Lessons for Saudi sponsors and my fellow digital-only banking executives in Saudi Arabia.

Blog reprinted first published on September 6th, 2023.

Authored by Rodrigue Afota.

Executive Consultant, Banking & Fin Tech. Former Digital Banking C.E.O., Crypto Entrepreneur and AI Co-Founder, Former Managing Director (First Abu Dhabi Bank, Morgan Stanley).This article can only be reused with full attribution.

After years leading one of the digital-only bank ventures in Saudi Arabia and advising sponsors and banks, and considering the difficulties and delays encountered by the existing projects, I have summarised below 6 important lessons and considerations that any Saudi sponsor or investor in a Saudi digital-only bank should be aware of.

1.     Sponsors need to fully understand the core objectives of the Saudi Central Bank and Vision 2030 towards the growth of the banking sector and the granting of new licenses. The biggest takeaway of all, in my opinion, is that Sponsors and executive need to build (and be seen to build) the local commercial banks of the future, with an infrastructure and strategy that are proven to support this broad vision. I have met many execs and sponsors who keep talking to me about Revolut, Monzo or Tide and are missing the point. These businesses are not banks, they are wallets: think of it as bicycles versus space shuttles! In my view, such sponsors should simply make a strategic case for yet another wallet application (EMI) and forget about building a bank. There is considerable skepticism with any strategy that wants to go to market quickly (one account, one card product, no lending), acquire lots of unprofitable customers fast and worry about the profit 20 years later. After all, none of the Revolut/Tide/Monzo crowd is making any money 10 or 20 years down the line. I do not believe it is desirable to promote new Saudi banks that will live off shareholders generosity for the indefinite future and risk destabilizing the incumbents in the meantime. A far better benchmark would be with successful banks such as Kaspi or some of the Baltic banks.

2.     Building a digital-only bank is the same as building a bank; it’s not building a loosely regulated wallet. Beyond the technology infrastructure that is vastly more complex, there are huge operational, financial, capital and risk management differences between banks and wallets. Sponsors need to fully understand that the core task at hand is akin to building a very complex banking-grade infrastructure. In the short and medium term, venture banks make it or fail because of good or bad core back-end infrastructure choices. Don’t worry too much about that fancy UI, that is easy to fix. Worry about the back-end. 

3.     Lack of deep understanding of Central Bank objectives and requirements can lead to unworkable and costly mistakes when it comes to core foundational stack components. Opting for a CSP or a core banking platform that may have a great track record supporting wallets but without a track record supporting diversified commercial banks anywhere else in G20 countries is entirely at odds with the cautiousness and solidity of the Saudi banking sector: Sponsors and investors can be exposed to unpleasant turnarounds, tens of millions of dollars of write-off when technical or certification impossibilities come to light months or years later with multi years delays. My advice is to strictly stick with foundational choices that are proven to work with other commercial banks in major G20 countries, so long as these choices can be deployed and supported in the Saudi market. If not, better to wait.

4.     Avoid silos and dilutions of responsibilities by the executive team and hold them clearly accountable for delivery failures and unfulfilled budget or timeline targets.

5.     The core skillset of the CEO is not to know how to build a fancy UI: it is to have his fingers on the pulse and understand regulatory and government objectives and requirements and knowing how to navigate unchartered waters when there is limited clarity about the right foundational decisions.

6.     Do not throw good money to waste after bad money. When it becomes clear that a major foundational choice is unworkable, turnaround, fire the executives responsible for that decision and move on with the rebuild. The earlier this gets done, the less the pain. When a foundational choice starts being questioned, do not trust the executives in place, might as well ask the suspect to investigate himself! Bring in outside expertise to help the board investigate independently.