Pay to win • Chapter summary
There has probably never been such rapid growth in the use of digital payments anywhere in the world or at any time as Saudi Arabia saw during the first 12 months of the pandemic. Other countries used digital payments more than the Kingdom pre-COVID-19, with East Africa and the Nordics being standouts, but these areas achieved high penetration through steady growth and regulatory reform. In Saudi Arabia, it all happened almost overnight.
Or, at least, adoption did, because the groundwork that enabled such explosive growth was laid over the past half-decade of careful reform and an intentional nurturing of the payments sector. SAMA, the Kingdom’s central bank, established a regulatory sandbox for fintechs several years ago. The first class was payment companies, and the first licenses for digital wallets and other services had just been issued months before the pandemic made these services crucial.
The authorities then issued a flurry of new licenses in the opening months of the crisis. They also legislated the relevance of the payments industry by forcing food-delivery and SME retail establishments to accept digital payments and made it painless for them to do so by covering the fees involved for the first half year. This intelligent intervention saw adoption explode.
These policy moves were coordinated across the government, with SAMA, the SME Authority (Monshaat), and other agencies playing crucial roles in designing and implementing the intervention at speed. No one in the sector seems to believe that things will return to how they once were, either. Some of the numbers around the fintech boom support this theory.
A rise in overall transaction volume, accompanied by a fall in the average transaction value, points convincingly to a phenomena seen in other digitalized economies known as cash replacement. As payment technology becomes more accessible people turn to it more often and use cash less. Saudi Arabia was always a prime candidate for a cash replacement trend since its citizens are young, technology savvy, and were mostly still using cash before 2020. However, a process that would likely have taken a decade instead occurred in a matter of months.
Payments are not the only fintechs though. There are a vast variety of applications in the pipeline awaiting full licenses from SAMA. TBY spoke to several consumer lending platforms that had already seen incredible success. More interesting still are the likes of Lendo, a platform that allows retail investors to provide short-term liquidity to SMEs by using invoices as collateral.
These developments will have a real impact on Saudi Arabia’s ability to spur the entrepreneurship needed to generate jobs for its young population. For this relatively young country, 2020 may have been less a tragedy then a key turning point that saw local innovative businesses break through and become relevant on a mass scale.