With the Coronavirus radically transforming people’s dependency on technology and causing a global slump in oil prices, fintech is in an ideal position to lead Saudi Arabia and the Middle East away from a potential recession and towards a sustainable and prosperous post-oil economy. As the government continues to pump money into fintech start-ups and entrepreneurial ventures, here are some key things to take into account in the coming months:
1. Exponential growth
Fintech investment may not currently be on par with other regions in terms of direct venture capital investment – but that is only one side of the story. Trends point to exponential growth in sustainable fintech investments, reaching an annual growth rate of 30 per cent.
2. Payments and remittance services in the lead
Payments and remittance services are dominating the fintech sector in terms of size and investment, with around 85% of fintech companies in Saudi Arabia and MENA focusing on payments, transfer and remittance services. In Saudi Arabia there is vast room for the payments sector to flourish, where only around 37% of payment transactions are digital.
3. Tech-savvy demographic
Saudi Arabia and the Middle East has one of the highest youth populations in the world, with just over half the population being under 25 years of age. With the younger generation generally being the most digitally literate, there is a huge market for fintech in the region. With the use of smartphones on the rise and 5G launching later this year, eliminating outdated 2G and 3G services, fintech has a unique opportunity to offer advanced banking services to a younger tech-savvy market.
4. Talent Crunch
In Saudi Arabia the rise in fintech startups is aimed at bolstering a strong national economy and providing nationals with job opportunities. To ensure a growth in talented local human capital, the Saudi government is boosting growth of the fintech sector as a platform for Saudi nationals with technical expertise to work locally rather than relocate abroad. As an example, Geidea brings in international talent with a succession plan to transfer knowledge to Saudi talent and spread knowledge throughout KSA.
5. The impact of the Coronavirus
SMEs are the most vulnerable to the economic impacts of the Coronavirus. Fintech digital banking services will be crucial to helping SMEs continue their services online where possible. Fintech usage has also skyrocketed amongst the general public working from home and avoiding human contact at all costs – suggesting that the Coronavirus has spurred on the move towards a cashless, digital society in KSA and the Middle East.
The fintech industry is increasingly shaping the future of banking in KSA and Middle East, and the Coronavirus has made glaringly apparent its importance to the region. If the government does not continue to bolster fintech companies during these difficult times and in the aftermath of the pandemic, the recovery period may take far longer than expected. Regulatory bodies in KSA such as the Saudi Arabian Monetary Authority, Saudi payments, Capital Market Authority are leading the way by providing a simple framework that is designed to promote and develop innovative Fintech products, services and businesses models. The initiative is exemplary, and other countries within the region will likely follow suit.
