The past 12 months have contained some momentous landmarks for Saudi Arabia’s financial sector, from the inclusion of the kingdom's stock market into the MSCI Emerging Markets Index to the continuous strong demand for its sovereign debt bonds and Saudi Aramco’s record-breaking initial public offering earlier this month.
Saudi Arabia’s stock market — the largest in the region, worth approximately $549 billion — continued to develop its regulatory framework and is expected to allow the listing of foreign companies on its exchange in an attempt to encourage further IPO activity.
Such developments crystallise the efforts and the strong political will demonstrated by Saudi leaders to open up the kingdom’s financial markets to international investors.
Yet it is a new ‘kid on the block’ that has many market participants excited: FinTech. While in the past a lack of infrastructure, talent, and supporting regulations meant that Saudi-born financial technology companies preferred to relocate to the UAE when they needed to scale, challenges in all three areas are actively being addressed, meaning Saudi Arabia could be on the brink of a FinTech revolution.
The approval by Saudi Arabia’s Capital Market Authority (CMA) of the Financial Technology Experimental Permit to increase innovation in the domestic economy sent a clear message about the government’s intent to support FinTech innovation. This provides a regulatory framework for the adoption of innovative technology in Saudi capital markets and follows a similar slant to the Saudi Arabian Monetary Authority’s (SAMA) sandbox approach. It allows new products and technologies to be tested under the regulator’s auspices to limit risks and is intended to allow applicants to develop FinTech products, services and business models, and to test and deploy them within specified parameters and time frames.
These are welcome moves because a common area of concern for investors in early-stage start-up companies is the regulatory certainty of the firms in which they are considering investing. Feedback from firms who participated in the UK regulatory sandbox indicated that taking part in such a programme provided a degree of reassurance to investors through the oversight of the UK’s Financial Conduct Authority (FCA) and the increased regulatory certainty participation provided.
Saudi Arabia’s financial regulators have the opportunity to play a pivotal role in kick-starting the fintech start-up industry with measures such as regulatory sandboxes. These allow for small-scale live testing for new business models and increase the credibility of domestic regional start-ups with both investors and customers alike.
FinTech innovation, start-ups and a knowledge-based economy will play a key role in Crown Prince Mohammed Bin Salman’s vision to transform the economy away from its traditional oil-based structure and rebalance it into a more technology-driven, modern global superpower. This is a crucial step forward for a country that has an estimated 2.2 million young people aged between 15 and 19 who will be entering the job market over the next decade, and a huge opportunity for the kingdom’s nearly 20 million young men and women under the age of 35.
As one of the most tech-savvy young populations globally, Saudi Arabia is in prime position to leverage the digital capabilities of this pool of talent. Indeed, mobile and internet penetration in the kingdom is estimated to be at close to 100 per cent — a massive leap before the global average. This positions the kingdom well to tap into its existing tech capabilities and become a front-runner in the digital age.
Through initiatives such as FinTech Saudi — a body launched last year that runs events, initiatives and communications to support the development of the kingdom's FinTech ecosystem — Saudi Arabia is sending a strong ‘we are open’ signal to the world.
The wording of this year's Future Investment Initiative promotional video perfectly summarised the spirit that is sweeping through Saudi Arabia today: No matter how rough or tough, reaching the top is never enough. The high-profile event, at which $20 billion worth of deals were signed, was a testament to the evolving leadership of the kingdom on the world stage and its growing appeal to global leaders, investors, thought-provokers and innovators.
It’s a philosophy that signals the kingdom’s will to take on the future, from state-of-the-art technology to initiatives to foster world-leading innovation and entrepreneurship. What is certain to the foreign observer peering into the kingdom is the country’s potential to be transformed from the largest exporter of petroleum in the world to a world-leading hub for technology and innovation.
Roxana Mohammadian-Molina is Chief Strategy Officer at London-based FinTech company Blend Network