in the KSA to 21. Attesting to the competitive and burgeoning nature of fintech, sector data predicts a total of 465 players in the MENA region by 2020.

Revving-up the Start-ups

The great idea born in a humble garage is by now a worn cliché, yet, like all clichés, it bears a kernel of truth. Big innovation often starts small, before the quantum leap. The KSA authorities will certainly not have missed the recent IPOs of two regional fintechs on the London bourse. Keen to develop its own entrepreneurial ecosystem of innovators then, Saudi Vision 2030 aims to raise SMEs’ economic contribution to GDP from 20% to 35% by 2030. The Public Investment Fund (PIF), boasting capital of USD1.1 billion, facilitates private-sector participation in essential technologies. Meanwhile, the state’s Meras program enables start-ups to set up shop in just one day.

An exemplar of timely change, in late 2018 Saudi Telecom Company moved to launch a pioneering fintech platform—a digital wallet—to serve the estimated 6.4 million unbanked population.
More recently, in July 2019 US blockchain-identity verification company ShoCard partnered with leading ATM provider Alhamrani Universal to present blockchain-based authentication that provides security against card fraud and at the ATM, which remains a concern in the Kingdom.

Saudi Arabia, then, by incentivizing small businesses that think big, will not lag behind the shift toward fintech solutions, which can only gain greater importance in the economy.