Financial Services in the Kingdom of Saudi Arabia refer to the activities related to liquidity management and movements through banks, financing companies, investment and financial brokerage companies, and insurance companies in Saudi Arabia.
Development of financial services in Saudi Arabia
Technical advancements introduced to financial transactions contributed to facilitating the operations of the financial services sector. These developments were initiated in 1990 when the Saudi Payments Network (SPAN) was established to encourage conducting electronic transactions through the banking system. The network underwent further developments with the introduction of the revamped "Mada" system on August 25, 2015.
At the onset of the third millennium, internet use became more vital. Hence, the network contributed to supporting the activities of the financial services sector in Saudi Arabia. The sector achieved positive performance under the eighth development plan. In fact, the latter sought to enhance the efficiency of financial services development policies, enable the developmental role of investment banks and specialized lending institutions, and enable insurance activities and those of venture capital companies.
The financial services activities underwent further development and had access to additional support under the ninth development plan. The plan sought to enhance the sector's potential and resources, ultimately enabling the achievement of the greatest vertical and horizontal expansions possible in favor of such services. The plan also aimed at enhancing the quality and competitiveness of such services, increasing their contributions to the Gross Domestic Product (GDP), and enabling their developmental role.
Objectives of the financial services sector in Saudi Arabia
The ninth development plan focused on the role of the financial services sector in terms of prospective orientations open to the various activities encompassed by the sector. The plan has set general objectives for the sector. These objectives include the following:
- Achieving financial and economic stability and enhancing the investment climate, which would reflect positively on the performance of the national economy and its various sectors.
- Providing funding for various economic activities, especially small and medium enterprises (SMEs).
- Improving the performance of the private sector, increasing and diversifying sources of income, providing more job opportunities for nationals, raising living standards, and improving the quality of life.
- Enhancing the efficiency and effectiveness of the banking system, developing the financial markets, reinforcing the developmental role of specialized lending institutions and insurance services, and improving their quality and ability to compete.
The plan has also attached utmost attention to the role of the financial services sector and worked on enhancing the sector within the scope of the national economy. Hence, it has set sector-specific objectives. These objectives include:
- Achieving an average annual growth rate of about 7.6 percent in the financial services sector over the period of the plan.
- Increasing the total value of loans provided by specialized lending institutions (excluding the Public Investment Fund - PIF) to about SAR142.7 billion over the period of the plan.
- Developing an "early warning system" for financial crises, supported by specific indicators, to monitor the "financial security" of the Saudi economy and its financial institutions.
Role of Saudi Vision 2030 in favor of the financial services in Saudi Arabia
The financial services sector in Saudi Arabia has acquired significant importance with time, namely thanks to the development of financial activities and the ease of online financial transactions. With the beginning of the implementation of Saudi Vision 2030 upon the execution of several programs, the Fiscal Sustainability Program, launched in 2017, became one of the most notable programs seeking the achievement of comprehensive financial stability. The program also aims to enable financial institutions to support the growth of the private sector, develop an advanced financial market, and foster financial planning.
Regulation of financial services in Saudi Arabia
In 2006, the Ministry of Commerce licensed "Falcom Financial Services," a closed Saudi Joint-Stock Company with a share capital of SAR1 billion. The license was granted in support of the sector's institutional aspects and in line with the Financial Regulations. The company's activities comprise acting as a principal and agent, engaging in underwriting and management activities for the establishment and management of investment funds, managing portfolios and arrangement activities, offering advice, and engaging in record-keeping activities.
In 2019 and in line with the developments witnessed by the digital infrastructure, the Saudi Arabian Monetary Authority (currently known as the Saudi Central Bank) took the initiative to design a sandbox environment to understand and assess the impact of new technologies applied within the financial services market in Saudi Arabia and enable its transformation into a financial hub supported by technical intelligence.
In fact, this environment reflects the development sought by the financial sector in offering its services and products. The latter include offering the e-wallet service, enabling transfers between wallets and QR Code-based purchase activities, enabling international direct transfers, offering points of sale devices services, accepting Sadad invoices, and activating Sadad and Mada Online accounts for online purchases. The sandbox licensed eleven local and international banks and seven companies to offer several services in the field of digital payments.
Increasing the number of companies operating in the financial services sector
The number of companies licensed has increased as services developed and expanded. In this respect, the Saudi Central Bank licensed fourteen companies specialized in financial technology (FinTech). The licensed companies were added to the already operating companies within the sandbox. These companies joined the list of previously licensed seven companies, bringing the number of these companies to twenty-one.
Within the scope of keeping pace with the financial services' scope expansion and the field's need for more active companies and institutions, the Saudi Central Bank issued a license in favor of a new FinTech company operating in e-payments on November 22, 2022. The newly licensed company, Tweeq International Financial Company, was enabled to offer POS payment services. Hence, the number of companies licensed by the Saudi Central Bank was brought up to twenty-five companies. Moreover, seven other companies received preliminary approval valid until August 2023.
In 2023, the Saudi Central Bank (SAMA), announced licensing three new FinTech companies to operate under the umbrella of the new regulatory sandbox within the field of open banking. These companies are Tarabut Gateway for Information Technology, Umq al-Hulool Trading Company, and Drahim FinTech App Company, ultimately bringing the total number of FinTech companies licensed to operate within the regulatory sandbox by the Saudi Central Bank to forty-five companies, including eighteen companies that were licensed upon the conclusion of the trial period.
The Saudi Arabian Monetary Authority (SAMA, currently known as the "Saudi Central Bank") had already initiated licensing active non-banking financial institutions (FinTech companies). In this respect, it announced licensing the first e-wallet company, Stc Pay, on January 30, 2020, and the first payment services company in Saudi Arabia, Geidea, on January 30, 2020.
FinTech companies joined "Mada," the national payment system in order to enable financial institutions to support the growth of the private sector and foster the efforts aimed at the development of an advanced financial infrastructure. In April 2021, "Saudi Payments," owned by the Saudi Central Bank, granted stc Pay and Geidea its technical authorization to join the network as the first two non-banking institutions. In this respect, stc Pay would issue Mada virtual and physical cards, while Geidea would offer POS hosting services directly to merchants, where it would activate all its services on the provided POS devices.
Achievements of the financial sector in Saudi Arabia
Generally speaking, the financial sector recorded several achievements at various levels. These achievements comprise the establishment of the Fintech Saudi Center in 2018. The center aims to enable the access of new types of active players within FinTech field to financial services and establish funds, enablers, and incubators focusing on FinTech to provide venture capital, enable equity financing, and foster the entrepreneurship environment.
Digital development of Saudi banking
The Council of Ministers issued a resolution in June 2021 approving the licensing of two local digital banks to position Saudi Arabia as one of the world's financial hubs. These companies would be licensed upon converting "stc Pay" into a local digital bank, with a share capital of SAR2.5 billion, ultimately enabling its engagement in banking activities in Saudi Arabia (stc Bank). On the other hand, several companies and investors joined their efforts to establish a local digital bank (Saudi Digital Bank), with a share capital of SAR1.5 billion, to engage in banking business in Saudi Arabia.
The Council of Ministers rendered another resolution on February 15, 2022, approving the licensing of a third digital bank, known as D360 Bank, formed of an alliance between several investors, encompassing enterprises and individuals, and the Public Investment Fund (PIF). The bank is led by Derayah Financial Company and has a share capital of SAR1.65 billion.
These bank offer new financial services that are aligned with the most recent banking technologies. In this respect, they offer financial products and services exclusively via digital channels, through an innovative sector-geared banking business model, ultimately contributing to higher financial inclusion. In fact, digital banks seek to keep pace with the latest advancements made within the financial and technical global scene.
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