Western Union, the world's largest provider of money-transfer services, bought a 15 per cent stake of Saudi Telecom Company's (STC) digital payment arm.
The US-based company is paying $200 million for the stake in STC Pay, a fully owned subsidiary of STC that offers various services including international remittances, local transfers to banks and facilitates payments for purchases. The deal values STC Pay at 5 billion Saudi riyals ($1.3bn).
"Proceeds of the deal will be used to finance STC Pay's capital in order to enhance its internal resources and support its strategic and expansion plans," the Saudi Telecom Company said in a statement to the Tadawul Stock Exchange on Sunday.
The financial impact of the deal is expected to be positive on the company and its operations in the long term, STC said.
STC also said it will inject 400m riyals to increase STC Pay’s capital to 1.45bn riyals upon the completion of the deal.
The parent company plans to inject a further 802m riyals into STC Pay in the event that a digital banking licence is obtained. STC Pay is the first licensed FinTech company by the kingdom's central bank and has more than 4.5 million users.
Saudi Arabia aims to reduce the dependence on cash and boost digital payments as part of its economy's modernisation plans.
Digital and contactless forms of payment have surged globally in the wake of the Covid-19 pandemic. The health crisis has spurred the growth of e-commerce and digital payments in the Middle East and North Africa as more consumers now opt to shop online.
STC is majority-owned by the kingdom's Public Investment Fund, which holds a 70 per cent stake in the telecom company.