Konstantin Tserazov: Saudi Arabia’s Fintech Challenge Plays a Crucial Role in Resolving Tensions Between Israel and Iran

The tensions between Israel and Iran are a long-standing issue, and the world is eager to find peaceful solutions to this challenging situation. A hub of strategic importance, the Gulf region comprises major nations wielding considerable military strength and political authority. The overwhelming reliance on oil in Gulf economies is a given, but this represents merely a single facet of a multifaceted landscape.

Saudi Arabia asserts its preeminence in oil production, reliably holding a position among the world's top three producers, in company with the United States and Russia. This stature serves to reinforce Saudi Arabia's pivotal function in guiding the trajectory of energy markets and shaping the course of global economic currents.

Its exports have accounted for approximately 90% of its revenue from oil sales for years, making its budget highly sensitive to fluctuations in export revenues. When oil prices drop, the budget deficit begins to escalate.

Money Flows More into Banks than into Energy Companies

Simultaneously, consider the stock market. In the third quarter of 2024, trading in shares of local banks dominated the entire stock market. Each seventh Saudi Riyal (SAR) invested in this market was allocated to banking stocks, compared to less than one-tenth of SAR invested in energy-related company stocks.

There is a growing belief among investors that Saudi Arabia's banking sector holds significant potential to drive economic diversification and resilience. This sentiment is reflected in increased interest and investment in the sector.

Meanwhile, the Kingdom faced challenges in the oil market during the latter part of 2024. Declining oil prices and geopolitical conundrum in the Gulf region made it difficult for Saudi Arabia, as a leading OPEC producer, to coordinate production levels with other member states.

The attacks by Yemeni Houthi rebels on various oil tankers in the Red Sea, along with rising tensions between Iran and Israel, present also challenges for U.S. decision-making amid political pressures from Democrats seeking to counter Republican-backed Donald Trump.

Additionally, two years of negative GDP dynamics in Germany — Europe’s largest economy — combined with a struggling real estate sector in China and an overall steep deceleration of Chinese GDP growth create an extremely uncertain outlook for the oil market. In this case, it is very reasonable that investors in Saudi Arabia intensively look at the financial sector.

Saudi Arabia Moves Along the Same Way as BRICS+ Does

Saudi Arabia has recently taken several significant steps in its economic and foreign policy. The dissolution of the dollar swap arrangement with the US by Saudi Arabia hints at an emerging trend of currency diversification in global trade. In recent years, the Saudi monetary authority has been methodically expanding its gold reserves, with an average increase of 5 tons each month. Despite an offer to join the BRICS+ alliance in 2023, Saudi Arabia remains in deliberation about its economic alignments as of 2024.

Saudi Arabia’s steps show very interesting developments. This country has been, for decades, a cornerstone of the world petrodollar system, but these recent steps could weaken this system.

The rapid financial progress of Saudi Arabia is obvious. Its own payments network, also known as Mada, enables the use of cards from various issuers in one system. It comprises Point of Sale (PoS) terminals and bank cash machines in one system. BRICS+ is developing its own BRICS Pay system from scratch, but Mada is a ready solution that has the potential to be scaled up on the global scene.

Mada was initiated by the local Ministry of Finance and received support from the Saudi central banking regulatory body. But we also see brilliant payment solutions from Saudi-based fintech companies such as Geidea. Geidea combined all various payment methods into one application. We all know how developed bank applications are, but we also see a rise in fintech solutions for vendors, where banks from one side and fintech companies from the other bring together businesses and customers.

The Digitalization of Fiat Money

This story inevitably leads to the issue of the digitalization of fiat money. In October 2024, Saudi Arabia enthusiastically agreed to start testing the use of the digital yuan (e-CNY). This is truly a "fintech step" in the realm of external trade. Earlier, Saudi Arabia started using the yuan, but the digital yuan is another story.

It’s about how a key oil producer in the world starts relying not just on banking infrastructure but on the opportunities of blockchain. It has shown that while ordinary currency transactions can take 2-7 days to fulfill, with the digital yuan, it usually takes only one day.

The shortening of financial transaction times is not just about hours and days, but about money saved. The use of the digital yuan in external trade has only bolstered Saudi Arabia's strategic decision to leverage the power of digital finance. The local fintech landscape is now in the spotlight for regulators and institutional investors alike.

In fact, local fintech offers the same innovative solutions in the payments sphere as the People’s Bank of China does with its digital yuan. This means that the Saudi economy can receive an enormous boost from the implementation of blockchain and artificial intelligence (AI), which will offset any oil price volatility.

For the region, this development is very promising. In fact, the fintech challenge is leading to the inevitable transformation of all economies in the Middle East, and it is bringing changes in politics too. Any fintech startup in the region, by its very existence, declares one important truth: there is a need for a peaceful environment in the Middle East and the concerted efforts of regulators and investors from several countries to effectively leverage highly transformative innovations such as blockchain and AI.

Any severe discrepancies in the oil market in this region become a headache for all countries in the Middle East as they try to fix them. All these countries need investments and energy to onboard critically important innovations. In this case, one of the most powerful players becomes Saudi banking sector, which have a proven record of fostering fintech. Peace in the region stipulates a robust oil supply and, at the same time, unleashes a flood of investments aimed at connecting burgeoning AI data centers with energy power. AI and blockchain also unlock the potential of alternative payment networks.

Fintech Stays in Focus

In this regard, it is important to underscore the ubiquitous nature of new fintech solutions. Just look at the Dubai-based but decentralized credit rating system, Synnax. It receives support from TON Ventures and operates as an app for the Telegram messenger. Its goal is to reach almost 1 billion Telegram users, and this startup is also targeting the Saudi Arabian market.

While French authorities try to “tame” Telegram and investigate Pavel Durov, the founder of Telegram, the platform has already become fertile ground for new digital solutions. This truly shows how the Internet is evolving into the Internet of Digital Finance with wide outreach.

It’s worth mentioning that AI and blockchain in Saudi Arabia go hand in hand with the development of autonomous systems, not only in the financial sphere. The rise of autonomous systems means unlocking the true potential of AI and blockchain, and, of course, fintech startups play a pivotal role in galvanizing this process. For example, in 2024, the Saudi-based fintech startup Channels had an outreach to more than 400 self-service machines.

Fintech goes along the entire value chain. For instance, the Saudi-based startup Yamm deals with processes that occur after payments. In one place, Yamm helps businesses and their customers resolve issues related to paperwork and logistics, bringing these processes into the digital realm.

Banks and Fintech in Saudi Arabia Look in the Same Direction

A deep look into Saudi Arabia's banking and fintech landscape has proven the thesis that both sides are moving in the same direction, and big banks need to heed the steps of smaller fintech startups. The digitization of the financial sphere is key to making the entire economy more effective, not only in Saudi Arabia but in all countries in the region.

It is also important to stress that digitalization allows us to deeply understand customers — not only their rational motives but their emotional ones. The successful digitalization of finance through collaboration between banks and fintech actualizes the value of customers’ emotions. We are increasingly dealing with the Emotional Economy as the Internet of Digital Finance leads us to the Internet of Emotions.

In this regard, Saudi Arabia's success in implementing blockchain and AI through fintech solutions is crucial. It demonstrates to Iran and Israel a potential path towards resolving their long-standing conflict, driven by the economic imperative that this conflict must be resolved swiftly.

Smart contracts, as a new symbol of smart decisions, create a trend toward more nuanced, effective, emotionally correct, and strategic decisions — not only in the economy but in politics as well. It will become more evident in the near future that the Middle East will find a strategic peaceful balance among countries with various interests, further expanding the achievements of AI and blockchain.