Neobank Licensing Prepares The Way For Saudi FinTech Growth
Certain stages and benchmarks may be noticed in the emergence of FinTech in every particular market. For instance, the development of payment apps often spawns a wave of digital banks that cater to an increasing customer desire for digital payments.
In Saudi Arabia, for instance, the agency tasked with fostering the Kingdom’s FinTech industry, FinTech Saudi, noted in its recently issued 2022 annual report that 30 percent of FinTechs now listed in its database are engaged in the development of payment solutions.
Yet, as the report also notes, the granting of banking licences to three homegrown neobanks — STC Bank, Saudi Digital Bank, and D360 in June 2021 and February of this year, respectively — promises to accelerate the rate of innovation across the FinTech sector and create new opportunities that go far beyond payments.
The three newly permitted banks also represent the first time since Alinma Bank was established in 2006 that new locally-based banks have started in the Kingdom, marking a new level of maturity in the FinTech landscape of the nation.
In accordance with a trend seen elsewhere, the new banks have roots outside the existing banking system.
The first, STC (Saudi Telecom Company) Bank, began life as a digital wallet — STC Pay — when it debuted in 2018.
Since then, the mobile wallet has expanded to integrate a whole suite of payment services, such as virtual and real card issuing and numerous accounts. International transfers are made possible via a cooperation with Western Union, which has pledged to buy a 15% interest in the business by 2020.
And after the $200 million transaction with Western Union, STC Pay became the first Saudi unicorn and one of the first FinTechs in the area to reach a valuation of over $1 billion.
The company is gradually transitioning from a financial app to a full-fledged digital bank, at which time it will be able to offer its 8 million retail users and more than 120,000 merchant clients a wider array of services, including loan and savings products.
The second neobank to be permitted in Saudi Arabia is the Saudi Digital Bank (SDB), which is funded by Artar, a holding firm whose assets cover real estate, construction, technology, and food.
FinTech Saudi’s annual report reveals that SDB was authorised to provide “hyper-personalized financial services and products” to clients in the local retail and small- to medium-sized business (SMB) sectors.
Finally, D360 is a sharia-compliant neobank supported by the Kingdom’s state investment fund as well as a number of private sector investors. D360 received its licence from the Saudi Central Bank (SAMA) early this year.
With a portion of public ownership, the new digital bank is planned to service underserved areas of the Saudi populace by existing banking institutions.
The Role of Neobanks in Digital Transformation
Due to the rise of FinTech in recent years, Saudi Arabia’s economy, which was once cash-based, is experiencing substantial transformations.
From only 18% in 2016, the government forecasts that by 2030, 70 percent of all payments in the nation would be non-cash.
In addition, owing to a FinTech-friendly regulator that led to the formation of FinTech Saudi in 2018 and the execution of a national FinTech plan this year, the ecosystem as a whole is fast developing.
This initiative is to grow the number of FinTech firms in the United Kingdom to 525 by 2030. The FinTech Saudi annual report highlights that there are presently 147 enterprises functioning in the industry, a 79% growth from the previous year.
Ultimately, the novel viewpoint and agile operating model shown by neobanks have the ability to promote innovation in Saudi Arabia’s digital financial industry and beyond.
