Fintech in Saudi Arabia Today
Saudi has demonstrated that there is compelling macroeconomics, clear top-down Government ambitions for a cashless economy and fintech growth, accompanied by supportive infrastructure and regulatory reform. So how is the Fintech sector actually taking root in the Kingdom?
Saudi’s Fintech Performance Thus Far
Market Size and Growth Projections
Fintech has seen a rapid advancement in Saudi Arabia, particularly in the last 5 years since the launch of the Saudi Vision 2030. The Saudi Fintech industry’s market size was valued at $20 billion USD in 2019, and is expected to reach $33 billion USD by 202318. Though the pandemic posed many challenges to companies across sectors, there is some evidence of the pandemic accelerating the uptake of digital payments and other fintech products and services, potentially accelerating the adoption of fintech in the Kingdom.
When taking into account the Kingdom’s progress towards cashless payments, the performance has been impressive. The number of mada (digital/card) POS transactions has grown at a cumulative annual growth rate of 49% since 2016 to 2020. At the end of H1 2021, Saudi Payments Company revealed that the Kingdom achieved more than 2.2 billion POS transactions, valued at over 227 billion riyals. This means that 2021 projects a 144% growth over 2020.
Results also pointed to an overall increase of 310% in payment transactions via smart devices, with over 724 million said transactions in H1 2021 at a total value surpassing 56 billion riyals, representing 1/3rd of all NFC transactions at POS terminals. In the eCommerce sector, Mada revealed an exponential growth of 450% in the number of shops accepting the Mada ecommerce payment method, reaching more than 28,000 stores in June 2021. Digital eCommerce transactions have increased 112% at 146 million transactions with a total value of 31 billion riyals.
A Growing Ecosystem of Fintech Players & Segments
From the onset of monitoring fintech activity in the Kingdom in 2018, actively operating fintechs in the Kingdom (which includes fintechs with a standard trade license, fintech license or a testing license) has increased from 10 players in 2018 to 82 players by the end of July 2021, which is a cumulative annual growth rate of 102%. Replicating the growth of Fintech in global markets, the largest and most crowded fintech segment is Digital Payments & Currency Exchanges, comprising over one-third (35%) of all fintech players in the market; since 2018, this segment has a cumulative annual growth rate of 60%. The next largest fintech segments are Business Tools & Data Aggregators and Lending & Finance, with 15 and 14 fintech players in each of these categories respectively.
The fastest growing fintech segment has been Business Tools & Data Aggregators (2018-2021 CAGR: 116%) which had 3 players in 2018 and grew to 14 in 2.5 years; this Fintech segment generally does not require regulatory approval for a specific fintech license, and as such, has a much lower barrier to entry. The second fastest growing fintech segment is Private Fundraising (CAGR: 100%; growing from 2 players in 2018 to 8 players by the end of H1 2021), and Insurance (CAGR: 100%; growing from 2 players in 2019 to 4 players today). There were only 2 segments that saw a decrease in market players between 2018 to 2021: the Banking and Banking Infrastructure segment which shrank from 3 players in 2018 to only 1 player in 2021, mostly due to reclassifying the companies in other segments. The second shrinking segment was a niche segment of Healthcare Financing (graphed as “other” in 2018), which went from 1 to 0 – players in the same period.
Let’s talk about Fundraising
Out of the 30 fintechs that successfully raised capital, 15 companies (50%) fully disclosed information on all rounds of funding; 7 fintechs (23%) only partially disclosed information on funds raised, and the remaining 8 fintechs that disclosed fundraising activity (27%) did not disclose any details about the amount of funds raised. It is prudent to note that the fundraising analysis conducted within this report is based only on publicly available data. Thirty-seven percent of all Fintechs operating in Saudi Arabia (30 out of 82 Fintech Companies) today have successfully gone through at least one round of external fundraising. Fourteen fintechs (47% of those that have fundraised) have successfully completed multiple rounds of external fundraising (2 or more).
Fintechs operating in Saudi have raised over $1 Billion USD in fundraising in the past 12 years (this figure takes into account fundraising raised by both Saudi-born fintechs as well as international Fintechs setting up operations in Saudi Arabia). Over $787 million USD of capital has been externally fundraised by Saudi-born and raised fintechs (based on public disclosure).
The years 2018, 2020 and 2021 were the strongest fundraising years to date, with fundraised values in those years accounting for 83% of all fintech-related fundraising raised in the Kingdom to date. Funding is relatively equally disbursed between Corporate Funding (US $200 million), Series A (US $185 million) and Series B (US $152 million). Payments and Currency Exchange Fintechs received the most funding to date, having raised more than $562 million (equating to more than 55% of all funding raised by Fintechs in Saudi); this is to be expected as Payments is the most mature fintech vertical established in the Kingdom.
The largest funding segment is fundraising rounds between ‘$1 million USD to under $10 million USD’, which comprised 56% of all fundraising amounts; this was followed by seed stage and series A funding below $1 million (16%), and finally followed by the ‘$20mn to under $50 million USD’ category (12%).
The largest fundraised amount to date was by Geidea, the POS terminals and solutions market leader in Saudi, in 2018, when the Fintech player was acquired for $268 million USD by a Private Equity Fund (See page 35 for a Case Study on Geidea). In late 2020, the Kingdom’s first unicorn (a term used to describe a start-up to be valued at over $1 billion USD) was announced, when STCpay, the Kingdom’s leading digital wallet, announced that it had sold a 15% stake in the company to Western Union for a $200 million USD investment (See a Case Study on STCpay on page 48). Beehive and Tabby, both UAE-born lending and finance apps that opened operations in Saudi Arabia, experienced the most rounds of funding each having raised funds on 5 separate occasions spanning seed stage to Series B, with debt-financing and grants as bridges in between. The median fundraised amount in one fundraising round by those 32 fintechs (operating in Saudi Arabia) that have successfully raised capital was $5,000,000 USD.
Availability of Fintech Funding in
Saudi Venture Capital funding grew 65% year-on-year to reach a record amount of SAR 650 million (equivalent to US $173 million) in the first half of 2021; this accounted for 14% of VC funding across the whole of the Middle East and North Africa region19. Fintech funding accounted for almost a quarter of all transactions, showing a growth of 1700% more capital year-on-year. In the same period, e-commerce funding declined by 54% in the Kingdom.
Traditional lenders have also been increasing their financing of start-ups and small businesses. Credit facilities provided to micro, small and medium sized business grew 40% from Q1 2020 to Q1 2021. Banks provided the lions share of credit, 93% of the total SAR 188.4 billion (equivalent to US $50.2 billion)20.