According to Fortune Business Insights, the global fintech market is valued at $257.26 billion and is projected to reach $882.3 billion by 2030, growing at a CAGR of 17%. This reflects the growing interest in this emerging segment of the financial services industry following the pandemic. Mordor Intelligence predicts that the Kingdom of Saudi Arabia’s fintech market, which is valued at $43.78 million today, will grow at a CAGR of 12.14% to reach $77.63 million by 2029. Saudi Arabia is actively trying to diversify its economy to become less dependent on the oil market with the ambitious Vision 2030 project. This is the main driver for the positive momentum expected from the fintech sector. Vision 2030 aims to develop a digital economy and enable financial intermediaries to support private sector development through open financial services. Financial Sector Development Program (FDSP), a vital part of Vision 2030, prioritizes innovation, global positioning, and talent acquisition, supported by initiatives to attract local and international fintech companies. Saudi Arabia aims to foster 525 fintech companies by 2030 and create 18,000 fintech jobs with $3.25 billion worth of cumulative venture capital investments (20% of FDI) which will in turn contribute $3.5 billion to the country's GDP.
Exhibit 1: Saudi Arabia fintech market statistics
Buoyed by favorable growth expectations, the fintech sector in Saudi Arabia has proven to be an investment magnate in recent years, attracting local, regional, and international investors. Given the ample room for growth, the fintech sector will continue to lure investors during this transformational phase in the Saudi Arabian economy.
The Current Landscape of the Fintech Sector
As of December 2022, there were 89 licensed and authorized fintech companies operating under the Saudi Arabian Monetary Authority (SAMA). Among those, 30 were licensed fintechs operating in the fields of finance, insurance, and payments, 15 were operating in the regulatory sandbox, and 44 were authorized fintechs in operation. The sector generated around $746 million in revenue in 2022. By the end of 2023, the number of fintech firms had shot up to 200, an impressive 225% of growth. Today, nearly one-third of fintech companies are engaged in the payment & currency exchange business. Business tools & information provision, private fundraising, lending & finance, and capital markets are other active sub-sectors of the country’s fintech landscape.
Exhibit 2: Fintech companies in Saudi Arabia by subsector
The Saudi Arabian government is actively promoting fintech growth with several projects including SAMA’s regulatory sandbox which provides a controlled environment for startups to explore their new ideas, thus reducing the risk for foreign companies. Fintech Saudi, an initiative by the government that aims to mentor, train, and potentially fund promising fintech ventures, has recently reported exponential growth with over 180 fintech companies operating in Saudi. Fintech Saudi was also a supporting body that hosted a delegation of 30 UK fintech companies led by the Saudi British Joint Business Council recently. The delegation arrived in Riyadh at the end of January and had the objective of fostering partnerships and promoting cooperation between the UK and Saudi Arabia. Following the reforms that took place in KSA’s financial sector, the UK, which is the second largest financial hub in the world, expressed interest in the Saudi fintech industry. Around 2,500 UK fintech are currently growing specializations in digital payment technology and Islamic fintech, highlighting the ripple effects of the fintech boom in the larger Middle East and North Africa (MENA) region.
There are several factors contributing to the exponential growth of the fintech industry in Saudi Arabia. The young demographic of Saudi Arabia is the most important factor among them. With around 63% of the population being under the age of 30, Saudi Arabia stands as one of the youngest nations in the world. The near-100% Internet penetration rate has created a perfect storm for the fintech sector to gain a foothold in the economy. Additionally, Vision 2030’s financial inclusion aspect is boosting fintech products to become more accessible for the underserved population.
Innovative solutions such as digital wallets and microfinance platforms are targeted to provide services for all communities in the country. Moreover, FSDP aims to diversify financial services, making banking more accessible and competitive. SAMA is focusing on the regulatory aspects to promote the fintech sphere. From the introduction of Regulatory Sandbox to new regulatory frameworks, the Saudi central bank has made the operating landscape easier for fintech startups. In July 2023, SAMA introduced new regulations targeting payment services, aligned with international standards, and recently implemented Buy-Now-Pay-Later (BNPL) regulations to streamline the licensing process and set minimum standards and procedures to improve the efficiency of the businesses operating in this domain.
Exhibit 3: Adoption of digital payments in Saudi Arabia
Today, the fintech sector in Saudi Arabia is well-positioned to disrupt the country’s financial services sector aided by the strong platform that has been laid in recent years.
Investment Trends
Rapid progress can be seen in the fintech industry of Saudi Arabia following the Covid-19 pandemic. The progress is most evident in the rise of mobile payments which now account for 45% of point-of-sale transactions by volume, and 35% by value. However, in 2019, the contribution was close to nothing. There were only 17 fintech deals that came into fruition in 2020, but the numbers have grown exponentially over the next two years to 28 in 2021 and 49 in 2022.
In 2022, despite the startup funding pullback, Saudi Arabian fintech ventures grew significantly. The sector managed to secure a total investment of $367 million, signifying an impressive 54% increase from the previous year. Up to the end of 2022, the sector had raised over $1 billion in total financing. Investments that were completed before 2022 are now shifting toward later-stage rounds, indicating the maturation of the early market entrants.
In 2023, Saudi fintechs raised a total of $854 million, reaching a record high. This was a significant increase of 230% compared to the previous year. Despite the surge in deal value, the number of deals dropped by 47% to 26. The top two fintech deals included Tamara securing $340 million and Tabby receiving $250 million. These two alone accounted for 69% of the total fintech investments in the year. It's important to note that Tamara is Saudi Arabia’s first homegrown fintech unicorn. The company has secured c funding from Sanabil and Saudi National Bank. Paytech was the most active sub-sector during the year with 11 deals, followed by Proptech with 5 deals.
Exhibit 4: Saudi Arabia’s fintech investments in 2023
Global fintech investments declined to a 5-year low of $113.7 billion in 2023 as investors were spooked by elevated inflation and rising interest rates. Despite a weak global backdrop, the Saudi Arabian fintech market thrived by attracting a record level of investments, highlighting the strong investor appetite for the revolutionary impact Saudi fintech startups are having on the economy.
In recent developments, Amazon Web Services (AWS) is planning to launch a new infrastructure region in KSA by 2026. AWS is expected to bring an investment of over $5.3 billion to support Saudi Arabia’s digital transformation. The project is mainly aimed at meeting the growing demand for cloud services and other technology services across various industries. This partnership is a key achievement made under Vision 2030, as well as a major boost for the growing financial technology industry in the nation. When this investment comes to fruition, Saudi fintechs will have access to key technologies locally.
Investing in Saudi Fintechs
There are plenty of opportunities available for investors in the market but the quality of the investments may vary. While there is enough deal flow to meet the requirements of venture capitalists of the MENA region such as Flaf6 Labs, the question remains whether there is enough quality and diversity in the fintech space to meet the country's ambitious economic goals, since the ecosystem is still at a very young stage. From a regional perspective, Saudi Arabia also faces stiff competition from the UAE as it is also situated in the same region with a higher quality of Fintech and Fintech readiness. Despite these uncertainties, most of the regional fintech startups are headquartered in Riyadh, a testament to the growing appeal of Saudi Arabia as an entrepreneur-friendly, tech-focused economic hub.
Exhibit 5: Score of fintech readiness
Nearly a third of all the fintechs representing the Fintech Saudi community are engaged in the payments and currency exchange business. The total asset under management in the digital investment market is expected to reach $6 billion by 2028, and the number of active users of the digital payment market is expected to reach 37.62 million individuals, fueling the growth of the digital payments businesses in the nation.
The lending & financing services segment, which accounts for approximately 19% of fintechs in Saudi Arabia, will benefit in the future as the Kingdom is planning to increase the volume of debt instruments to 24.1% of the GDP by 2025 (currently 14%).
The third largest subsection, treasury management & insurance, is expected to perform well, as Saudi Arabia targets a Gross Written Premium of 2.4% of non-oil GDP.
Exhibit 6: Assets under management in the digital investment market
The ambitious Vision 2030 project, growing digital use, and regulatory reforms are driving a revolutionary wave in Saudi Arabia's Fintech sector. Some promising firms, such as Mod5r and Lean Technologies, have experienced significant revenue growth in recent years, demonstrating the promise in this industry. The Financial Sector Development Program, which aims to raise the share of SMEs that receive bank financing from 5.7% to 20% by 2030, will also have a meaningful impact on the growing fintech sector in the country. Saudi policymakers have already identified the fintech sector as a key business sector that would help improve the nation’s competitiveness in the global market, which bodes well for investors in this space.
Several high-profile investment funds have already stepped up to address the funding gaps in the fintech sector, including Sanabil Investments and Shorooq Partners. Fintech funds launched by Tanmeya Capital also offer exposure to the growing Saudi Arabian fintech sector. Tanmeya is focused on bridging the financing gap in Saudi Arabia’s SME sector along with the support of several government initiatives. In the Vision 2030 scenario, the credit gap in the SME sector will improve dramatically from a shortfall of SAR 372 billion in 2020 to just SAR 94 billion by 2030. To offer investors attractive risk-adjusted returns through exposure to financing solutions for eligible SMEs, Tanmeya has launched the Finmal platform with a rigorous credit scoring of SMEs to evaluate the financing eligibility of SMEs. Leveraging its robust data analytics platform, the Finmal platform is designed to reduce credit repayment risk while while ppartnering with strategic financial partners for disbursing secured loans. Finmal’s edge is its access to a massive pool of robust SME data. Funds will be deployed for various means, including supply chain financing, POS financing, and consumer financing that help SMEs to overcome their operational financial challenges and scale beyond.
Conclusion
Saudi Arabia’s fintech sector is primed for growth aided by macroeconomic tailwinds and a favorable policy framework. As the country moves toward a digitally advanced future, the fintech sector will emerge as a key enabler of the government’s long-term growth objectives. The long-term appeal of Saudi Arabia’s fintech sector continues to lure institutional investors into this space but opportunities are still abundant given the long runway for growth available for fintech startups.
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