Digital licenses will lead to a new style of banking, experts say

STC Bank will be created from the conversion of STC Pay into a digital lender with paid-up capital of SR2.5 billion ($670 million), having received an investment of SR750 million from Western Union for a 15 percent stake.

Saudi Digital Bank will have paid-up capital of SR1.5 billion and will include Al Moammar Information Systems Co. (MIS) and other investors. MIS shares soared on Wednesday by 9.95 percent on the back of the news.

Saudi Finance Minister Mohammed Al-Jadaan, who is also chairman of the Financial Sector Development Program (FSDP), revealed that the intention behind the approval is to acclimate to global digital and financial advancements.

Talat Zaki Hafiz, an economist and financial analyst, said the new licenses will add increased value to the Saudi banking sector and the fast-growing digital financial system at large, especially in relation to the Kingdom’s goal for non-cash payments to account for 70 percent of the total financial transactions.

Hafiz also praised the effort of the Saudi Central Bank (SAMA) to “broaden the scope and efficiency of innovative services” available in the Kingdom.

Mohammed Alomran, president of the Gulf Center for Financial Consultancy, said the move was inevitable.

“This initiative was expected in the Saudi banking industry as a result of the digital innovation Saudi Arabia is currently witnessing,” he said. “The reaction is positive as consumers are looking for new high-tech financial products.”

While traditional banks already provide e-banking products, Alomran said this will help to transform the e-commerce sector: “I think we will see a new style of e-banking and new innovative products that are totally human-free.”

However, he also said the main obstacle facing digital-only banks will be the lack of personalization and it will take a while for confidence in them to grow.

“When it comes to banking, personalization is very important to financial trading,” Alomran said.

“This is why consumers all over the world today still prefer dealing with regular banks rather than digital banks given the fact that regular banks already have advanced e-banking channels. In my opinion, this issue represents a major challenge to digital banks today.” SAMA Gov. Fahad bin Abdullah Al-Mubarak stressed that digital banks will be under strict supervision to combat illegal issues such as money laundering and terrorist financing.

The digital payment and banking sector of the Kingdom is certainly making major advances this year. Saudi Payments, a unit owned by SAMA, this week partnered with global payments giant Visa to launch a system to allow users in the Kingdom to make digital payments using their smartphones.

The e-commerce payment sector is surging in Saudi Arabia. Statistics from SAMA show that the number of transactions in the first quarter of 2021 rose 95 percent year-on-year, while the total number of point-of-sale terminals in the Kingdom rose 68 percent in the same period.

Paul Kayrouz, head of fintech, blockchain, and emerging technology at global consultancy firm PwC Middle East, told Arab News in May that traditional banks would need to think hard about their business models to remain relevant. “Digital banking is here to stay,” he said.

“So, for these incumbents, they have to decide where they place themselves on this spectrum, to what extent they want to adopt digital banking and make strategic moves to have strong relationships with their customers.”

SAMA in January also issued its policy on open banking. Once regulations are introduced, this will enable bank customers to securely manage their accounts, share their data with third parties, access bespoke financial products and services from the same platform, and experience smoother daily banking activities.