The startup sector in Saudi Arabia has been through a pivotal period from 2019 to 2020 that includes an expansion in the number of active fintech startups by 147 percent, according to Magnitt's Fintech Saudi Annual Report.
Although fintech companies in the startup segment have reported challenges, the sector as a whole has flourished. The number of smartphone payment transactions grew by 352 percent year-on-year to April 2020, from 4.4 million to 19.7 million individual transactions.
The fintech market in the kingdom is expected to reach a transaction value of $33 billion by 2023, with payments likely to continue to lead the market, followed by personal finance and online insurance sales, the report said.
Magnitt revealed that a survey of fintech start-ups showed that 64 percent of those who were generating revenue in the kingdom saw a drop in revenues or suspended operations due to Covid-19. And, 22 percent had to let employees go.
But there has been a 147 percent growth in the number of start-ups in two years, with just 10 active in the kingdom in 2018, growing to 60 in 2020.
Of those operating, 36 percent are at the idea stage, 26 percent at the pre-launch stage, 20 percent are in testing and 18 percent are launched with initial customers acquired.
The start-up that raised the most funds in the year ending July 2020 was Lean, an API platform that helps fintechs integrate with financial institutions, which raised SAR 13.1 million.
The report also cited ‘significant progress’ in the fintech sector overall, with the launch of Apple Pay, the establishment of Saudi Payments and the release of new payments regulation for the country. In addition, Fintech Saudi has launched a number of initiatives to support the industry.
In an assessment of the fintech sector’s impact on traditional banking, the report said incumbents in the financial sector are starting to see fintech as an enabler rather than a disruptor.
“Large banks are tapping into the start-up system to incubate and create alliances on a variety of platforms such as wallets, payments, investment intermediation and online client acquisition,” the report said.
“They are not only developing platforms for such start-ups to thrive, but are also beginning to invest in such platforms.”
One example is Riyad Bank, which has launched a SAR 100 million programme for fintech start-ups that provides funds for capital injections and research and development.