The Saudi Arabian banking industry has around $683 billion in total assets, which is equivalent to 3.2% of the country’s GDP. Saudi Arabia also excels in electronic banking. However, fintech licensing in Saudi Arabia differs from other major hotspots for fintechs, such as the U.S. While the U.S. has a more standardized fintech licensing process, fintech regulations in Saudi Arabia require that fintech startups obtain a license from SAMA to conduct banking activities. SAMA (The Saudi Arabian Monetary Agency) has supervised advanced banking payment systems in Saudi Arabia for more than two decades. SAMA’s licensing procedures are more discretionary than those in the U.S. but aim to promote fintech innovation and to protect financial stability and consumer safety. Other regulators for fintech in Saudi Arabia are CMA and Fintech Saudi. Fintech Saudi was founded by the Saudi government and aims to promote growth, innovation, and financial inclusion through partnerships with SAMA and CMA on regulatory and supervisory matters. In the KSA, there are also no specific laws to regulate Fintech, so fintechs are governed by the same laws that regulate traditional banking in the kingdom.
Sandboxing is a regulatory approach which allows fintechs to test their products and services in a controlled and isolated environment, with the support of regulators to identify appropriate protective measures for consumers. It is considered a safe way to test fintech, and it is adopted by many of the countries active in fintech. Saudi Arabia, specifically, operates a Fintech Innovation Sandbox alongside banking licensing. Fintechs in the KSA can conduct restricted sandbox tests or apply for a more significant banking license. This integrated approach tries to stimulate innovation under regulated conditions. Therefore, although there are more hurdles to overcome in the fintech regulatory framework in Saudi Arabia compared to the U.S. and U.K., sandboxing has been proven to be effective.
Given that Saudi Arabia’s banking industry is worth more than half a trillion dollars, investing in fintech in the kingdom is wise. Fintechs have allowed for useful digital transformation of traditional banking in Saudi Arabia. However, the digital banking regulations in Saudi Arabia cannot be overcome without the appropriate regulators in the kingdom, such as SAMA and CMA, for example. Although there are no specific laws to regulate fintech in Saudi Arabia, fintechs are regulated by the same laws for traditional banking. Therefore, in order to establish a fintech in Saudi Arabia, it is necessary to go through the necessary government authorities. Sandboxing has been seen to be effective at experimenting with fintechs in a safe and regulated way in the kingdom, or fintech startups can apply for a banking license by going through the appropriate financial services authorities, as previously mentioned.