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What’s driving Saudi Arabia’s digital banking sector? The 4 key factors.

In recent years, banking in Saudi Arabia has been undergoing fast digitization and is quickly becoming a leading player in digital banking innovation. Changes in consumer preference, an ambitious fintech development program, and the rise of fintech startups all play an important part in the country’s flourishing digital banking sector today.

by Ahmad Ghandour

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According to a Backbase study on the digital banking appetite of Saudi Arabia, investment in Digital Banking solutions is expected to increase threefold in the Kingdom, from USD 30 billion in 2020 to USD 73 billion in 2026. For incumbents to stay competitive and maximize the opportunities ahead, it’s important to consider the trends that are emerging on top of the digitization wave:

1. Changing customer preferences

Our survey of more than 2,016 respondents in Saudi Arabia and the United Arab Emirates showed that 82% of banking customers use a digital bank at least once per week and 88% of people prefer to use digital banking services over visiting a physical branch. The survey also found that 79% are prepared to share their data in exchange for a better banking experience. This means that financial institutions (FIs) must not only truly embrace digitization, but also adopt a customer-centric mindset to be positioned to thrive in the new financial landscape.

2. Better integration with world markets

The Saudi Central Bank (SAMA)’s latest strategic initiatives, in line with Saudi Vision 2030, aim to transform the country as a regional fintech leader. Saudi’s Open Banking Framework encourages new market players and faster innovation of digital banking services through third-party integration and open APIs. The scheme allows local banks to share data and collaborate with foreign banks and fintechs, leading to better banking products and more choices for consumers.

3. More opportunities for financial inclusion

Digital technology has already had a positive impact on financial inclusion and made it easier for disadvantaged individuals to access or afford banking services. The increased democratization of financial services in the country through open banking policies will empower more people with access to funding and financial services, such as instant loans and Buy Now Pay Later (BNPL) to improve their financial wellbeing.

4. Digitization of Islamic Banking

Another key driving factor is the development of Islamic Banking which has seen a growth in numbers and geographic reach in recent years. Despite this, they have tended to lag behind conventional banks in adopting digital solutions. In response, the Islamic Financial Services Board has highlighted digitization as a top priority for the sector to remain competitive in the market. These initiatives, although at a very early stage, are being implemented to facilitate digital Islamic banking without compromising Shariah principles.

The future is clear for digital adopters

Financial institutions that embrace a digital-first and customer-centered approach will lead the new era of banking in the country. It’s clear that consumers want innovative financial services now. But for most traditional banks, it’s simply too impractical to transform on their own.

Banks can therefore partner and work with leading platform vendors like Backbase to stay competitive. A platform model provides incumbents the innovation, speed, and flexibility to meet new market demands. Overcoming the limitations of legacy technology and operational silos, banks can focus on creating delightful customer journeys that turn into faster acquisitions, new digital sales opportunities, and deeper customer engagement.

To learn more about the important trends that are ushering in a new era of digital banking in Saudi Arabia and how your bank can get ahead, download the whitepaper here.