Digital future for Saudi financial services

The financial services sector in Saudi Arabia is undergoing a dramatic transformation.  As one of 12 ‘realization programs’ of the Vision 2030 national development strategy, it has been earmarked as a priority sector to underpin progress towards the country’s ambitious objectives.

According to Vision 2030, the aim of the Financial Services Development Program (FSDP) is to “develop a diversified and effective financial sector to support the development of the national economy, diversify its sources of income, and stimulate savings, finances and investments.”

Abdul Latif Jameel Finance has been active in Saudi Arabia for over 43 years, since 1979, and is one of the companies helping to drive change in this dynamic market. 

We spoke to Dr. Khalid Al Karimy, CEO of Abdul Latif Jameel Finance in Saudi Arabia, about the development of the Saudi financial services sector, his plans for the business, and opportunities for growth.

How long have you been with Abdul Latif Jameel?

KK: I joined Abdul Latif Jameel Finance in 2009. I played different roles since joining from being the Director of HR, to the Managing Director of support services, including HR, IT, and administration services. Two years after that, I became the Chief Operating Officer. In January this year, I assumed the role of Chief Executive Officer.

How much did you know of Abdul Latif Jameel Finance before joining the business?

KK: Abdul Latif Jameel is one of the most famous family brands in Saudi Arabia – a true household name – so, of course, I knew the name and reputation, but I didn’t understand the full scale of the business. 

I knew about the Toyota distribution business and some of the social and community activities, like Bab Rizq Jameel. 

I also knew a little about the finance side but didn’t realize it was a separate and such a major company in its own right.  

What attracted you to the opportunity?

KK: Actually, there were two things.  The prestige of the Abdul Latif Jameel brand in general, and more specifically, the opportunity to develop my career in the rapidly growing financial services sector, particularly given my previous experience at the IDB.

How has the consumer finance market in Saudi Arabia developed in recent years?

KK: The consumer finance market in Saudi Arabia has grown very rapidly in the last few years.  Going back some time, it used to be a very traditional market.  Banks were the largest players and dominated the market.  Gradually, a few new players started to enter the market, including Abdul Latif Jameel Finance.  This change has gained much more momentum in the last five years.  Vision 2030 sets out an ambitious vision for the expansion and of the country’s financial services sector, and the transformation is already happening.  A lot of smaller companies, Fintech companies, have emerged and have been winning market share.  Banks have responded by investing in their own digital offerings.  It’s a very dynamic situation at the market and has witnessed a huge shift in the last few years and it is only accelerating.

What are the biggest areas of growth?

KK: I see two key areas that are driving growth in the market.  One is ‘cash finance’.  There are multiple Fintechs now offering financial solutions to consumers.  We have seen significant growth in people, particularly those who are unbanked, accessing finance this way.

The second big area of expansion is SME (small and medium enterprise) finance, which is an area that Abdul Latif Jameel Finance is particularly active in.  Growth here is probably outstripping growth in consumer finance.  Traditionally, SME finance was an underdeveloped segment in Saudi Arabia.  The big banks had such bureaucratic application processes that it was hard for SMEs to access funding in this way.  Most SME finance came from friends and family instead, but that is rapidly transforming . 

The government has taken steps to modernize the market.  It has made it easier to check the financial performance of SMEs and created a number of organizations, including a bank, to provide funds.  They also updated the ‘Kafala program’ – which means ‘guarantor’ in English – to strengthen certainty and flexibility around loan repayments. 

We are very interested in this market because there is massive potential.  This is where we think our largest share of growth is going to come from.  Most Fintechs are on the consumer side.  They are not so interested in SMEs.  We are the first in the market to offer a risk management module for SMEs that is completely automated.  We’re working on an automated onboarding process, too.  Once we launch this, we might be the first company to offer a complete, seamless digital experience for SMEs to access finance.

Fintechs have disrupted the financial services market across the globe.  How vibrant is the Saudi Fintech market?

KK: Fintechs have transformed the Saudi market.  There are Fintechs now in virtually every area: personal loans, payment processing, insurance, and so on.  Larger players have also entered the market, like telecoms companies providing e-wallets and credit cards, things like that.  Banks have followed suit by offering their own digital applications and platforms. 

At Abdul Latif Jameel Finance, we’ll soon be launching our new digital cash loan app, which automates the whole process.  The consumer can download the app, apply, and receive a loan in a few minutes.  We are also launching a point-of-sale ‘buy now pay later’ (BNPL) product, so consumers can buy from one of our partners.  Again, it will be a seamless, frictionless, friendly experience that we hope will delight customers.

How popular are Fintechs – and digital services in general – in Saudi Arabia?

KK: The use of digital technology in financial services is proving to be very popular.  I think this has to do with the nature of the population in Saudi Arabia.  We have a very young population; very technology-savvy.  Saudi Arabia is one of the biggest markets in the world for Twitter, for example.  Saudis love technology.  They just love the idea of getting something through their mobile app.  They are tired of bricks and mortar experiences.  This is obviously a huge advantage for Fintechs.

Another advantage is the attitude of the regulator.  The Central Bank of Saudi Arabia is very supportive of Fintechs.  It has a ‘sandbox’ for Fintechs to operate through.  This provides a very attractive business environment, like an incubator for Fintechs, where regulations and bureaucracy are less onerous. 

What has been the traditional position of Abdul Latif Jameel Finance in Saudi Arabia, and how is that changing?

KK: We used to be a traditional point-of-sale auto-finance company, nothing more.  Around 20 years ago, we also started providing finance for consumer products, too, like home appliances, but didn’t go any further.  In the last couple of years, we have been focusing on the SME market and investing in our proposition there, like cash financing, point-of-sale financing, contract and invoice financing, with a lot more to come. 

We are also exploring merger and acquisition opportunities to strengthen our position in the market.   The first of these is with Abdul Latif Jameel Real Estate Finance, which provides mortgages, and also Bab Rizq Jameel Microfinance, which has a strong customer base among start-ups and SMEs.  These will augment our current business and give us a leap into the future.  It will enable us to expand the services we offer, allow us to cross-sell different products and move us towards becoming a one-stop-shop for finance, as well as boosting our experience in technology.  We also have some other opportunities in the pipeline.

How important are digitization and technology to help you achieve your growth objectives?

KK: Without digitalization, we cannot do any of this.   But it’s about more than technology alone.  It’s also about the mindset of people.  This is what we’re working on, really transforming these three companies and their people to think digitally.  This applies both internally, in terms of our own processes, and externally, in terms of the customer experience.  In some ways, I consider technology and digitalization to be our core business, rather than finance.  Digital comes first, and whatever we want to do in our business model comes second.

What changes do you expect to see in the financial services market over the next few years, and what will it mean for Abdul Latif Jameel Finance?

KK: The financial sector in Saudi Arabia is expected to see exponential growth.  First, the economy is growing, and financial services are the backbone of the economy.  Second, there is still a very large proportion of unbanked consumers to tap into.  Traditionally, banks have found it difficult to engage these consumers.  But Fintechs and these new digital platforms, like our own, are making it easier to reach these people and turn them into customers. 

Finally, towards the end of this year or early next, the government is launching a new ‘open banking’ platform, which will contain all a customer’s financial data.  Previously, this information belonged to the banks and only they could access it, but now all finance providers will be able to access it.  This will really level the playing field between large incumbents and smaller, more nimble providers increasing consumer choice and offering a commercial advantage to those who offer the best, most comprehensive, and most convenient services – it will become a true relationship with the customer.

The banks will not sit still and watch their market share being eroded.  Can smaller players like Abdul Latif Jameel Finance compete against the big banks?

KK: That’s a very good question.  My belief is that banks are not going to be able to strongly compete in the digital world because of two main reasons.  Number one, agility – they have huge legacy systems and business models to consider.  They can’t simply change direction overnight.  They are like supertankers.  Even if they wanted to change direction, it’s going to take them ages to move.  Number two is that I don’t believe banks in Saudi Arabia have yet fully realized just how ‘dangerous’ Fintechs are to their businesses.  They have enjoyed a hugely privileged position in the market – and still do.  All salaried employees in the country must have a bank account for their salary to be paid into, for example.  So, the banks are used to having this large default customer base they can sell other products to.  Open banking is going to change all that.  It’s going to be very easy for consumers to move from one bank to another, from one provider to another.

Having said that, banks are changing.  They are investing in digital and offering better services, but I don’t think, in the medium term at least, they can match the digital capabilities, focus or flexibility of the Fintech and smaller more nimble providers like Abdul Latif Jameel Finance.

What are your objectives for Abdul Latif Jameel Finance?

KK: We have an aggressive growth strategy for the next few years, particularly on the digital side.  One of the main things we’ve done is to create a dedicated digital innovation business within Abdul Latif Jameel Finance.  It’s a business within a business, with its own targets, strategies and P&L, focused solely on how we can use technology to improve our offering and attract more customers.  A key area for us will be SMEs and how we can meet all their financial needs in one relationship. 

In addition, we’re still going to do some of the activities that we do now, but completely online, which might mean we need to consolidate our physical presence in branches.  Whatever we do, the objective is the same: to make it as simple, quick and satisfying as possible for customers to use our services and access our products.  It is a journey that will never cease, but one we are fully committed to.