STC Pay and another local firm have become the first companies in Saudi to receive a digital banking license. The Saudi cabinet gave approval to country’s finance minister to issue the licenses, the local state news agency reported today. 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, noted the statement.
Started 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.
With this license, STC Pay will now be converted into a digital bank, STC Bank, with a capital of $670 million (SAR 2.5 billion). To meet the capital requirements, STC will invest about $214 million (SAR 802 million) and maintain its 85 percent ownership in the firm, and Western Union will inject another $200 million (SAR 750 million) to retain its 15 percent stake, the Saudi company said in a statement.
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 (SAR 1.5 billion). There’s very little known about Saudi Digital Bank at the moment but hopefully, we will learn more details in the next few weeks.
This is a welcome move and could change the future of banking (and fintech) in Saudi but it is also important to make the distinction between startups and the fintech plays by companies like STC and Artar. Both STC and Artar have the financial muscle to meet the capital requirements. That won’t be the case for most of the startups operating in the fintech space in Saudi. The only way for them to become a digital bank would be 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.