Having a deadline to work to can often be the incentive you need to push yourself that one bit further in achieving your goal. For the Kingdom of Saudi Arabia, this is the Vision 2030. It has helped accelerate the region’s fintech growth – but more can still be done.
Analysing the impact of Vision 2030 and KSA’s growth as a fintech hub, we hear from Nauman Hassan, regional director for MENA, Paymentology, the global card issuing and processing platform.
How Saudi Arabia became a hotspot for fintech innovation
While it has traditionally been recognised for its abundant natural resources, Saudi Arabia is rapidly positioning itself as a global frontrunner in the fintech arena. The magnitude and speed of its digital transformation have been nothing short of remarkable.
This signifies Saudi Arabia’s progression towards its ambitious Vision 2030 initiative, a roadmap for socio-economic transformation. A critical aspect of this vision is to triple the country’s fintech entities and digitalise 70 per cent of all financial transactions by the year 2025.
What elements have contributed to the Kingdom’s metamorphosis into a fintech hotspot for innovation? And what has catalysed this extraordinary growth trajectory?
A dynamic strategy for the future
A good starting point is an understanding of the broader scenario. The Middle East and Africa (MEA) is shifting the economy substantially. As a result, it is transitioning from excessive dependence on government spending and the energy sector to a more equitably diversified economic structure driven by private sector investments.
Furthermore, the Financial Sector Development Programme (FSDP) is bolstering Saudi Arabia’s digital approach. The FSDP’s primary aim is to foster a robust financial services sector within the Kingdom. Fintech services have emerged as one of the most sought-after segments, with a growing demand driven by a surge in urbanisation.
This has prompted projections around Saudi Arabia’s fintech market size to be expected to soar from $39.04million in 2023 to an impressive $69.23million by 2028, indicating a compound annual growth rate of 12.14 per cent over a five-year period (2023-2028). The Kingdom is moving towards a cashless society, as for the first time, cashless transactions have outpaced cash ones, reaching 57 per cent in 2021.
Key elements behind the fintech revolution
Multiple converging trends are fueling this expansion—first, a significant smartphone penetration rate. In early 2023, the Kingdom registered a total of 42.5 million mobile connections, amounting to 116 per cent of the entire population. This proliferation of mobile devices naturally breeds demand for mobile payment solutions. Additionally, 5G and cloud services are conveniently available across the Kingdom.
At the same time, e-commerce is gaining traction, not merely among consumers, but also at the institutional level—with Saudi Arabia launching new governmental initiatives led by the Ministry of Commerce to bolster this sector domestically.
Alongside these developments is the Middle East’s substantial population of transient and immigrant workers. The prevalence of remittances, as foreign workers transfer money back to their home countries, adds another facet to the region’s financial landscape. As a combination, all of these elements taken together have catalysed the surge in the Kingdom’s fintech industry.
Paving the way for advanced processors
Such shifts are triggering a re-evaluation of payment methods, requiring next-generation processors and advanced financial technologies. As Saudi Arabia’s fintech sector eases its regulatory framework and furthers its digital transition, a myriad of opportunities emerges. Companies like Paymentology are igniting the launch and growth of startups and neobanks throughout the Kingdom by providing the essential technical infrastructure needed for their initiation and expansion.
This includes entities like Tweeq, a notable Saudi fintech company that was among the first to secure an e-money license from the Saudi Central Bank (SAMA) in November 2022. With its official endorsement from SAMA, Tweeq has successfully launched its mobile-first super-app.
Generation Z: spearheading the fintech revolution
The Tweeq super-app is specifically tailored to align with the preferences of millennials and Generation Z, helping them make transactions in the efficient digital manner that they have come to expect as the norm. Additionally, the younger cohorts show the highest adoption rates for fintech – in the Kingdom, the usage of fintech among individuals between 16 to 39 years of age has crossed the 80 per cent mark.
Younger generations are not merely consumers in the evolving fintech landscape but also innovators – including pioneering entrepreneurs who are not only adopting fintech but also actively influencing its future direction. A prominent example is the teen-centric fintech startup Zywa, founded by Alok Kumar and Nuha Hashem, who were born and raised in Saudi Arabia.
A surge of investment
In addition to the factors already mentioned, there is a strong domestic demand for financial services accompanied by a surge in the Kingdom’s fintech investment pipeline. The last few years have witnessed unprecedented funding growth, with the Saudi fintech sector raising SAR1.5 billion ($402.2 million) between September 2021 and August 2022.
Fintech firms have attracted investments from both local and global firms, including major players like Sequoia, 500 Global, and Mastercard. The Kingdom’s fintech sector witnessed 16 venture capital investments from January to August 2022, collectively amounting to a total deal value of $157.2million. This marks a significant leap from 2020, which saw a total of $7.8million across seven venture deals.
In conclusion, the expansion of the Kingdom’s fintech sector has positioned it as one to watch closely. Fueled by a combination of contributing factors, the mounting momentum demonstrates the country’s commitment to its digital journey – now and in the decades ahead.