Saudi finance minister Mohammed al-Jadaan has issued licenses for STC and Saudi Digital banks after Saudi’s cabinet has given its approval, the Saudi Press Agency (SPA) recently reported.
“The finance minister will issue the necessary licenses for STC Bank and Saudi Digital Bank, both under establishment,” the SPA said.
The cabinet’s approval comes within the objectives of the Saudi Financial Development Program under Saudi Vision 2030.
The Saudi Central Bank will now initiate its process to finalize technical and operational requirements for the two banks to start their banking activities in the Kingdom.
Background on the new digital banks
Starting in 2018 as a subsidiary of STC (Saudi Telecom), STC Pay has evolved from a mobile wallet into a financial app that also supports cross-border money transfers and different other services. The firm had received a $200 million investment from Western Union at a valuation of $1.33 billion late last year. The cross-border money transfer service on STC Pay is powered by Western Union. STC Pay had also launched Visa-powered physical and virtual debit cards for its customers earlier this year.
STC Pay will now be converted into a digital bank, STC Bank, with a capital of $670 million. To meet the capital requirements, STC will invest about $214 million and maintain its 85% ownership in the firm, and Western Union will inject another $200 million to retain its 15% stake, according to Menabytes.
The second firm that received the digital banking license is led by Artar (Abdul Rahman Saad Al-Rashed and Sons Company), a Saudi holding company with interests in investment management, real estate, construction, and some other sectors.
They will create a digital bank that will be called Saudi Digital Bank with a capital of $400 million.
For the fintech space to grow in Saudi, startups looking to become a digital bank would need to grow as mobile wallets (with EMI licenses) to a point where they can then bring in investors who are willing to put in the cash to meet the capital requirements for obtaining a digital banking license.
The Saudi central bank has licensed 16 Saudi fintech companies in recent years to provide payment services, consumer micro-finance, and digital insurance brokerage.
According to Yazeed Alsheikh, director for general of banking control at Saudi Central Bank (SAMA), digital banks licensed in Saudi Arabia are going to improve the quality and user experience for customers in the Kingdom, supporting innovation and reducing costs.
Al Eqtisadiah paper quoted him as saying that this plan is going to add to stimulating competition with local banks and fintech companies.