Open Banking Impact on Asia and MENA

13 June 2023
11 min read
openbanking

 

The Ascent of Open Banking in MENA and Asia

A profound transformation in the financial sector is taking root in the MENA and Asia. Powered by innovative fintech solutions, this shift is spearheaded by forward-thinking regulators across the Kingdom of Saudi Arabia (KSA), the United Arab Emirates (UAE), Egypt, and Oman.

The Central Bank of Saudi Arabia (SAMA) is at the forefront, having launched an open banking framework in November 2022. This move catalysed a shared financial ecosystem and underscored the kingdom’s commitment to fintech growth.

Beyond KSA, the open banking trend continues to shape the financial landscape across MENA. Key players such as the UAE’s Dubai International Finance Centre and the Abu Dhabi Global Market are fostering collaborations to invigorate their financial services sector. Egypt, too, is aligning with this movement, with institutions like Banque Misr leading the way towards digital banking. In Oman, the central bank is crafting an open banking API strategy to stimulate innovation within the fintech space.

Across the region, the adoption of open banking is not merely about adopting new technology, but represents a broader trend towards fostering innovation, enhancing competitiveness, and facilitating seamless collaborations between financial institutions and third-party providers. The exciting era signifies the future of finance, promising a seamless and customer-centric experience for all.

Key Milestones in Open Banking Implementation across MENA

While Saudi Arabia has made significant strides in open banking, the journey does not stop there. Several other countries in the MENA region have also made important open banking announcements and taken substantial steps towards creating a vibrant open banking landscape.

The UAE, for instance, has seen major announcements through its central bank and state regulators, such as the Dubai International Finance Centre (DIFC) and the Abu Dhabi Global Market, which are collaborating to boost the financial services sector and the economy. In 2019, ADGM created its API regulatory guidance to promote interoperability, resilience, innovation, and collaboration. Meanwhile, DIFC Fintech Hive has been working with local banks to introduce an API sandbox programme.

In Egypt, open banking has been evolving with updates to the regulatory agenda. In line with the country’s vision towards open banking, Banque Misr plans to launch a digital-only bank in 2022, making it the first in Egypt.

The Central Bank of Oman (CBO), as part of its fintech framework and roadmap, is drafting an open banking API strategy. The strategy includes several initiatives aimed at establishing and nurturing a comprehensive fintech ecosystem to stimulate innovation in the financial sector.

These milestones mark the beginning of a transformative era for the financial services industry in the MENA region, paving the way for a future where financial institutions and third-party providers collaborate more seamlessly than ever before.

Importance of Open Banking in the Region

Open banking holds the promise of redefining the financial landscape, acting as a harbinger of innovation, and ushering in a new era of growth and collaboration. Across the region, financial institutions and fintechs are leveraging open banking to deliver improved services, create new business models, and offer more value to customers.

Open Banking as a Driver for Innovation and Growth

Open banking frameworks, such as the one rolled out by SAMA, play a crucial role in sparking competition and stimulating innovation in the financial sector. By standardising the sharing of financial data, these frameworks are helping level the playing field, allowing new entrants to compete with established institutions on equal terms. A case in point is the Fintech Sandbox environment provided by SAMA. It allows fintechs to test their innovative services in a safe and controlled setting, thereby encouraging creativity and accelerating the pace of innovation.

Open banking frameworks are also driving growth by enabling the development of new services. They provide the necessary foundation for fintechs to leverage shared data in creating value-added services, contributing to the expansion of the financial services sector. Moreover, the introduction of the Payment Initiation Services (PIS) framework by SAMA later this year will give further impetus to fintech growth in the region.

Open Banking as a Catalyst for New Use Cases

The advent of open banking has unlocked a plethora of new use cases that were hitherto unexplored. For instance, SAMA’s Account Information Services (AIS) framework provides a roadmap for harnessing banking data to develop innovative products and services, such as credit risk assessment, account aggregation, tax filing, and customer onboarding.

The AIS framework serves as a guideline for institutions to use banking data responsibly and fosters the creation of unique financial services solutions. As a result, the emergence of open banking is leading to the development of new business models, fostering economic growth, and enhancing customer experiences.

Open Banking as a Platform for Collaboration

Open banking is also fostering an environment of collaboration in the region. One such collaboration is seen between the DIFC and ADGM in the UAE. These regulatory bodies are working together to enhance the financial services sector and the economy, thereby indicating the potential of partnerships in driving open banking initiatives.

Another noteworthy initiative is the memorandum of understanding signed between Oman and Saudi Arabia in 2021. This led to the launch of the Saudi-Omani Digital Skills Initiative, which includes training programs in fields such as fintech, data, and artificial intelligence. Through this collaboration, both nations aim to equip their workforce with the necessary skills for the future, demonstrating the power of open banking in bringing nations together to foster innovation and progress.

In essence, open banking is not only redefining the financial landscape of the region but is also acting as a catalyst for innovation, growth, and collaboration. Open banking is poised to play a central role in shaping the future of financial services in the MENA region and beyond by providing a platform that promotes competition, encourages new use cases, and fosters partnerships.

Evaluating the Success of Open Banking Implementation

Determining the success of open banking implementation requires looking at the mechanisms put in place to nurture innovation, assess market viability, and foster collaboration. By these metrics, the MENA region and Saudi Arabia, in particular, have made significant strides, indicating a successful journey thus far.

Evaluating Success through Regulatory Sandboxes

Regulatory sandboxes have emerged as effective platforms to validate the market viability of open banking use cases. SAMA’s sandbox and the Central Bank of Oman’s Financial Regulatory sandbox are excellent examples of this. These environments provide a space for fintechs to experiment with new services under regulatory supervision, proving the effectiveness and potential of their innovative solutions.

By allowing fintechs to test and adapt their services before launching them on a larger scale, these sandboxes are accelerating the adoption of open banking. They ensure that the services rolled out are not only innovative but also secure, reliable, and beneficial to customers, enhancing the overall success of open banking implementation.

Evaluating Success through Innovation Labs

Innovation labs, such as SAMA’s Open Banking Lab, are also instrumental in assessing the success of open banking. These labs provide a dedicated space for the swift development and deployment of open banking services.

The Open Banking Lab, in particular, is tasked with overseeing the progress of banks and fintechs to ensure compliance with the open banking framework and readiness for market deployment. Through this initiative, SAMA is offering a solid platform for creating cutting-edge fintech solutions, fostering innovation, and driving the successful implementation of open banking.

Evaluating Success through Cross-Border Collaborations

Cross-border collaborations further underline the successful implementation of open banking. Examples such as the Kuwait Finance House working with Jordan’s Jordan Payment and Clearing Company exemplify this trend. By cooperating across borders, these organisations are fostering a regional open banking ecosystem and setting a strong foundation for the development of transformative financial services.

These partnerships highlight the strength of the open banking model, its wide-ranging implications, and its potential to reshape the future of financial services in the region. By fostering collaboration between diverse financial institutions and service providers, open banking effectively bridges gaps, breaks down silos, and paves the way for a more connected and efficient financial sector.

In conclusion, the success of open banking implementation in the MENA region is evident in the flourishing innovation, robust regulatory frameworks, and collaborative efforts amongst stakeholders. As this trend continues, the region is well-poised to redefine its financial landscape and deliver transformative financial services to its customers.

Open Banking: UK vs MENA

The implementation of open banking in the UK and Europe since 2018 has provided numerous lessons that can inform strategies globally. The UK, in particular, stands out for its successful adoption of this model. Data from the Open Banking Implementation Entity shows how open banking has transformed the customer experience by opening access to data and enabling a secure and frictionless payment journey. In Europe, the focus has been on encouraging partnerships between banks and Third Party Providers, creating an ecosystem that spurs innovation.

How MENA Can Benefit from the UK and European Open Banking Experience

The MENA region, keen on positioning itself as a global fintech hub, is well-placed to leverage the insights from UK and European open banking experiences. Unlike the gradual progression seen in the UK and EU, the Middle East is ambitiously pursuing a more comprehensive approach, with several nations, such as Saudi Arabia and Jordan, even moving towards an open finance model. These countries are aiming to make consumer data more accessible across a broad range of financial products and services, a move that the UK and EU are still deliberating.

It’s clear that MENA countries have done their homework, learning from the successes and setbacks of the UK and EU to create a strategy that aligns with their unique needs and ambitions. As such, they are prepared to navigate the challenges associated with open banking and even surpass their predecessors in certain aspects.

Accelerating Open Banking Success in MENA

The Need for Clear Licensing Processes and Transparent Requirements

For open banking to thrive, clear licensing processes and transparent requirements are vital. Here, the experience of the Saudi Arabian Monetary Authority offers valuable insights. SAMA has provided a clear roadmap for banks and fintech by implementing a use-case-first approach and establishing a regulatory sandbox. Such clarity and transparency facilitate faster and more effective open banking implementations.

The Role of Fintechs in Open Banking Success

Fintechs play a pivotal role in the success of open banking in the MENA region. Companies like Tarabut Gateway are leading the way in developing innovative open banking services. By leveraging their technological expertise and deep understanding of the industry, fintech can help banks and other financial service providers navigate the complexities of open banking, avoiding the time-consuming and expensive route of building the technology from scratch.

The path to open banking is paved with exciting possibilities for the MENA region. By learning from the UK and European experiences and capitalising on the opportunities they present, the region can accelerate its fintech transformation and establish itself as a global leader in this space.

How Tmob is Empowering Open Banking Transformation

In the rapidly advancing landscape of open banking, Tmob stands as a transformative force, turning innovative fintech visions into reality. A shining example is the case of Vive, a UK-based branchless bank that aimed to meet the financial needs of underserved customers. With a vision of creating a customer-centric, fully digital banking experience, Vive required a partner that could deliver not only technological expertise, but also industry-leading security standards.

With its Future-Ready Fintech Solutions Platform, Tmob stepped up to this challenge, enhancing Vive’s operations to work in a more customer-centric way, and leveraging the power of open banking. Utilising its 13 years of expertise and deep understanding of the disruptive financial service market, Tmob took Vive from concept to fully-operational digital bank in less than two years.

But it’s not just about speedy implementation. Security lies at the heart of Tmob’s strategy, ensuring robust encryption of customer information, compliance with regional security standards, and alignment with the latest PSD2 regulations. This comprehensive focus on security offers businesses like Vive the peace of mind they need to focus on delivering top-notch services to their customers.

Custom-Made Fintech and Open Banking Solutions by Tmob

Tmob stays ahead of the curve in the financial revolution spurred by open banking and PSD2, by continually updating its Future-Ready Fintech Solutions Platform. Tmob’s solution-oriented approach is exemplified in their work with Vive, where they implemented an array of open banking-based features, from a money manager and simple loan application capabilities, to enhanced saving account options, offering better financial management outcomes for customers.

Understanding that each business has unique needs, Tmob offers custom-made fintech solutions. They work closely with companies to understand their specific requirements, creating tailored solutions that cater to them. With Tmob, businesses can fully harness the transformative power of open banking and fintech, future-proofing their financial services and staying ahead of the competition. Discover more on thinksmobility.com.

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