Neobank Licensing Sets Stage for Saudi FinTech Acceleration

In the evolution of FinTech in any given market, there are certain phases and milestones that can be observed. For example, the development of payment applications typically precipitates a wave of digital banks that cater to increased consumer appetite for digital payments. 

In Saudi Arabia, for example, the central bank-backed organization responsible for cultivating the Kingdom’s FinTech sector, FinTech Saudi, stated in its recently published 2022 annual report that 30% of FinTechs currently registered in its database are involved in developing payment solutions.

Yet as the report also notes, the granting of banking licenses to three homegrown neobanks — STC Bank and Saudi Digital Bank in June 2021 and D360 in February of this year — promises to accelerate the pace of innovation across the FinTech sector as well as create new possibilities that extend well beyond payments. 

The three newly approved banks also mark the first time since Alinma Bank was licensed in 2006 that new locally-based banks have launched in the Kingdom, signaling a new maturity in the country’s FinTech landscape.

Following a pattern that has been witnessed elsewhere, the new banks have their origins outside of the traditional banking sector.

Learn more: PYMNTS Digital-First Banking Tracker 

The first, STC (Saudi Telecom Company) Bank, started out life as a digital wallet — STC Pay when it launched in 2018. 

Since then, the mobile wallet has evolved to incorporate a full suite of payment services, including virtual and physical card issuance and multiple accounts. International transfers are enabled via a partnership with Western Union which agreed to acquire a 15% stake in the company in 2020.

And following that $200 million Western Union deal, STC Pay became the first Saudi unicorn and one of the first FinTechs in the region to be valued at over $1 billion. 

The firm is currently graduating from a financial app to a fully-fledged digital bank, at which point it will be able to offer its 8 million retail customers and over 120,000 merchant clients a greater range of services, including lending and savings products. 

The second neobank to be licensed in Saudi Arabia is the Saudi Digital Bank (SDB), which is being financed by Artar, a holding company with investments that span real estate, construction, technology and food.

Although the project is currently under wraps, with few official statements about plans for the new bank, some clues can be found in FinTech Saudi’s annual report, which states that SDB was licensed to deliver “hyper-personalized financial services and products” to customers in the local retail and small- to medium-sized business (SMB) markets. 

Finally, D360, which was granted its license by the Saudi Central Bank (SAMA) earlier this year, is a sharia-compliant neobank backed by the Kingdom’s public investment fund alongside a number of private sector investors.

Related: PYMNTS GCC Series: Saudi Arabia, at the Intersection of Tech and Islamic Finance

With part public ownership, the new digital bank is expected to cater to segments of the Saudi population that traditional financial institutions have underserved.

Neobanks’ Role in Digital Transformation

Once a cash-heavy economy, KSA is undergoing significant changes thanks to the growth of FinTech in recent years.

From just 18% in 2016, the government projects that 70% of all payments in the country will be non-cash transactions by 2030.

What’s more, thanks to a FinTech-friendly regulator which spearheaded the creation of FinTech Saudi in 2018 and the implementation of a national FinTech strategy this year, the wider ecosystem is also evolving rapidly.

That strategy seeks to increase the number of FinTech companies in the Kingdom to 525 by 2030. The FinTech Saudi annual report notes that there are already 147 firms operating in the sector, a 79% increase since last year.

Ultimately, the fresh perspective and nimble operational model embodied by neobanks have the potential to drive innovation further in Saudi’s digital finance sector and beyond. 

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