Introduction
The Saudi British Joint Business Council (SBJBC) recently hosted a webinar in collaboration with Othman Altamimi & Co. (OTCO) focusing on the fintech sector in Saudi Arabia. The event featured prominent speakers including Feras Al Saab, Head of Fintech and Strategic Partnerships at Bank Al Jazira, and Reema Alzahrani, an Associate at Othman Altamimi & Co. The session was moderated by Matt Jones, Manager, Financial Services and Tech at the Saudi British Joint Business Council, with opening remarks and extra discussion points from both Matt and Salah Abo Yousef, Head of Banking and Finance Department at OTCO.
Opening Remarks
Matt Jones began by highlighting that this webinar marked the first in a series planned in collaboration with OTCO. He emphasised the significant potential for growth in the fintech sector within the UK-Saudi corridor, noting the fintech sector enjoys widespread top down in Saudi and is part of the national strategy as mandated by the financial sector development program. The Kingdom is looking for new and innovative technologies to streamline their processes, become more competitive, and boost their capabilities.
The UK’s strong position in the technology sector was highlighted, with Matt noting that it ranks as the second-best funded ecosystem globally per capita, following only Singapore, and raises more capital in the sector than the rest of Europe combined. This success is evidenced by a strong pipeline of unicorns, with some actively exploring opportunities in Saudi Arabia. SBJBC’s track record includes facilitating over 80 fintech companies’ entry into Saudi Arabia, working alongside major financial institutions in the Kingdom.
Matt emphasised that Saudi Arabia’s fintech sector benefits from robust top-down support, being integral to the national strategy through the financial sector development programme. This creates substantial opportunities for international companies and Saudi institutions to collaborate effectively.
Bank Al Jazira’s Strategic Approach
Feras Al Saab provided insights into Bank Al Jazira’s approach to fintech partnerships and innovation. As a boutique bank celebrating its 50th anniversary, the institution has developed a focused strategy aligned with Vision 2030. Feras outlined three key aspects of their innovation mandate:
First, ecosystem engagement involves working with venture capital firms and accelerators to create a structured, high-quality pipeline for companies entering Saudi Arabia. The bank positions itself as a “door opener,” leveraging its trusted status, network, data, and customer base to support fintech entry into the market.
Second, the bank maintains strong relationships with regulatory bodies, particularly the Saudi Central Bank (SAMA), enabling them to support companies with licensing requirements. Their approach is highly targeted, having evaluated 200 fintech’s globally and nationally in the previous year, aligning potential partnerships with their five-year strategic plan.
Third, the bank is undertaking a three-year digital transformation to enhance their fintech engagement capabilities. They focus particularly on organisational efficiency, ESG contributions, and alignment with Vision 2030. Their strategic focus on SMEs and fintech’s reflects the national objective of increasing SME contribution to the economy.
Feras also highlighted that incoming companies do have the option to operate under the licenses of Bank Al Jazira, allowing them to launch products quickly while they build up revenue and traction in the Kingdom before beginning the licensing process.
Entry Strategies and Partnership Considerations
Feras outlined crucial considerations for companies seeking to enter the Saudi market. He emphasised the importance of having a clear vision for participation in Vision 2030 and a definitive plan for revenue generation within the Kingdom. Companies must also demonstrate their track record in the financial sector and understand they are competing not just with other startups but with alternative operational models.
Regarding exclusivity arrangements, Feras provided valuable insights. While some institutions insist on exclusive partnerships, Bank Al Jazira recognises that this approach may not always be ideal, particularly for startups relying on multiple data sources. He cautioned founders against accepting exclusivity deals without careful consideration of growth implications and investor perspectives. The exception might be cases where the intellectual property is so crucial that acquisition, rather than partnership, becomes the preferred approach.
Legal and Regulatory Framework
Reema Alzahrani provided a comprehensive overview of the legal landscape for fintech operations in Saudi Arabia. She detailed the roles of core regulators, particularly the Saudi Central Bank (SAMA) and the Capital Market Authority (CMA) and outlined various fintech activities under their supervision.
SAMA oversees banking services, insurance, payments, finance, and credit bureaus, while CMA regulates capital market activities including dealing, arranging, managing, advising, and custody. Additional regulatory bodies include the Ministry of Investment, Ministry of Commerce, and various technical authorities.
Market Entry Scenarios
Reema then presented four primary scenarios for foreign fintech companies entering the Saudi market. The first scenario involves establishing a subsidiary of an existing fintech company, allowing 100% foreign ownership with no minimum capital requirements. This approach requires MISA licensing, commercial registration, and potentially testing permits from SAMA or CMA. The benefit is the company can carry the same name and branding as the mother company and would offer its products/services in the KSA market with established offices and a team, as if it were a branch of the mother company.
The second scenario focuses on establishing a new company in Saudi Arabia through MISA’s entrepreneurial licence, particularly suitable for international entrepreneurs looking to create a new fintech venture in the Kingdom. The new company would have a new name and branding as a standalone entity but it won’t need to submit financial history like in scenario 1.
The third scenario involves licensing technology to a Saudi-based startup, offering a lower-commitment entry option while potentially limiting oversight of technology usage. This scenario avoids the time and cost required to establish a branch company in the Kingdom and avoids the burden of obtaining special approvals for technology as the local contact will be responsible. However, this will mean the company has minimal oversight as to how the technology will be used and profit taking will be dictated by the licensing agreement.
The fourth scenario entails appointing a sales agent to sell products or services, suitable for companies not seeking to establish a direct presence in the Kingdom. This is considered a standard business decision and avoids the time and cost of again establishing a branch in KSA. This will also avoid the burden of obtaining special approval for the technology and avoid the time and cost to recruit talent.
Challenges and Opportunities
The presentation highlighted several challenges that foreign companies might face, including cultural and language barriers, regulatory complexity, and data sovereignty requirements. However, these are balanced by significant opportunities, including:
- Saudi Arabia’s position as a leading financial centre
- Strategic location connecting three continents
- Government initiatives supporting fintech development
- A young, tech-savvy workforce
- Market growth potential with limited competition
- 100% foreign ownership allowance in certain sectors
- Substantial government support through the financial sector development programme
Future Outlook
The presentation concluded with notable statistics indicating the sector’s growth trajectory. By Q2 2024, Saudi Arabia had 224 licensed fintech companies, with the national strategy aiming to achieve 525 fintech players and a direct GDP contribution of SAR 13.3 billion by 2030.
Recommendations for Market Entry
The speakers emphasised the importance of physical presence and networking in the Saudi market. Unlike more distant regulatory environments such as the UK’s FCA, Saudi regulators maintain closer engagement with the ecosystem, working collaboratively to respond to market demands.
For companies considering market entry, the recommended approach includes heavy intial market research and understanding of regulatory frameworks, particularly noting similarities with UK regulations that might provide valuable insights into future Saudi regulations. Attendance at major events such as LEAP and Fintech 2024 to build networks and understanding is also essential, not least to stay up to date with the rapidly changing environment. Regular presence in the market to maintain relationships is seen as crucial in the Kingdom and engaging with local consultants and legal advisors to navigate cultural and regulatory requirements is critical as Salah highlighted. The speakers noted that Saudi Arabia is effectively condensing twenty years of UK fintech industry development into five years, creating both opportunities and challenges for market entrants.
Legal Services Overview
OTCO outlined their comprehensive service offerings for fintech companies entering the Saudi market. Their services include assistance with licensing and regulatory compliance necessary for Kingdom operations, including MISA and commercial regulations. They offer expertise in drafting and reviewing various contracts and agreements, including corporate documents, vendor and supplier contracts, licensing agreements for proprietary software, and service-level agreements.
The firm provides comprehensive employment and labor law services, including drafting employment contracts, ensuring compliance with Saudi labor laws, and developing company bylaws. Their merger and acquisition services encompass legal strategies for acquisitions, mergers, and IPOs, including due diligence and exit transaction preparation.
OTCO also offers specialized services in intellectual property protection, including securing trademarks, copyrights, and patents for fintech technologies, drafting IP assignment agreements, and protecting trade secrets through confidentiality agreements. Their tax advisory services cover both corporate tax and VAT compliance, as well as ensuring adherence to Zakat law and regulations. Additionally, they provide dispute resolution and litigation services, representing companies in various legal matters including contract disputes, employee claims, and IP infringement cases.
Question and Answer Session
The session concluded with valuable audience interaction, including a notable question about foreign barristers entering the Saudi market. The responses emphasized the highly networked nature of the Saudi fintech sector, with Matt highlighting that everyone “relatively knows each other” and maintaining a strong presence on the ground is crucial.
The speakers emphasized the importance of utilizing resources such as SVC’s reports on the early-stage landscape and venture capital, as well as Fintech Saudi’s annual ecosystem reports. They noted that the Saudi ecosystem is more concentrated and accessible compared to other regional hubs like Abu Dhabi or Dubai, making it particularly advantageous for international players entering the market.
Conclusion
The webinar provided comprehensive insights into the opportunities and challenges of entering the Saudi Arabian fintech market. The combination of regulatory support, market potential, and institutional openness to partnership creates valuable opportunities for UK-Saudi collaboration in the fintech sector.
Contact Details for Othman Altamimi & Co.
Website: https://otamimi.com/
Email: info@otamimi.com
