Fertile fintech scene driving digital banking in Saudi Arabia

Special Fertile fintech scene driving digital banking in Saudi Arabia
Saudi Arabia has undergone a significant transformation in its banking sector. Shutterstock
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Updated 17 June 2024

Fertile fintech scene driving digital banking in Saudi Arabia

Fertile fintech scene driving digital banking in Saudi Arabia

RIYADH: The digital revolution within Saudi Arabia’s banking sphere has significantly enhanced the nation’s economic panorama, facilitating effortless financial transactions for customers, experts have told Arab News.

Situated in the heart of the Middle East, the Kingdom stands out not just for its deep-rooted history and cultural legacy but also for its swift embrace of digital advancements, notably within the banking domain.

In recent years, the nation has undergone a significant transformation in its banking sector, propelled by the ambitious Vision 2030 program led by Crown Prince Mohammed bin Salman.

This visionary endeavor seeks to broaden the economic landscape, diminish reliance on oil income, and propel the country forward into a new age of prosperity. 

In an interview with Arab News, Saudi-based economist Talat Hafiz set out how the digital transformation has positively impacted the overall economic landscape of the country. 

Hafiz said: “It has allowed (customers) to perform financial transactions and conduct financial businesses related transactions real-time around the clock and year round, which has facilitated  doing business in the Kingdom and in turn have reflected positively on the overall economy, as it has saved time and efforts and ultimately cost reduction to businesses.”

Fabrice Franzen, partner at Bain & Co., told Arab News that the Kingdom has been one of the first countries to avail full digital banking licenses without the need for branches. 

“SAMA (Saudi Central Bank) has actively promoted the digital bank model, and three licenses were issued to local investors and companies, which should go live imminently,” he added.

Franzen anticipated that this should create healthy competition with the traditional players and drive further innovation and enhance customer experience.

Infrastructure and government support

The journey toward digitalization commenced with substantial investments in telecommunications infrastructure. 

This effort positioned Saudi Arabia as a frontrunner in digital regulatory maturity and network speed among G20 nations. 

According to the International Telecommunication Union’s Digital Regulatory Maturity Index, the Kingdom secured the top spot in the Middle East and Africa and ranked ninth among G20 countries. 

Notably, Saudi Arabia stood sixth globally in terms of the fastest data download speed in fifth-generation networks, showcasing its remarkable progress. 

The rise of digital banks and banking solutions

STC Bank was given the go-ahead in 2021. Screenshot

Demonstrating the government’s backing for digital transformation within the banking sphere, the Saudi Cabinet greenlit the licensing of two local digital banks in 2021: STC Bank and the Saudi Digital Bank.

This involved the conversion of stc pay into a local digital bank, now known as “STC Bank,” equipped to conduct banking operations in the Kingdom with a capital of SR2.5 billion ($670 million). 

Furthermore, an alliance of companies and investors spearheaded by Abdul Rahman bin Saad Al-Rashed and Sons Co. established another local facility named the Saudi Digital Bank, with a capital of SR1.5 billion. 

The introduction of the Saudi Arabian Riyal Interbank Express, also known as SARIE – which translates literally from Arabic as “fast” – marked a significant turning point for the digital banking sector in the Kingdom. 

This system not only boosts the efficiency of the national payment infrastructure but also aligns seamlessly with the ongoing developmental trajectory observed within the Kingdom’s payments sector.

According to Hafiz, this system provides the mechanism for all Saudi commercial banks to make and settle payments in riyals. 

The economist added: “It provides the basis for improved banking products and services and is the foundation for the payments system strategy of the Kingdom.” 

Hafiz asserted that SARIE is a “state-of-the-art payment,” as it provides the mechanism for banks to exchange funds transfer and direct debit messages safely and efficiently on behalf of their customers as well as for their own trading purposes. 

SAMA has consistently demonstrated a strong interest in promoting safety and enhancing efficiency within payment systems, aligning with its overarching focus on financial stability, according to the economist. 

As a result, the central bank plays a pivotal role in both the development and operation of payment systems in the Kingdom. 

SARIE, for Hafiz, has undoubtedly represented a significant milestone, profoundly impacting consumer behavior and the operational efficiency of financial institutions across the nation.

Saudi Arabia’s support for fintech companies

The rollout of accelerator programs aimed at bolstering the expansion of emerging fintech companies marked a significant catalyst for the sector’s advancement. 

This initiative was crafted to facilitate the transfer of best practices, tools, and resources to empower emerging firms in the financial technology domain, fostering their growth and amplifying their presence within the Kingdom.

SAMA has been actively supporting the emergence of the fertile fintech scene in Saudi Arabia, providing a wide range of licensing options, according to Bain and Co. 

“Local investors (institutional, family offices) are also actively investing in fintech, providing a healthy flow of seed capital and supporting subsequent capital raises,” the partner told AN.

He added that Saudi fintechs benefit from a sizable domestic market of over 30 million residents, enabling rapid scaling.

Hafiz noted the significance of this program particularly when it comes to supporting new startup fintech companies because such programs are carefully designed to help fintech companies accelerate their growth by providing different services that help them through a fast-track program to scale up their businesses. 

“The national Fintech Strategy goals and objectives are to create 525 Fintech companies in the Kingdom that create 18,000 Fintech job opportunities and contribute SR13.3 billion to the Kingdom’s Gross Domestic Product by 2030,” the economist highlighted.

The Saudi Central Bank has supported the growing fintech scene in the Kingdom. File

Rapid growth in electronic payments

By the end of 2021, the retail sector in the Kingdom witnessed a significant milestone in digital transformation: electronic payments accounted for 57 percent of total transactions, surpassing the target set by Vision 2030, according to data from the central bank. 

Additionally, Saudi Arabia achieved the highest adoption rate of Near Field Communication, NFC, payments, reaching 94 percent, outpacing even nations in the EU, as well as Hong Kong, Canada, and the Middle East and North Africa region.

Financial literacy and inclusion

Financial inclusion in Saudi Arabia aims to provide affordable financial services to all citizens, aligning with government efforts to enhance financial literacy and economic participation. 

This is becoming a major concern for the financial authorities in Saudi Arabia, according to Hafiz. 

He attributed it to the aim of making financial services available to all individuals in the Kingdom at affordable pricing, supporting the government’s efforts connected to raising the financial literacy in the society. 

One of the main goals and objectives of the Financial Sector Development Program – a Saudi Vision 2030 program – is to raise individuals’ financial literacy through proper financial planning and investment.

“Policymakers in Saudi Arabia have implemented robust policies that encourage and ensure the enhancement of financial inclusion, since it has been identified as imperative for economic growth,” Hafiz added.

According to Franzen, the Financial Services Development Program has set an ambitious trajectory to develop the sector as a way to support financial inclusion, literacy, and efficiencies.

“This is benefiting the economy and Saudi citizens as they have enhanced access to cheaper and more secure banking solutions,” he added.

Diverse digital banking ecosystem

The digital banking landscape in Saudi Arabia is vibrant, offering a range of services to cater to evolving consumer needs. 

“With three full digital banking licenses approved, Saudi Arabia is at the forefront of promoting full digital banking solutions – at par with the UAE and well ahead of other GCC (Gulf Cooperation Council) countries,” Franzen said.

He observed that the Kingdom could rely on advanced regulations for biometric customer identification and centralized databases, greatly easing digital onboarding and authentication.

Online banks, neo-banks, challenger banks, and Banking-as-a-Service all play roles in the digital revolution. 

“While neo-banks and challenger banks are still nascent in the market, one should expect that they will drive a higher speed of innovation and will put pressure on traditional players,” Bain and Co. partner emphasized.

“Similar trends have been observed in other markets such as the UK when new digital banks came to challenge the High Street incumbents,” he continued, adding: “This has led to cheaper and more reliable financial services becoming the norm in the UK market (no or very low fees, instant solutions), to the benefit of the customer.” 

According to a report by KPMG, a global network of professional firms providing financial services, neo-banks hold a 20 percent market share in Saudi Arabia’s digital banking sector.

Furthermore, online banks claim 30 percent, while the Banking-as-a-Service segment is projected to reach a market valuation of $7 trillion by 2030, with a yearly growth rate of 26 percent.

Enhanced customer experience

Banks are prioritizing improving customer experience through advanced technologies. AI-driven chatbots offer instant support, and data analytics enables personalized financial advice. These advancements streamline operations and cultivate customer loyalty.

“In Saudi Arabia, 95 percent of people who hold bank accounts and have access to the internet prefer digital over traditional banking channels, such as physical branches and phone banking,” according to a report by Backbase, a Dutch financial technology company.

Bain and Co. partner said that “while customers have grown accustomed to managing their lives from the comfort of their home on their phone (ride-hailing, food delivery, online shopping, home entertainment), they expect a similar service from the banks.”

Franzen added that mobile solutions offer an attractive alternative for those living in remote areas of the Kingdom where branch density is much lower than in the main urban hubs. It also offers cheaper banking solutions for those with lower income.

Future trends and projections

With the rise of pure digital banking entities intensifying their operations, a notable trend is emerging: a surge in account openings, both initially and for secondary accounts, as customers explore branch-less alternatives. 

Franzen said that as confidence in these digital-only players grows, a shift towards them serving as primary banks is anticipated, akin to the trajectory witnessed in countries like the UK, where neo-banks have secured over 25 percent of primary banking relationships.

“One key potential technology unlock to drive digital financial services would be increased flexibility on cloud usage and data residency rules,” he added.

SAMA chief lauds global efforts to contain inflation

SAMA chief lauds global efforts to contain inflation
Updated 49 min 20 sec ago

SAMA chief lauds global efforts to contain inflation

SAMA chief lauds global efforts to contain inflation

RIYADH: Saudi Central Bank governor praised the “well-calibrated” monetary policies adopted by global financial institutions to tackle inflation and bolster the resilience of the world economy amid diverse challenges.

Ayman Al-Sayari spoke at a session titled “Global Economic Outlook and Ongoing Challenges” during the third meeting of Finance Ministers and Central Bank Governors of G20 held under the Brazilian presidency, according to statement issued on the apex bank’s X handle.

He presented a comprehensive perspective on global economic challenges and policies.

The top Saudi official stressed the importance of ensuring that the nominal growth rate exceeds the interest rate to mitigate risks to global growth in the near term. This principle advocates for sustaining economic expansion while managing debt dynamics effectively.

Al-Sayari highlighted significant medium-term risks confronting the global economy, including ongoing geopolitical conflicts and trade fragmentation. These factors contribute to uncertainty and potential volatility in the international economic landscape.

Regarding energy transition efforts, he acknowledged the global scale-up of renewable energy usage but expressed concern over increased fossil fuel consumption and carbon emissions in 2023. Al-Sayari cautioned against rushed actions and underscored the need for a balanced approach toward achieving sustainability goals without compromising economic stability.

“We are all for reducing greenhouse gas emissions,” the SAMA chief said.

Al-Sayari identified rising income inequality as a critical issue. He underscored the importance of implementing targeted social benefits and well-designed labor market policies to bridge this gap.

Saudi airline flynas to buy 160 Airbus planes

Saudi airline flynas to buy 160 Airbus planes
Updated 25 July 2024

Saudi airline flynas to buy 160 Airbus planes

Saudi airline flynas to buy 160 Airbus planes
  • Deal includes order of 30 wide-body A330neo aircraft and 130 narrow-body A320 family aircraft
  • Head of flynas, Bander Al-Mohanna, said agreement ‘reinforces our determination to establish flynas as a leading global low-cost carrier’

RIYADH: Saudi low-cost airline flynas has signed a deal to purchase 160 Airbus aircraft, doubling the volume of its orders to 280 planes. 

The “landmark agreement,” signed at the UK’s Farnborough International Airshow, includes an order of 30 wide-body A330neo aircraft and 130 narrow-body A320 family aircraft, the carrier said in a statement.

This falls in line with the Saudi Vision 2030 aimed at transforming the aviation sector and supporting flynas’ ambitious expansion under the slogan “We connect the world to the Kingdom.” It also cements the carrier’s status as one of the top four low-cost airlines worldwide.

The deal also aligns well with the Kingdom’s aviation goals, including tripling annual passengers to 330 million, expanding connectivity to over 250 destinations, and boosting air freight capacity to 4.5 million tons of cargo per annum by 2030.

“I congratulate flynas on this significant agreement, which reflects the rapid development and transformation of Saudi Arabia’s aviation sector under Vision 2030,” President of the General Authority of Civil Aviation Abdulaziz Al-Duailej said. 

“This deal is pivotal for achieving the National Civil Aviation Strategy’s goal to connect the Kingdom with over 250 international destinations and increase passenger traffic to 330 million annually by 2030,” he added, also describing the growth and expansion of flynas as “truly remarkable.”

Bander Al-Mohanna, CEO and managing director of flynas, said: “This agreement to purchase 160 Airbus aircraft reinforces our determination to establish flynas as a leading global low-cost carrier.”

He added that this is his firm’s first order for the wide-body A330neo with Airbus, with deliveries starting in 2027.

“By doubling our order volume to 280 Airbus aircraft, we ensure sustainable growth across our network of regional and international routes, spanning short, medium, and long-haul flights,” said the CEO, explaining that that this will enable the carrier to explore new long-haul markets and offer more seat capacity, with diverse and innovative products to their passengers.

Airbus CEO of Commercial Aircraft Christian Scherer described thee deal as “a significant milestone” for both A320neo and A330-900 aircraft.

“The A330neo will allow flynas to further grow into widebody markets by building on the A320, benefiting from Airbus’ unique commonality,” Scherer said. 

“Both aircraft types offer flynas the perfect versatility and economics to expand into new markets while offering their passengers the latest cabin experience and comfort,” he added. “We look forward to continuing our successful collaboration with flynas as they embark on this exciting new chapter.”

Earlier this month, flynas received its 53rd A320neo aircraft out of an order of 120 from Airbus as part of its strategic expansion plan. 

The next-generation model airplane touched down at King Khalid International Airport in Riyadh at the time, further consolidating the company’s position as the leading low-cost airline in the Middle East and one of the top four low-cost airlines globally, according to UK-based consultancy firm Skytrax.

New contractors database announced to help deliver Saudi Vision 2030 projects

New contractors database announced to help deliver Saudi Vision 2030 projects
Updated 25 July 2024

New contractors database announced to help deliver Saudi Vision 2030 projects

New contractors database announced to help deliver Saudi Vision 2030 projects
  • Initiative seeks to provide opportunities for contractors to implement projects in their specializations to raise their quality
  • Kingdom’s construction market has become a leader in the Middle East and North Africa

RIYADH: A database rating contractors in the Saudi construction industry is part of a new national strategy designed to help the Kingdom deliver its SR1.2 trillion ($319 billion) Vision 2030 projects.

The new initiative, launched by the Saudi Contractors Authority, seeks to provide opportunities for contractors to implement projects in their specializations to raise their quality. 

This falls in line with the authority’s mission to organize the industry by setting and executing high-quality organizational standards, encouraging innovation, developing skills, improving communication in the industry and achieving economic sustainability.

During a speech at a ceremony reviewing the achievements of the SCA over the past three years, the authority’s chairman said he wanted to prepare and equip a strong contracting sector that will be an executive arm for the Kingdom’s Vision 2030 projects.

Al-Abdulqader explained that the authority raised the number of contractors during the past three years by 400 percent, bringing the registered number to more than 18,000, including 1,200 international contractors.

The SCA has also signed over 10 agreements and memorandums of understanding with major global contracting sectors, in addition to participating in more than 50 government committees. 

In 2023, the National Housing Co. and SCA signed an MoU during the Future Projects Forum in Riyadh to develop a platform aimed at enhancing cooperation, ensuring the development of both entities, and improving the sector’s efficiency. 

The SCA, a semi-governmental organization, addresses the challenges of the contracting sector and fosters a more attractive and efficient environment. 

It also led the contracting sector in 57 countries by winning the presidency of the Islamic Contractors Union and establishing the Kingdom as its headquarters. 

The Saudi contractor industry is thriving, driven by significant investments in diverse sectors and ambitious projects under the Vision 2030 initiative, creating numerous opportunities for local and international contractors. 

This comes as the Kingdom’s construction market has become a leader in the Middle East and North Africa, with an estimated value of $70.33 billion in 2024, projected to reach $91.36 billion by 2029, according to the US International Trade Administration.  

The sector is categorized into residential, commercial, and industrial, as well as infrastructure, transportation, and energy and utility construction, presenting a sizable market for contractors seeking opportunities. 

Closing Bell: Saudi main index ends the week in red

Closing Bell: Saudi main index ends the week in red
Updated 25 July 2024

Closing Bell: Saudi main index ends the week in red

Closing Bell: Saudi main index ends the week in red
  • Total trading turnover of the benchmark index was $1.69 billion
  • Best-performing stock of the day was Retal Urban Development Co.

RIYADH: Saudi Arabia’s Tadawul All Share Index dipped on Thursday, losing 75 points, or 0.62 percent, to close at 12,026.21. 

The total trading turnover of the benchmark index was SR6.35 billion ($1.69 billion) as 54 stocks advanced, while 170 retreated.   

Similarly, the MSCI Tadawul Index decreased by 10.76 points, or 0.71 percent, to close at 1,502.13.

However, the Kingdom’s parallel market Nomu increased by 82.88 points or 0.31 percent, to close at 26,420.01. This comes as 28 stocks advanced while as many as 27 retreated.

The best-performing stock of the day was Retal Urban Development Co. The company’s share price surged by 7.10 percent to SR12.98.

Other top performers included Saudi Real Estate Co. and Electrical Industries Co., whose share prices soared by 4.94 percent and 4.53 percent, to stand at SR23.38 and SR6.92 respectively.

Tanmiah Food Co. and Al-Rajhi Co. for Cooperative Insurance also performed well.

The worst performer was Miahona Co., whose share price dropped by 9.60 percent to SR36.25.

Al Sagr Cooperative Insurance Co. as well as Saudi Manpower Solutions Co., did not perform well as their share prices dropped by 5.92 percent and 5.47 percent to stand at SR20.34 and SR10.02, respectively.

Profits of Zain Saudi Arabia fell to SR105 million, an 8 percent decrease during the second quarter of 2024, compared to profits of SR114 million during the same period last year, according to Al Ekhbariya.

The company attributed the decline to an increase in operating expenses by SR38 million, a rise in expected credit loss expenses by SR33 million, and an increase in financing costs by SR20 million.

The National Company for Glass Industries announced its interim financial results for the first six months of 2024, with revenues dipping by 13.1 percent to reach SR34.2 million. The company’s net profit, however, surged by 6.5 percent, reaching SR26.7 million.

It attributed the decrease to a lower production quantity, which resulted from line maintenance activities and installation of new machines to improve manufacturing quality.

Balady Poultry Co. also announced its preliminary financial results for the same period, with revenues amounting to SR449.6 million, marking a 30.4 percent surge compared to the previous year due to an increase in average daily production.

The company recorded an increase of SR71.9 million in net profit during the current half compared to SR40.3 million during the same half of the previous year, with an increase of 78.6 percent due to a rise in the average daily production.

NEOM hits milestone with completion of underground parking, light rail systems

NEOM hits milestone with completion of underground parking, light rail systems
Updated 25 July 2024

NEOM hits milestone with completion of underground parking, light rail systems

NEOM hits milestone with completion of underground parking, light rail systems
  • The underground parking and light rail are key elements of NEOM’s advanced sustainable transportation plan
  • NEOM said this accomplishment supports its goal of building a city with zero carbon emissions

RIYADH: Saudi Arabia’s $500 billion megacity NEOM has completed the construction phases of its underground parking and light rail systems, marking a milestone in its ambitious zero-carbon initiative.

Assisted by 10 high-capacity rotary drilling rigs from Chinese construction manufacturing company XCMG Machinery, the world’s largest integrated development project completed three piles per day per drilling rig, according to a press release.

The underground parking and light rail are key elements of NEOM’s advanced sustainable transportation plan. This phase was accelerated by the efficiency of XCMG’s rotary drilling rigs, which handled deep foundation work despite challenging sandy geologies.

Led by the Public Investment Fund, the project will be a futuristic region in northwest Saudi Arabia powered entirely by renewable energy.

NEOM is home to The Line, Oxagon, Trojena, and Sindalah. It prioritizes people and nature, establishing a new model for sustainable living, working, and prospering.

The statement added that this phase was expedited due to the efficiency of XCMG’s rotary drilling rigs, which successfully managed deep foundation work even in difficult desert terrains.

The release noted that the XR600E is the largest-tonnage drilling rig deployed in the construction of NEOM city and the largest model exported from China.

Despite arriving a month later than other machinery, these rigs completed their tasks two weeks ahead of schedule, demonstrating reliability and superior performance in speed and efficiency.

In its statement, NEOM commented that this accomplishment supports its goal of building a city with zero carbon emissions and sustainable energy use.

Over 140,000 construction workers have been engaged on-site since its launch in 2017, and earlier in July it was announced the various projects underconstruction are set to receive cement worth SR104 million ($27.7 million) thanks to a partnership between Saudi Arabia’s Al Jouf Cement Co. and Italy’s Webuild SpA.

Other recent announcements from NEOM include a new marina and community on the Gulf of Aqaba called Jaumur.

The destination will be an exclusive residential community planned around a marina promenade for more than 6,000 residents, and will include 500 marina apartments and around 700 luxury villas.

Earlier this month, NEOM and American hospitality firm Equinox Hotels revealed plans to open a resort in the recently unveiled Magna development, on the coast of the Gulf of Aqaba.

The luxury destination will feature 12 locations along 120 kilometers of coastline, and will include 15 hotels, 1,600 rooms, and over 2,500 residences.