Driven by the fast growth and acceptance of Financial Services (FinServ), the Saudi Arabian financial industry is experiencing an amazing make-over. Along with changing the scene of conventional banking and financial services, this development supports the Kingdom's ambition to create a diversified, creative, totally digital economy. The adoption of digital payments, peer-to-peer (P2P) lending, crowdsourcing, digital wealth management, and open banking forms the core of this change. With the ability to transform the financial industry and greatly support the Kingdom's high Vision 2030 plan for economic diversification and innovation, blockchain technology is fast rising to be a prominent actor. The power of technology to speed up transactions, lower fraud, and build unheard-of confidence will help companies, governments, and consumers all around.
Role of Blockchain in Saudi Financial Services
Source: FinTech Middle East
Saudi Arabia is leading regionally in implementing blockchain technology to simplify financial services. Saudi Arabia's fintech scene has changed significantly in the last two years, with the number of fintech companies expected to soar from 60 in 2020 to 226 in 2024. Experts predict the figure will rise to 525 by the year 2030. Launched in 2019 to investigate the possibilities of a blockchain-based central bank digital currency (CBDC), the Aber Project was started in cooperation with the UAE Central Bank by the Saudi Arabian Monetary Authority (SAMA). The initiative aimed at improving cross-border payments through a digital currency jointly issued by central banks. Results from the project were promising—transaction times were reduced by 50%, and costs were lowered by approximately 30%.
This early success highlights blockchain's ability to improve efficiency and enhance security for international financial transactions. According to a report by the Saudi Arabian Monetary Authority (SAMA), blockchain adoption could reduce transaction processing times by up to 75%, particularly in cross-border payments, where delays have historically impacted trade efficiency. Saudi Arabia is also investing in modernizing its capital markets. Blockchain's ability to streamline the usually two-day securities settlement procedure has been investigated by the Saudi Stock Exchange (Tadawul). Same-day settlements (T+0) made possible by blockchain help to improve liquidity and investor trust.
A Deloitte analysis projects that the Saudi financial advisory market size will be USD 1.2 billion in 2021 and is predicted to rise at a CAGR of 9.6% until 2025, thereby reaching USD 1.9 billion. Key market drivers and trends include the growing demand for digital transformation, the introduction of new business models, the increase of ESG and impact investment, and the increasing importance of the Public Investment Fund (PIF) in the economy, which were also noted in the research. A media piece from Seeds Consulting claims that the Saudi financial advice industry has seen an explosion in activity and innovation, especially in the areas of financial structuring, engineering, and infrastructure. Among the latest initiatives and acquisitions involving financial consulting services, the USD 5 billion Red Sea Development Project, the USD 1.8 billion Yanbu 4 Independent Water Project, and the USD 1.2 billion acquisition of SABIC Agri-Nutrients by Saudi Aramco were featured in the article.
Key Applications of Blockchain in Saudi Arabia
1. Remittances and Payment Policies: With almost $40 billion in processing annually, Saudi Arabia ranks among the top remittance marketplaces globally. Since millions of foreigners return money to their home countries, remittance is a significant economic factor. Blockchain technology is changing cross-border payments by offering faster, more transparent, less expensive transactions. Traditional remittance techniques can be slow and costly, ranging from 5–7% of the transfer value. For expatriates and remittance service providers, blockchain-powered remittance systems might cut fees by up to 50%, saving a great deal. Blockchain-based systems like RippleNet, for example, have already proved their capacity to reduce transaction times from days to seconds. The great expat population of Saudi Arabia gains directly from this efficiency since it guarantees quick and safe money sent back from abroad.
2. Trade Finance: Blockchain is also revolutionizing trade finance, a major focus for Saudi Arabia, trying to diversify its economy away from oil. The ambitious aim of the Kingdom to increase non-oil exports to $500 billion by 2030 calls for creative ideas to simplify international trade procedures. Trade financing has always involved mountains of documentation, which causes inefficiencies and chances of fraud. Blockchain digitalizes trade records to provide a tamper-proof ledger, improving openness and lowering fraud risk. Blockchain technology integrated into platforms like We. Trade for international trade has shown a 50% drop in fraud and notable speed gains in transactions. By cutting middlemen and streamlining the supply chain, Blockchain reduces the time and costs associated with global trade, drawing Saudi Arabia for overseas business.
3. Digital identification: KYC or Know Your Customer processes are basic in financial services for verifying client identities and ensuring regulatory compliance. These procedures are time-consuming and expensive, but most are solved by Blockchain, which provides a solution using distributed digital identities with security, openness, and a simple, verifiable nature. Using Blockchain for KYC, Saudi banks may save up to $200 million annually in compliance costs.
Source: Statista
Benefits of Blockchain for the Financial Sector
· Enhanced Transparency and Security: The Distributed Ledger Technology is the core of the blockchain and guarantees the unchangeable, clear, and visible record of all operations. This level of transparency minimizes fraud by as much as 40%, as revealed by the study conducted by PwC. Transparency of blockchain helps to build trust and reassure stakeholders in cross-border transactions, where fraud has always been a major issue. Moreover, the distributed character of blockchain guarantees that no one entity holds the data, thereby making access quite challenging. For consumers as well as financial institutions, this adds still another level of protection.
· Cost Efficiency: Blockchain technology can greatly lower running expenses for financial organizations. Blockchain lowers costs by an estimated thirty percent in industries including payments, trade finance, and securities settlement by automating manual operations and removing middlemen. For Saudi banks and financial institutions, these savings might translate into billions of dollars yearly, claims PwC. Even a little drop in transaction fees can significantly affect the bottom line for large volume transactions. Blockchain presents a reasonably priced fix that improves operational effectiveness while preserving security and compliance.
· Financial Inclusion: Blockchain may help Saudi Arabia's unbanked population in particular increase financial inclusion. Blockchain-based financial services could give safe digital wallets and other financial solutions for people without access to conventional banking given 70% smartphone prevalence in the Kingdom. The millions or Saudi nationals would then be involved in the official economy enhancing their uptake of financial services, insurance and credit. Possible approaches to embark on financial inclusion can be implemented from Blockchain-based micro financing platforms developed.
Source: Fintech Saudi
Challenges of Blockchain Adoption
The most prominent challenge to blockchain adoption is the absence of rules that govern its use – or, as they are commonly known, the rules to interpret the rules. While SAMA and the Capital Market Authority (CMA) have been encouraging blockchain projects, there is, as of now, no full set of guidelines to foster innovation in a manner that is also compliant. This is because the use of this technology may be slowed down if the financial institutions that should embrace it due to its efficiency in the financial sector are hesitant to embrace the technology because of several unknown factors regarding compliance with regulations. However, for Saudi Arabia to harness all the potential associated with blockchain technology, it’s crucial that there is clear and visible regulation.
However, even though blockchain is efficient for medium and small-sized businesses, it has scalability problems. If the new technology is to take root in the Saudi Arabian banking system, then it has to overcome these integration and scalability challenges. There is a shortage of blockchain knowledge in Saudi Arabia. There is a scarcity of experts with the abilities to design and oversee blockchain solutions, despite the fact that the Kingdom is funding training programs like Blockchain Academy KSA. Saudi Arabia can support its ambitious blockchain projects with a workforce that is educated and trained. The skills gap can only be filled by public-private partnerships and international organizations working together.
Future Outlook
Blockchain's future in Saudi Arabia seems really bright. As part of Vision 2030, blockchain technology will contribute significantly to reaching Saudi Arabia's goal of having fintech contribute 2.8% of GDP by 2025. Expect wider adoption across payments, remittances, trade finance, and capital markets, as well as collaborations between the public and private sectors to foster innovation. Public-private partnerships, along with proactive government policies in Saudi Arabia, will help blockchain be widely adopted in payments, trade finance, and capital markets. The Kingdom is constantly enhancing its’ financial system, and blockchain has the potential to enhance security, cost reduction, and efficiency.
Conclusion
Using the technology to modernize its financial industry and establish itself as a fintech leader, Saudi Arabia is placing itself at the leading edge of the worldwide blockchain revolution. Supported by Vision 2030 and strong government assistance, the Kingdom is ready to enjoy the enormous advantages of blockchain, from cost savings and more openness to improved security and financial inclusion. Blockchain is the future of money, not just a fad; and Saudi Arabia is driving the change.
Disclaimer: The content provided in this article is for informational purposes only and should not be construed as investment advice. Tanemya Capital will not be held responsible for any decisions made based on the information provided. Always consult with a qualified financial advisor before making any investment decisions.
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