The Fintech Landscape in Saudi Arabia

1.1 Overview of the Fintech Market

The fintech market in Saudi Arabia has experienced remarkable growth, driven by a supportive regulatory environment and strategic initiatives aimed at fostering innovation. The Saudi Central Bank (SAMA) has been pivotal in this evolution, implementing regulations that not only promote competition but also enhance consumer protection. The Financial Sector Development Program aims to increase the number of fintech companies from 82 in 2020 to 230 by 2025, and further to 525 by 2030, positioning Riyadh as a global fintech hub.

Key Initiatives

One of the standout initiatives is Fintech Saudi, launched by SAMA to nurture the fintech ecosystem. This initiative provides resources such as the Fintech Accelerator Program, an Ecosystem Directory, and a Job Portal, facilitating connections among entrepreneurs, investors, and stakeholders. Additionally, SAMA and the Capital Market Authority (CMA) have established regulatory sandboxes, allowing fintech firms to test their products in a controlled environment, which fosters innovation while ensuring regulatory compliance.

As of the end of 2023, the fintech sector in Saudi Arabia comprises 216 companies, with 69 new entrants, attracting SAR 2.7 billion in funding and creating over 6,700 jobs.

Response to COVID-19

The COVID-19 pandemic acted as a catalyst for fintech adoption in Saudi Arabia. Lockdowns and social distancing measures accelerated the shift towards digital banking, contactless payments, and e-commerce. This surge in demand for online financial services has led to significant advancements in the regulatory framework, enhancing the overall fintech landscape.

ESG Objectives

Aligned with its Vision 2030 strategy, Saudi Arabia is increasingly focusing on Environmental, Social, and Governance (ESG) objectives. The Saudi Green Initiative, launched in 2021, aims to combat climate change and promote sustainable development. This focus on sustainability is expected to influence the fintech sector, encouraging companies to adopt green finance solutions. Notably, the Saudi National Bank issued a sustainable sukuk worth USD 850 million in 2022, marking a significant step towards integrating ESG principles into financial practices.

Types of Fintech Businesses

The fintech landscape in Saudi Arabia is diverse, encompassing various sectors:

• Digital Payments: Companies like PayTabs and Geidea are leading the charge in digital payment solutions, with digital transactions projected to account for 70% of all financial transactions by 2025.

• Peer-to-Peer Lending: Platforms such as Lendo and Raqamyah are addressing funding gaps for SMEs and individuals through innovative lending solutions.

• Insurtech: Startups are leveraging AI and machine learning to streamline insurance processes and offer personalized coverage.

• Asset Management: Digital investment platforms and robo-advisory services are democratizing access to wealth management.

Notable Innovation Trends

The Saudi fintech landscape is continuously evolving, with several key trends emerging:

• Insurtech: The establishment of the Insurance Authority in August 2023 has introduced regulatory oversight for insurtechs.

• Payments: SAMA has issued regulations for Buy-Now-Pay-Later (BNPL) companies, formalizing the structure for this growing market.

• Open Banking: The launch of the Open Banking Lab by SAMA allows fintechs to test open banking solutions.

• Peer-to-Peer Lending: The regulatory sandbox has approved platforms like MoneyMoon for testing.

• Cryptocurrencies: SAMA is exploring the feasibility of a central bank digital currency (CBDC), indicating a potential shift in its approach to digital assets.

1.2 Restrictions on Fintech Businesses

While no specific fintech businesses are outright prohibited in Saudi Arabia, SAMA maintains a cautious stance towards cryptocurrency-related activities. In 2019, the Ministry of Finance issued a warning against cryptocurrency trading, emphasizing that digital assets fall outside the Kingdom’s regulatory framework. Banks are prohibited from engaging in cryptocurrency transactions without explicit approval from SAMA.

Despite this cautious approach, SAMA’s exploration of a CBDC signals a potential evolution in regulatory attitudes towards digital currencies.

2. Funding for Fintech

2.1 Types of Funding Available

In Saudi Arabia, businesses can access both equity and debt financing, governed by the Finance Companies Control Law. Entities engaging in financing activities must obtain a license from SAMA and comply with Shari’ah principles.

Equity crowdfunding is regulated by the CMA, while debt crowdfunding falls under SAMA’s jurisdiction. Both require strict compliance with governance and operational standards.

2.2 Incentive Schemes for Investment

Fintech Saudi offers support to early-stage fintech companies through its Makken program, providing subsidized services like cloud setup and cybersecurity training. While there are no specific tax incentives for fintech transactions, traditional financial transaction laws apply, including a 2.5% zakat for local companies and a 20% tax on foreign revenues. Notably, fintech companies operating under the Regional Headquarter License program can benefit from significant tax incentives for up to 30 years.

2.3 Conditions for IPO

To undertake an Initial Public Offering (IPO), a company must secure approval from the CMA and meet specific requirements, including being structured as a joint-stock company and having a minimum market capitalization of SAR 300 million. For companies unable to meet these requirements, the Nomu-Parallel Market offers lighter regulations.

2.4 Notable Exits

Rasan Information Technology, a leading fintech company, went public in May 2024, raising approximately SAR 2.8 billion. The IPO was oversubscribed by 129.1 times, demonstrating strong market interest and confidence in the fintech sector.

3. Fintech Regulation

3.1 Regulatory Framework

Fintech companies in Saudi Arabia are primarily regulated by SAMA and the CMA. SAMA oversees banking, finance, insurance, and payments, while the CMA regulates securities and capital markets. Additional government entities may also have jurisdiction depending on the business nature.

3.2 Receptiveness to Innovation

SAMA and the CMA have established regulatory sandboxes to encourage fintech innovation. These frameworks allow firms to test their products in a controlled environment, ensuring that regulations evolve alongside technological advancements.

3.3 Regulatory Hurdles for Foreign Firms

International fintech companies looking to enter the Saudi market must navigate a complex regulatory landscape, including establishing a local presence and obtaining necessary licenses. This can pose challenges for foreign entrants seeking to participate in regulatory sandboxes.

3.4 Regulating Big Tech

Saudi regulators have adopted a proactive approach to address the presence of big tech in financial services. Initiatives like Fintech Saudi foster collaboration and innovation while ensuring that regulatory frameworks adapt to the evolving landscape.

4. Other Regulatory Regimes

4.1 Data Protection Regulations

The Personal Data Protection Law (PDPL) governs the collection and processing of personal data in Saudi Arabia. Organizations must obtain consent before processing personal data, and cross-border data transfers are regulated to ensure compliance with national interests.

4.2 Applicability to Foreign Entities

The PDPL applies to all businesses processing data in Saudi Arabia, including foreign entities. Data privacy obligations extend to international service providers serving the Kingdom.

4.3 Sanctions for Non-Compliance

Non-compliance with the PDPL can result in fines up to SAR 5 million, suspension of business operations, and potential criminal liabilities for serious breaches.

4.4 Cybersecurity Regulations

The Anti-Cyber Crime Law governs cybersecurity issues, criminalizing unauthorized access to sensitive data and requiring consent for data usage.

4.5 AML Requirements

Saudi Arabia’s anti-money laundering framework mandates that fintechs secure licenses from SAMA and/or CMA, implementing robust monitoring systems to prevent illicit activities.

4.6 Other Regulatory Regimes

The CSTC imposes obligations on service providers to maintain user data confidentiality, further enhancing the regulatory landscape for fintech businesses.

5. Technology

5.1 Protection of Innovations

Saudi Arabia offers various forms of intellectual property protection, including patents, copyrights, trade secrets, and trademarks. Innovators can secure exclusive rights to their inventions, while copyright protection extends to software and literary works.

5.2 Ownership of IP

IP ownership is determined by the type of IP and the party responsible for its creation. Employers typically hold rights to works created during employment unless otherwise specified.

5.3 Enforcement of IP Rights

To enforce IP rights in Saudi Arabia, local registration is generally required. However, international treaties provide certain protections for registered IP from other member states.

5.4 Monetizing IP

Businesses can exploit and monetize IP through licensing agreements, allowing third parties to use protected IP in exchange for compensation. This approach can generate revenue while expanding brand recognition.