First, STC Pay will be converted into a local digital bank, STC bank, with a capital of SR2.5 billion ($0.6 billion). Second, a number of companies and investors, led by Abdul Rahman bin Saad Al-Rashed and Sons Co., will establish a local digital bank — Saudi Digital Bank — to conduct banking business in the Kingdom, with a capital of SR1.5 billion.

Minister of Finance Mohammed Al-Jadaan, chairman of the Financial Sector Development Program (FSDP), said that “the Cabinet’s approval reflects the leadership’s keenness to keep pace with the rapid development in the fintech sector and to empower the Kingdom to be among the largest financial hubs in the world.”

For his part, Dr. Fahad Al-Mubarak, governor of the Saudi Central Bank (SAMA), pointed out that digital banks provide services and products exclusively through electronic channels by adopting an innovative and sustainable banking business model to enhance financial inclusion and keep pace with cutting-edge technological developments in the financial sector.

I believe that SAMA’s move toward digital banking is in line with the Kingdom’s Vision 2030 objectives to support growth in the banking sector.

By introducing full-fledged digital banks in the Kingdom, it is also in line with the central bank’s role of keeping pace with the latest technological developments in the banking and financial sectors.

It is worth noting that the Saudi banking sector has witnessed over the past two decades significant advancement and improvement in electronic banking services. This is evidenced by the establishment of Saudi Payments as a wholly owned subsidiary of SAMA, with the mandate to continue SAMA’s legacy of developing a secure, interoperable national payment infrastructure, to serve banks and fintech operators equally, and to offer the required standardization to ensure all providers have a level playing field.

SAMA and Saudi Payments’ efforts to enhance digital payments goes hand in hand with the FSDP, one of the Kingdom’s 13 Vision 2030 Realization Programs’ objectives to increase the share of non-cash transactions from 36 percent in 2019 to 70 percent in 2025 and to enhance financial inclusion in the Kingdom.

SAMA has granted 16 licenses to Saudi fintech companies recently to provide payment services, consumer microfinance, and digital insurance brokerage. Also, the central bank has licensed 32 fintech companies to work under the regulatory sandbox environment, which was designed to test innovative services and products in the Kingdom. This is in addition to the efforts to encourage local banks to provide the best possible services and products through available digital banking channels in accordance with international best practices.

After the first appearance of digital banks in 2015 with British bank Monzo, there are currently more than 400 digital banks worldwide. Challenger Insider reported that the total amount of investment into digital banks globally within the first quarter of 2021 has exceeded $3.7 billion through 42 deals.

Without a doubt, digital financial services in the Kingdom are progressing at a fast pace, as witnessed by the growth of electronic financial transactions in the banking sector, which have exceeded the target set by the FSDP. That non-cash transactions accounted for 36 percent of total transactions in 2019, while the target was set for 28 percent by 2020, is evidence of this.

I believe that granting licenses for two local digital banks to operate in Kingdom will add value to the banking sector and national economy, especially the digital economy. Also, it will enhance financial inclusion and support the central bank’s effort to broaden the scope of digital banking services in the Kingdom.