The Role of Fintech in Transforming Saudi Arabia’s Traditional Islamic Banking Legal Systems into more Profitable Enterprises

Abstract

Fintech is big milestone in technologies that are considered disruptors in the banking industry by most financial institutions. Fintech companies in Kingdom of Saudi Arabia (KSA) are working to transform the trading and banking system. Following the footprints of banks in other advanced economies, Saudi Arabia is also working on digital transforming of its banking sector. This study evaluates the effectiveness of Fintech in improving bank efficiency of KSA and try to formulate a policy direction for the governments to further accelerate and ride on this wave of fourth industrial revolution effectively and efficiently. Moreover, the paper examines the influence of fintech on banking sector’s profitability. To serve this purpose, we use global Fintech score of KSA. To the best of our knowledge, no study has been carried out to examine the impact of fintech on banking sector profitability using panel data of major banks of Saudi Arabia. The results show that the use of Fintech has important implications for financial industry of Saudi Arabia. We conclude that Fintech has made the financial institutions more competitive and hence can take the traditional Islamic banking legal system in the Kingdom of Saudi Arabia into a profitable era. Based on the findings of the study, this study recommends that following the footprints of Malaysia and Singapore where Islamic banks are highly integrated with fintech, Saudi Arabia should focus on Fintech products and should developed a FinTech Regulatory body which monitors their technology system and management.