Saudi Central Bank Pushes Ahead with FinTech Facilitation in Saudi Banking and Payments Sector with Issuance of Four New Licences and Six New Sandbox Permits as Electronic Payments Exceed Cash for the First Time

Further signs of the proliferation of FinTech in the Saudi financial and payments sector are the licensing of several more such companies in August and September 2022 by the Saudi Central Bank (SAMA) and the updating of the Framework of its Regulatory Sandbox for aspiring FinTech companies. In addition, a SAMA study shows that for the first time electronic payments in all user groups exceeded the use of cash in 2021 and the trend continues to rise.

SAMA is one of the more proactive regulators in the OIC countries in facilitating the orderly development of Fintech in the Saudi financial ecosystem through the licensing of digital banks, digital exchanges, payment solutions companies and so on.

These initiatives come as part of SAMA’s role in strengthening and widening the scope of the finance and payments-processing services sector by allowing them to engage in new activities and to attract a wider pool of investors and companies.

The aim of SAMA is to increase the effectiveness and flexibility of financial transactions, enabling and encouraging innovations in financial services, enhancing the level of financial inclusion in the Kingdom, and enabling easy and safe access to financial services to all segments of the Saudi society.

In September, SAMA granted permits to a new batch of companies to provide Open Banking Solutions in the Regulatory Sandbox. They included Wally Global Arabia, Sanam Aliliddikhar for Information Technology, Istishraf Al-Bayanat for Financial Technology, and Spare Arabian Financial Company.

This brings the total number of firms operating under SAMA’s Regulatory Sandbox to 42, of which 15 have graduated by obtaining full authorizations and were licensed by SAMA. This follows the granting of similar permits by SAMA in August 2022 to Lean Technologies and Mod5r to provide similar Open Banking Solutions.  

“These steps,” stresses SAMA, “continues progress towards a number of ambitious strategic objectives including promoting and diversifying the financial services offered within the financial sector, boosting savings, payments, and investment activities, and increasing the level of financial inclusion and financial awareness among all community segments in accordance with the objectives of the Financial Sector Development Program (FSDP) of Saudi Vision 2030. This latest move also contributes towards achieving the objectives of SAMA’s FinTech Strategy which aims to make the Kingdom one of the world’s leading countries in the field.”

SAMA updated its Regulatory Sandbox Framework in early September 2022 to an Always Open Approach. The updated framework adopts greater flexibility by enabling financial institutions, as well as local and international start-ups to apply anytime throughout the year, and to bring more innovative business models to their clients. SAMA has been working with market participants including banks and FinTechs to develop an integrated platform for Open Banking in accordance with international best regulatory and technical practices as this should enable participants to develop and launch new and innovative Open Banking Solutions.

The Sandbox update was undertaken as part of SAMA’s efforts to achieve several national strategic goals through the promotion of the Regulatory Sandbox’s involvement in the Financial Sector Development Program (FSDP), “which aims to develop the Kingdom’s economy, diversify its sources of income, enable financial institutions to support the growth of the private sector, and allow new companies to provide their own array of financial services.”

The updated framework, says SAMA, will also support the objectives of its FinTech Strategy aimed at contributing to the economic empowerment of Saudi society by promoting further innovations in technology-based financial services. Operating within a holistic framework, the strategy will support a broad range of FinTech activities through several initiatives serving as catalysts for change.

SAMA launched the Regulatory Sandbox initiative back in 2018 to garner the participation of local, regional and international FinTech institutions and companies seeking to take advantage of current and new technologies to provide innovative financial products and services to Saudi markets. The initiative, according to the central bank, proved to be very successful as it enabled the regulator to adopt many services and products by issuing instructions and regulations, as well as launching many of those products and services to the clients within the financial sector.  

The updated framework of the Regulatory Sandbox is open to both local and international applicants – entrepreneurs, non-regulated companies or existing regulated entities. “The key differentiator of the updated framework is to move from a cohort based approach to an Always Open approach which will give greater flexibility to those applying. This transition will allow applicants to apply to the Regulatory Sandbox when they are ready and in addition bring their chosen business model/concept and not work to a specific one determined for the cohort.”

These developments follow the licensing of four payment financial technology companies in August 2022 by SAMA. They include Arab Sea Financial Company and Fatoraah to provide Payment services for E-commerce; and Enjaz Payments Services Company to provide electronic wallet services (electronic transfer and payment services), and Marta Financial Company to provide payment services through points of sales (POS). This brings the total number of digital payment solutions companies licensed by SAMA to 21, in addition to 5 companies granted an “In-principle Approval”.

Open banking is the process of enabling third-party financial services providers to access consumer banking information such as transactions and payment history. This practice is possible through the use of an application programming interfaces (APIs). Several banks such as Barclays are already using open banking services.

SAMA is currently working – alongside other participants in the financial sector including banks and Fintech companies – on developing and implementing an integrated high standard network to carry on Open Banking Solutions in the Kingdom in liner with global best practices.

SAMA earlier this year commissioned an extensive study to measure used payment methods in the Kingdom during 2021, which also assessed consumer payment habits (cash and non-cash), across all market sectors; – individuals, businesses, and the government sector. A key objective of the FSDP is the promotion of digital payment solutions to transform the Kingdom into a less-cash society by reaching 70% non-cash payments by 2025.

The study showed that, across all user groups, the use of electronic payments exceeded the use of cash. In total, across all areas of economic activities, the use of electronic payments increased from 44% in 2019 to 62% of all payments by volume in 2021. These transactions represent 94% of all payments when measured by value.

The study indicated that – for the first time in the Kingdom – cash is no longer the most used method of payment by individuals, as electronic payments of individuals have grown significantly to reach 57% in 2021 of the total number of transactions executed, compared to just 36% in 2019.

In the business sector, according to the SAMA, the share of electronic payments reached a substantial 84% of all business payments in 2021, compared to 51% in 2019 (a growth of 65% over the two years). The government sector has almost completely converted to electronic payment methods of all outward government payments to individuals, business establishments or other government agencies.

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