Nejoud Almulaik, Director at Fintech Saudi told the media, “As we emerge from the challenges of Covid-19, it is clear that the digitalisation experienced during the pandemic is here to stay.”

The report further revealed that during the same period, new fintech startups have popped up in segments such as payments, capital markets and insurance.

Last month, the Ministry of Investment in the Kingdom revealed that new entities in the Kingdom increased by 108 percent during the first half of 2021. The ministry also stated that foreign entities accounted for 55 percent of the total 1,054 entities in the first half of 2021 while joint ventures with Saudi partners accounted for 45 percent of the total.

Additionally, foreign entities also accounted for 73 percent of the total 509 in the first half of 2021 and the joint ventures of Saudi partners were accounted for the remaining 27 percent.

The second quarter of 2021 also registered remarkable growth in the total number of issued licenses by 21 percent when compared to the first quarter of 2021, which was followed by a 20 percent increase in industrial growth.

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At present, the Saudi fintech startup provides digital payment solutions, virtual points of sale, and other payment features to businesses who are looking to manage sales in an integrated platform. The news of the latest funding comes as the Kingdom gears up to implement the latest e-invoicing rule with CashIn partnering with the government sector to fully comply with it.

Omar Al-Rammah, CEO of CashIn told the media, “The Kingdom of Saudi Arabia is undergoing rapid growth in the FinTech and technology sectors in comparison to other countries, and we are keen on CashIn to adapt to these fast-paced changes in parallel with Saudi’s 2030 vision.”

Additionally, the Kingdom also reported that the global startup funding increased by 157 percent between the second quarter of 2020 and second quarter of 2021, from $60.7 billion to a record $156.2 billion. During the first half of 2021, the funding stood at $292.4 billion.

Even though the funding activity was temporarily halted due to Covid-19, businesses quickly adapted to changing consumer behaviour, sparking a massive comeback in funding with robust activity in sectors like healthcare and technology.

In the future, a lot of sectors are going to be benefitted from these fundings, especially those that have adapted to the changing consumer behaviour like health and technology. Additionally, it is expected that the cryptocurrency sector is also likely to get more investors as venture capital firms have raised significant amounts specifically targeting the industry.

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The recent developments are in line with the Kingdom’s Vision 2030, where it aims to achieve 70 percent non-cash transactions by 2030. ‘sarie’ allows bank customers to send and receive money in real-time. Customers can make instant transactions of up to $5,300 through the system.

Maria Medvedeva, Vice President and Country Business Development Lead, Saudi Arabia, Mastercard told the media, “This is a significant milestone in our real-time payments journey and is the result of hard work. Saudi Arabia is an important market for Mastercard, and we anticipate that with this real-time payment system going live in the MEA region, many doors may soon open for ongoing innovation, both in the Kingdom and further afield.

“The initiative can significantly contribute towards digitising and modernising transactions in line with the goals of Vision 2030, and can also help increase the efficiency of the financial systems and offer consumers access to a wider range of financial services, positively impacting the Saudi economy and its citizens.”

Earlier this year, it was reported that the Kingdom recorded a 75 percent increase in digital payment activities last amid the coronavirus pandemic. During the same period, the Saudi Central Bank announced the launch of a new electronic instant payments system is scheduled to take place on February 21st.

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John Meehan, who serves as the Global Shares Business Development Director said that the Middle East is a region of huge strategic importance to Global Shares as more and more companies recognise the importance of equity-based compensation.

Global Shares, which has 16 offices across the globe, has appointed Abdulhadi Alherz as the new managing director of the Middle East. With regard to his appointment, he told the media, “I am really excited to join Global Shares, a global fintech leader, which has reimagined technology solutions in the employee ownership space. It’s a niche market, where I get to continue working with software and fintech, while delivering digital transformation and a really great customer experience, which is core to business success.”

It is also reported that Saudi Arabia-based fintech Hakbah has raised around $1.2 million in its seed funding round. The fintech received approval from the central bank, the Saudi Central Bank (SAMA) to launch its commercial services in the Kingdom in July last year. Last month, telecommunication company Virgin Mobile entered the fintech space in the Kingdom by acquiring a banking agent license through a strategic agreement with The Saudi Investment Bank (SAIB).

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Through the programme, Fintech Saudi aims to empower highly innovative entrepreneurs who display massive potential within the local fintech industry. It is reported that around 10 fintech startups will be selected for the programme.

Besides exposure to investors, the programme will also provide them with mentoring and give them a chance to enhance their pitching skills and showcase their solutions at global events.

Nejoud Al Mulaik, director of Fintech Saudi told the media, “The Fintech Accelerator is an important milestone for Fintech Saudi. Over the last year we have seen a threefold increase in the number of fintech companies operating in Saudi Arabia and we want this trend to continue and contribute to the goals of Saudi Vision 2030. We are therefore delighted to collaborate with Flat6Labs to launch the Fintech Accelerator program that will provide entrepreneurs with the key skills, support and access they need to grow their fintech business in the Kingdom.”

Startups must have a business model with users and recorded income in the last three months to quality for the programme. They also need to be a private company and must showcase their capabilities in transforming Saudi fintech industry.

Ramez El Serafy, chief executive at Flat6Labs, said that their collaboration with Fintech Saudi will help to foster fintech companies and accelerate their growth.

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As per the reports, the number of financial transactions carried out from smartphones in Saudi Arabia grew by 352 percent year-on-year to April 2020, from 4.4 million to 19.7 million individual transactions.

The number of fundraising deals completed by fintech startups in Saudi Arabia for the year to date has also increased, with the total investment amount already surpassing 2019 levels.

Saudi Arabia’s fintech sector is also expected to reach a transaction value of around 433 billion by 2023.

However, the Covid-19 crisis has also taken its toll on the fintech sector in the kingdom.

The Magnitt report further revealed that around 64 percent of the fintech startups it surveyed had a revenue drop due to the Covid-19 crisis. Around 22 percent of them had to let employees go to deal with the crisis.

“Large banks are tapping into the start-up system to incubate and create alliances on a variety of platforms such as wallets, payments, investment intermediation and online client acquisition,” the report said.

“They are not only developing platforms for such start-ups to thrive, but are also beginning to invest in such platforms.”

Recent developments in the Saudi fintech sector include the launch of Apple Pay, the establishment of Saudi Payments and the continued issuance of regulatory testing licenses and regulations by the Saudi Arabia Monetary Authority (SAMA) and the Capital Markets Authority (CMA) to support fintech activities.

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The partnership will enable local banks to accept JCB cards through their network of point-of-sale terminals.

The partnership between Saudi Payments and Japan’s JCB will aim to improve the payments in Saudi Arabia by providing modern payment methods and reducing the use of cash.

The partnership will also see the national payments network MADA to accept JCB payments through its platform.

With regard to the partnership with Saudi Payments, Yoshiki Kaneko, president of JCB International told the media, “Saudi Arabia is the most significant market for JCB to expand the issuance of JCB cards in the Islamic region. Saudi Arabia is one of the most important travel destinations for our cardholders. With the Kingdom’s enhanced Vision 2030 strategy and the ever-increasing ties between Saudi Arabia and Japan, I am delighted that we have entered into this partnership with Saudi Payments for the acceptance of JCB cards.”

“Over the coming months we will be announcing partnerships with local banks to expand our acceptance infrastructure in Saudi Arabia, to cater for both the business and touristic needs of our cardholders,” he added.

Earlier this month, Saudi Payments signed a strategic agreement with Discover to increase the global acceptance footprint for both organisations.

Reportedly, the agreement will give Discover, Diners Club International, PULSE and network alliance cardholders the ability to use their card on the MADA network.

The strategic agreement is also in line with the kingdom’s plan to grow the number of options available in the Kingdom’s digital payment environment.

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According to the Saudi Vision 2030 envisioned by Crown Prince Mohammed Bin Salman of Saudi Arabia, the Saudi government’s goal is to achieve 70 percent epayments by 2030. Why did epayments suddenly catch the imagination of Saudis in 2019? What are the underlying factors and motivations? How likely is Saudi Arabia to achieve its goal of a cashless society and 70 percent epayments by 2030? What are the challenges that the Kingdom faces to achieve this goal?

Why epayments are seeing quick uptake in Saudi Arabia

Fintech innovation has disrupted the payment system globally. The Middle East is no different in this respect. The study published by the Saudi Arabian Monetary Authority (SAMA) and Saudi Payments Company revealed that most of the epayments carried out in Saudi Arabia were through debit or credit cards.

While card transactions accounted for almost 30 percent of all payments, other types included the SADAD platform and other electronic payments. The achievement revitalises the Saudi Arabian Monetary Authority’s plan to drastically reduce cash transactions and enhance transparency and efficiency in the Kingdom’s economy.

The study further revealed that Mada Sale Service Points recorded a significant increase in the number and value of purchase transactions as well. At the end of 2016, epayments enabled points of sales (POS) grew by 33 percent, while in 2017 and 2018 the growth rate was 35 percent and 46 percent respectively.

Over a period of time, the availability of Mada electronic payment devices has also increased at places like gas stations, pit stops, and convenience stores. As of September 30, 2019, there were around 421,000 Mada devices in operation in Saudi Arabia.  It is noteworthy that at the end of 2013, there were only 107,000 Mada devices functioning in the kingdom.

With regard to the quick uptake of epayments in Saudi Arabia, Ovais Shahab, Head of Financial Services at KPMG Saudi Arabia told International Finance that, “The payment ecosystem has become more diversified, most notably with the launch of STC Pay and Mada Pay in late 2018 and the arrival of Apple Pay to Saudi Arabia in early 2019. The pick-up of near field communication (NFC) payments in 2018 were also exceptional. It is essential to emphasise that Saudis, especially the young population adopt innovations and advancement at a faster pace than other countries.”

A disruption planned by the government

ePayments will help the Saudi government tackle issues such as money laundering, terrorism financing more efficiently as epayments are often logged and can be tracked back whereas cash transactions can’t be. In short, digital payments increase accountability.

According to World Bank data, formal banking reaches about 40 percent of the population in emerging markets, compared with a 90 percent penetration rate for mobile phones or mobile money or fintech services. Providing digital payment options allows easier market access for consumers as well as merchants. Currently, there are 21 entities under test permit in the SAMA Sandbox, including fintechs specifically focusing on payments.

These startups disrupt the payment model, and while some will work with the banks, they will all push the banks for more efficiency and cost-reductions of their payment models. Some startups focusing on crowdsourcing or loans will also take financing roles from the banks, all the way to managing international transactions. Simultaneously, epayments also help boost the ecommerce sector in the country. It effectively helps solve the complicated and physical problem of collecting cash for a product sold online. ePayments has also drive the sale and purchase of new digitised products and services.

How can Saudi Arabia achieve its epayments target?

To achieve its target of 70 percent epayments by 2030, the kingdom of Saudi Arabia has undertaken a number of initiatives. The launch of the Financial Sector Development Program (FSDP) is one of them. One of the key functions of this programme is to promote epayments and convert Saudi society to a cashless society by increasing the share of non-cash transactions to 70 percent in 2030.

Another important function of the programme is also to improve the availability of financial services in the kingdom. Saudi Arabia aims to increase the number of banked adults in the Kingdom to 80 percent by 2020, from 74 percent in 2016. The fact that Saudi Arabia has overachieved its own epayments target this year is an affirmation of the programme.

Ovais Shahab told International Finance, “The Saudi central bank SAMA has a forward-looking vision for a shared infrastructure and in 2018 it established its payment infrastructure department as an  independent organisation, Saudi Payments. Serving both banks and fintechs, it aims to provide a level playing field and interoperability and standardisation, this organisation is now also working on a faster procession platform for interbank transactions. Secondly, the SAMA Sandbox and Saudi Fintech, as support hubs are two initiatives of the government to grow epayments by supporting fintechs from outside the traditional banking sector to grow.”

The SAMA Sandbox is an experimental programme undertaken by Saudi Arabia’s central bank. The programme creates a platform for banks, regulators and financial service providers to come together and collaborate on the development, testing and creation of products that support new ways to pay.  It also creates a regulatory environment to analyse and interpret the impact of new technologies in the financial services market in the kingdom and to help transform it into an intelligent financial center.

Simultaneously, it provides a platform for financial technology companies and financial institutions that seek to provide innovative financial services to Saudi markets. The initiative is expected to enhance innovation in financial services and digital payments services. It will help financial technology companies test their products in a much-relaxed environment which will ultimately lead to the betterment of the financial sector and also increase epayments in the kingdom.

In the last two decades, SAMA has also introduced a number of epayment systems such as the Saudi Arabian Riyal Interbank Express and the online bill payment portal SADAD in a bid to increase online transactions in the kingdom. The recent launch of real-time payments in Saudi Arabia could serve as a catalyst for Saudi Arabia to achieve the 70 percent epayments target. For it to work, it is important that financial institutions in the country truly embrace real-time payments and the improvements it will bring to their customer experience.

Epayments challenges ahead for Saudi Arabia

When International Finance asked Ovais Shahab about the challenges Saudi Arabia faces to overcome in order to achieve its goal of 70 percent epayment transactions by 2020, he said, “Saudi Arabia has to embrace an omnichannel approach to its epayments infrastructure. Realtime gross settlement (RTGS) transactions are still done from bank to bank through SAMA, which only operates during business hours, so further integration and a faster platform are necessary. In other countries, such bank-to-bank transfers are already possible, and almost for free and such new systems have proven to be true catalysts for cashless transactions. Another possible challenge could be the focus on cash and low adoption rate of point-of-sale (POS) terminals outside of the major cities.”

Despite the availability of digital payment options now, many users may be accustomed to dealing with cash especially in rural areas and may be reluctant to adapt to epayments.

Saudi Arabia must also tackle the issue of trust and security to achieve its target of turning the kingdom into a cashless economy. The only way a consumer can be persuaded to make payments digitally over and over is by building his trust in the platform that he uses to make the epayments from. 40 percent of consumers in the Middle East have been victims of cybercrime, and almost 71 percent of them have witnessed cybercrimes one way or the other. Those who are have witnessed cybercrimes first hand in Saudi Arabia will be reluctant to transact digitally. The Saudi authorities must create a safe and secure environment for Saudi Arabians and safeguard its citizens and prevent cybercrimes.

Another challenge that any country pushing for digitalisation must address is cross-border payments. Payments made from one country to another could be expensive, slow and at the same time inefficient. Often national banking infrastructures fail to handle cross-border payments.

Saudi Arabia must invest in innovation and technology that ease the process of cross-border payments such as remittances. Also, the payment merchants must help businesses who operate globally compete in international markets by allowing their customers to pay in their native currencies. Often multi-currency cross-border transactions are difficult as one has to go through the regulatory hurdles in each national market. To boost epayments in the kingdom, Saudi Arabia must offer ease of payments when it comes to cross-border payments as well.

For fintechs to flourish in the kingdom, the government of Saudi Arabia must create a favourable regulatory climate for them. But stricter regulations and bureaucracy should not strike down the potential growth of the companies that facilitate epayments.

Saudi epayments platforms do their bit

The SADAD payment portal, introduced by the Saudi Arabian Monetary Agency, is one of the topmost epayments platforms in the country. SADAD connects businesses in Saudi Arabia with local banks and provides a platform to collect payments electronically through all the banking channels in the kingdom 24 hours a day. Besides SADAD, there are some other payment gateways that are operating in the Saudi Arabia payment scene.

UAE-based startup PayFort provides payment solutions to customers across the Middle East through FORT, its payments gateway. Fort facilitates SMEs, startups and even government organisations to accept payments through debit and credit cards. It is also the most widely used online payment gateway in Saudi Arabia.

Saudi Arabia-based HyperPay, which was launched in 2014, has established itself as one of the fastest growing internet payments services providers in the Middle East and Northern Africa region (MENA). The startup provides a wide range of smart, technology backed online payment processing solutions to businesses ranging from the SMEs to multinational companies.

Similarly, PayTab has established itself as one of the most trusted payment gateways in Saudi Arabia. It also provides a platform for businesses to accept payments online and in 168 different currencies. PayTab provides its services to SMEs, ecommerce companies as well as large multinational companies.

The success of the Kingdom’s cashless society goal also depends upon the wider acceptance of the epayment platforms by the local and expatriate population. The government on its part has created a relatively positive regulatory environment and innovation ecosystem for these companies to flourish. But fintech innovation and better customer experience are key to Saudi Arabia achieving its target of a cashless society.

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The study shows that card payments took the lion’s share of all payments at nearly 30 percent, while other types included the SADAD platform and other financial payments. In a nutshell, the study reflects the success of SAMA’s strategy to support epayments. Also, the Financial Sector Development Programme is focused on enhancing e-payments and reducing cash transactions in line with Vision 2030, the local media reported.

Earlier this month, the Saudi cabinet approved SAMA’s request to establish the Saudi Payments Company as an independent entity. The Saudi Payments Company aims to increase financial inclusion in the Kingdom and develop the payments sector.

The total number of Mada devices in operation increased to more than 421,000 in 2019 from 107,000 at the end of 2013. The study said that there is a significant growth in the use of Mada devices in the Kingdom’s commercial sector, such as oil and gas. Also, the launch of Mada Atheer technology plays an important role in increasing epayments. 

Mada is the new identity of the Saudi Payment Network. Experts said that the development of this technology demonstrates progress in  the integration and use of Apple Pay. 

“Basically it is to transfer Saudi society from being heavily cash dependent on buying goods and services to a cashless society using digital and epayment,” Talat Hafiz, from the Media and Banking Awareness Committee for Saudi Banks, told Arab News. 

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