Unleashing the Full Potential of Fintech: Challenges, Opportunities, and a Way Forward

Ali Bailoun Visa’s Regional General Manager for Saudi Arabia, Bahrain and Oman

The GCC has been experiencing rapid growth in its digital economy, spurred by a combination of government initiatives, regulatory support, and the increasing adoption of digital payments. Fintech also is helping this transformation with their innovative technologies that are extending the benefits of digital commerce to consumers and businesses. Through fintech, more consumers are enjoying seamless and personalized payment financial experience, businesses can access a broader range of financial services, and the economy can benefit from increased financial inclusion and innovation.

Governments have been in the driver’s seat of this transformation.  Saudi Central Bank (SAMA), Central Bank of Bahrain and Central Bank of Oman, for example, offer well-regulated, enabling environments for fintechs in the form of sandboxes, fintech hubs and more. In 2021 SAMA introduced guidelines for licensing digital-only banks which helped give rise to a vibrant digital banking scene in Saudi which includes STC Pay, which has recently transformed into STC Bank, a fully digital bank; urpay digital wallet, launched by Al Rajhi Bank’s subsidiary Neoleap; D360 – serving underserved segments like youth, SMEs and B2B; Meem and Vision Bank – offering banking services for consumers and businesses; and many more. 

SAMA has also issued detailed Buy Now, Pay Later (BNPL) Guidelines in December 2023 that set licensing requirements, minimum capital thresholds and consumer protection measures. Open Banking is swiftly being adopted across the region, with Bahrain first to introduce a regulatory framework, followed by Saudi last year and UAE expected to reveal its Open Banking rules soon.

The increased demand for alternative financial solutions, along with an increasingly supportive regulatory environment, is fueling financing and fundraising opportunities for fintech companies. As a result of such efforts, Saudi Arabia, the UAE, and Bahrain have emerged as regional – even global – fintech hubs. In fact, in 2023 the UAE claimed 54 deals and investment of $1.3 billion[1] and KSA garnered close to $1 billion[2], from local and global investors, and the GCC region saw companies like Tabby, Tamara and Andalusia Labs achieving unicorn status.

Emerging technologies such as AI and Blockchain, part of the Web3 revolution, present an opportunity – AI alone, for instance, has the potential to deliver as much as $150 billion in real value in the GCC[3]. KSA and UAE stand at the forefront of use cases for these technologies in gaming, transport, payments and more. The Saudi government in 2019 set up the Saudi Data and Artificial Intelligence Authority (SDAIA) to serve as the national body overseeing research, innovation and operation in the field of data and artificial intelligence. Between AI hardware & incorporating it in the layers of education system, KSA has also ringfenced over a $100B to ensure the Kingdom stays on top of the AI wave.[4]

However, fintechs continue to face challenges that can potentially undermine their growth and limit the value they’re able to bring to individuals and economies.  Our recent research in the GCC identified emerging trends for the wider ecosystem to address to maximize the potential fintechs have to offer consumers, businesses, and the wider economy.

One significant hurdle is the global competition for tech talent. The high demand for skilled professionals coupled with the relatively high cost of living makes talent acquisition costly, potentially hindering the growth of fintechs. In Saudi Arabia, as part of its Vision 2030, the government is investing heavily in digital and tech skills training to increase the pool of local talent.

Access to underlying payment systems previously exclusive to banks and exchange houses is another trend shaping the fintech landscape. This access opens up multiple revenue streams for fintechs, including fees, float, foreign exchange, and data. Consequently, payments have become a major focus area for many fintechs, with large digital wallets emerging from telecom. The market is seeing diverse offerings – from BNPL solutions, personal finance, and virtual assets – which has ushered in an era of financial innovation.

The cross-border nature of many fintech operations also presents unique challenges. With business interests often spanning multiple MENA geographies, fintechs must navigate a complex web of country-specific licensing and regulations – an opportunity for the region’s regulatory players to address with ecosystem stakeholders.

Finally, there's an increasing trend of fintechs seeking industry players for more mentorship, infrastructure support, and investment.  This highlights the importance of the private sector contributing more to the government’s efforts to foster a supportive ecosystem for fintechs to thrive. Visa, for instance, has been supporting local fintechs with several programs, latest of which is the Saudi Arabia, Bahrain and Oman edition of the 2024 Visa Everywhere Initiative (VEI), for fintech startups to showcase their solutions on a global stage for a chance to secure funding to help them with development and operational costs.

Fintechs have the potential to offer even more broad social benefits to the markets they operate in – particularly when it comes to providing financial services to those who have traditionally been underserved and helping businesses in their digital transformation. That’s why it is so important to support fintechs in their growth journey.  We have a promising future ahead for everyone, everywhere but we will only be able to reach it through close collaboration and cooperation. 

[1]

https://www.innovatefinance.com/capital/fintech-investment-landscape-2023/

[2]

https://www.edgemiddleeast.com/industry/fintech-companies-in-ksa-raised-1-bn-by-end-of-

2023#:~:text=The%20number%20of%20fintech%20companies,from%20local%20and%20global%20investors.

[3]

https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/the-state-of-ai-in-gcc-countries-and-how-to-overcome-adoption-challenges

[4]

Saudi Arabia's $100 billion AI and semi-chip fund says it will divest from China if the US asks (msn.com); Saudi Arabia’s big AI educational leap (msn.com)