Background
Saudi Arabia’s Financial Sector Development Program (FSDP) and subsequent FinTech Strategy Implementation Plan, both part of Vision 2030, aim to situate the Kingdom among the leading countries in the field of financial technology (FinTech). The objectives are to increase the sector’s GDP contribution to USD 3.46 billion and the number of FinTech companies operating in the Kingdom from 82 to 230 by 2025. It also aims to increase the share of digital transactions to 70% by the same year.
As such, the Kingdom has seen a sharp increase in FinTech solutions, particularly following the establishment of Saudi Payments (“SADAD”) and the launch of Apple Pay. In fact, the Saudi Central Bank (SAMA) announced that the share of e-payments in the retail sector reached 62% of total payments in 2022, exceeding the 60% target set by the FSDP.
Regulatory oversight
FinTechs in Saudi Arabia are mainly regulated by SAMA; the Capital Market Authority (CMA), the regulating authority concerned with capital markets in Saudi Arabia; and the Communications, Space & Technology Commission (CST), which governs e-transactions and e-signatures. Both SAMA and CMA have made considerable progress with respect to the development of FinTech regulations, new FinTech licences, and FinTech sandbox experimental licences to allow businesses to flourish.
Legal framework
FinTechs act as financial intermediaries specialised in the application of software and hardware to financial services and processes. They are defined by SAMA as digital-only banks – banks that conduct a banking business mainly through digital channels, such as the web and mobile applications. Furthermore, CMA defines FinTechs as “local and international firms located in the Kingdom that provide financial products and services related to securities activity in line with market needs, with innovative business models”.
The legal framework governing FinTech in Saudi Arabia revolves around:
- The Payment Services Provider Regulations (2020), which regulate payment services providers.
- The Additional Licensing Guidelines and Criteria for Digital-Only Banks (2020), which set out the licensing criteria for banks that conduct business primarily through digital-only channels.
- The Rules for Engaging in Debt-Based Crowdfunding (2021), which permit companies to engage in crowdfunding activities, subject to SAMA’s licensing regulations under the Banking Control Law.
- The Regulatory Framework for Equity Crowdfunding (2022), which provides guidance on equity-based crowdfunding activities and allows for the granting of an official licence.
- The Open Banking Framework (2022), which was launched as one of the key outputs of the Open Banking Program. This includes a comprehensive set of legislation, regulatory guidelines, and technical standards to enable FinTechs to provide open banking services.
- The Regulatory Sandbox (2018, with its framework amended in 2022), which allows for experimentation in banking and payments technology by local and international FinTechs and allows non-licensed entities to apply to use the Sandbox.
- The Fintech Lab (2017), which allows innovators to experiment with their FinTech technology relating to the capital market.
Implications for FinTechs
Saudi Arabia’s FinTech market is experiencing significant growth and has attracted substantial investment over the past years. The payments market remains moderately competitive in the presence of players such as Apple Pay, Paypal, and Moyasar. Nevertheless, companies operating in the Kingdom are adopting various initiatives to expand their presence, adding to market expansion. Furthermore, the government’s promising efforts to promote digital payments will strengthen market competition in the coming years.
So far, Saudi Arabia has developed a regulatory framework that supports the growth of FinTech, including e-wallets, open banking policies, and sandbox programmes. This presents an opportunity for FinTech businesses to contribute to financial inclusion, support the growth of start-ups, and facilitate Islamic banking.
For more information on the new approaches and regulatory tools that have been developed in the Kingdom, or for support in entering this booming market, please contact Nada Ihab at [email protected] or Dana Ramadan at [email protected]
