Saudi Arabia: Digital Boom

Saudi Arabia went in a decade from a desert kingdom to one of the world’s most connected nations.

Saudi fintech funding increased by 11% to reach over $402 million year-over-year through August 2022, according to Fintech Saudi, a structure established by the central bank (the Saudi Arabian Monetary Authority, or SAMA) and the Capital Market Authority to oversee financial innovation.

Foodics, a payment management system for restaurants, secured the biggest deal and raised $170 million in Series C Funding. Tamara, a buy-now-pay-later platform, followed suit and raised $100 million in Series B only a little more than a year after its $110 million Series A in 2021. HyperPay, a payment processor, received $36.7 million in a round led by Mastercard. Several more megadeals are in the pipeline and should be announced in 2023.

The development of the fintech industry emerged relatively late in Saudi Arabia compared to neighboring countries such as the United Arab Emirates (UAE) and Bahrain, but the kingdom is catching up fast as indicated by megadeals like asset management firm Gulf Capital’s acquisition of $267 million worth of shares in electronic payment provider Geidea in 2018 or Western Union’s 2021 $200 million investment in STC Pay, one of Saudi’s largest e-wallet companies. Backed by Saudi Telecom, STC Pay launched the kingdom’s first digital bank, STC Bank, in 2021.

“There has been tremendous evolution over the past decade,” says Philip Bahoshy, founder and CEO of Magnitt, a Dubai-based startupdata platform.

In 2021, venture capital funding grew 270% year-on-year in the kingdom and fintech startups accounted for 19% of deals, according to Magnitt research. Most of the money is sourced locally and supports early-stage rounds for firms specialized in payments or lending, but new sectors like wealth management or insurtech are developing fast. With an average of $2 million for seed investment and $19 million for Series A funding, Saudi companies are still relatively small, according to a survey of 100 homegrown Saudi fintechs, published by global entrepreneurs network Endeavor and Riyadh-based asset management firm Impact46 in late 2022.

In a few years, they will need larger checks to scale up—which might open opportunities for more foreign investors.

Saudi Arabia, one of the world’s most conservative and insular countries, is going through an unprecedented transformation under Crown Prince Mohammed bin Salman. His strategy, known as Vision 2030, aims to diversify the economy away from oil revenue—oil accounts for more than three-quarters of the country’s exports—developing newer sectors like tourism, logistics, entertainment, sports, mining, real estate and financial services.

In 2022, Saudi was home to 147 fintechs compared to only 10 in 2018. But by 2030, the monarchy expects the number of financial tech firms to reach at least 525, creating 18,000 jobs and contributing $3.5 billion to the country’s annual GDP. In line with the royal vision, the Saudi cabinet approved a new fintech road map in May 2022. In addition, open banking should roll out later this year, further encouraging innovation and shaking the country’s financial culture (see sidebar).

With nearly 37 million inhabitants, Saudi Arabia has the Arab world’s sixth-largest population. In addition, Saudis are young (two-thirds are under 35 years old) and well connected, with 93% using smartphones, 74% owning a bank account and 72% holding a credit or debit card. All over the country, digital services such as e-commerce and mobile bill payment are already commonly used, and customers are ready for further tech investment.

“Saudi Arabia is the Middle East and North Africa [MENA] region’s largest economy … with a great deal of potential for investment depth, which means more opportunities for fintech companies with localized products and services,” says Bahoshy.

Banks and SMEs

The fast pace of technological developments is changing the Saudis’ approach to finance. All over the country, the number of bank branches and ATMs is dwindling while digital transactions are booming. As of September 2022, the number of point-of-sale (POS) terminals had increased by 46% from a year earlier. For banks, this is a direct challenge to the way they operate.

“Our primary driver of revenue is lending, but I don’t think it’s going to be for long,” says Saeed Assiri, chief digital officer at SABB, a partner of the HSBC Group. “It is no longer three or four banks we are competing with now. Instead, we are competing with a completely different segment.”

In 2021, the bank chose a hybrid approach to fintech, with incubator programs, partnerships and direct investments through a $26 million in-house fintech fund that aims at investing in five to t10 early-stage companies.

“We are in it for access to innovation, technology, knowledge and resources. We want to be part of this ecosystem,” adds Assiri.

Like SABB, most banks are actively engaging with tech firms. For example, some lenders are investing in developing new digital channels like Neoleap and Emkan Finance, two subsidiaries of Al Rajhi, the kingdom’s second-largest bank; or AlinmaPay, a digital payment platform created by Alinma Bank in 2020.

Others choose to partner with fintechs for specific products, as Saudi National Bank, the kingdom’s biggest bank, is doing with POS provider Cashin; or as Banque Saudi Fransi is doing with Shariah-compliant supply chain finance platform Lamaa. Most Saudi banks also support local tech hubs and sponsor competitions to foster innovation.

Unlike other countries in the Arab world and Africa, where new technologies are often used to promote financial inclusion by targeting unbanked populations, Saudi fintechs cater to existing bank clients.

“In Saudi Arabia, we don’t have unbanked clients; we have underserved ones that we need to target,” says Assiri. “If you take the SMEs [small and midsize enterprises] for example, all the banks have corporate accounts, cash management services, trade solutions … but SMEs have completely different needs … and banks don’t have a specific proposition for that. They need everything digital, and they need it now; and I see an opportunity in fintech to target and pinpoint that specific area.”

In line with government goals to increase SMEs’ share of the banks’ loan portfolio from 5.7% in 2019 to 20% by 2030, banks are racing to find innovative solutions for supply chain finance, payment service provision and lending propositions.

According to the Saudi Arabia fintech ecosystem map, part of the Endeavor-Impact46 survey, 33% of fintechs see “underbanked SMEs” as a target market. “Closing the gap between the high demand of SME loans and the low supply from traditional banks is a major goal of Vision 2030,” notes the report.


Saudi Arabia is stepping toward innovation with strong political will, institutional support and ample funding; but the digital transition isn’t happening overnight. One of the main difficulties shared by all financial sector players is the lack of a qualified workforce in fields like open banking, machine learning, product development, data analytics and software engineering. “Availability of tech talent” was stated as an obstacle by 82% by Endeavor and Impact46’s survey. Respondents also particularly pointed to the lack of available managerial talent. Talent retention was another big concern.

Although some companies are looking to hire abroad to fill vacancies, the country’s “Saudization” labor policy makes it compulsory for tech firms to meet a local-hire quota for several positions, including compliance and cybersecurity officers.

Three out of four respondents cite regulatory compliance as a difficulty. Some perceive the authorities’ strict, uncertain and time-consuming fintech licensing framework as a drawback for entrepreneurs. Still, it seems to be the high cost of compliance that weighs most negatively. More than half of the entrepreneurs surveyed indicated they were spending over $100,000 annually on compliance. Although these issues are not mutually exclusive, according to the survey’s authors.

In March 2022, new amendments to the kingdom’s Personal Data Protection Law went into effect requiring all fintechs to store their consumer data locally. However, even though it promotes digital sovereignty, the amended law could add to tech firms’ hurdles as extreme weather conditions threaten Saudi data centers with technical failures due to overheating.

Notwithstanding these challenges, Saudi Arabia is well positioned to become a regional fintech hub, attracting investments and scaling its companies abroad. As of late 2022, almost half of the Saudi fintechs already had operations in another country—typically in Bahrain, Egypt, Kuwait and the UAE—but some entrepreneurs already have broader ambitions.

PayTabs—one of Saudi Arabia’s first and most successful payment platforms, dealing across the Middle East, Africa and Asia—acquired Paymes, Turkey’s largest social commerce platform, for an undisclosed amount in December. On the other hand, tens of Arab startups, including Egyptian Paymob and Emirati Pemo, announced they were looking to step into the Saudi market in 2023.