Regional and international financial technology (fintech) companies have been preparing to launch GCC Open Banking services.
It’s taken 3 years, but the region is on the cusp of accelerating a movement to create innovative finance opportunities.
Saudi, the region’s biggest financial market, is now poised to launch Open Banking in H1 of 2022.
The UK, a global leader in Open Banking
The UK is one of the most advanced nations in Open Banking legislation, with more than 4.5 million regular users of the technology (almost 7% of the population). Some 600,000 small businesses use it.
Summing up the importance of Open Banking, Alex Reddish, managing director at Tribe Payments, a UK B2B fintech business, said in a blog post on Finextra:
“Open Banking goes beyond simply linking accounts and enabling better personal finance management. It can reduce costs for merchants, open up new customer segments, cement relationships with these customers and drive revenues.”
Excitedly, regional banks are becoming very aware of this. And the regional banking sector has moved from being a bystander to an active participant.
How Open Banking works
The technology gives third-party developers (fintech) access to banks’ customer data, with clients’ permission. According to Abdulla Almoayed, CEO of fintech Tarabut Gateway, the technology grants user permissions through either a Face ID or biometric data.
“…which is many times more secure than current banking authentication procedures such as passcodes or asking for your mother’s maiden name.”
On this issue, data breaches cost Saudi and UAE companies about $188 for each stolen personal detail.
So, Open Banking allows fintech providers to offer price-competitive services like accounting, insurance, car and home loans, and much more.
Open Banking in the region
Open Banking is getting substantial attention in the GCC. Bahrain was an early adopter in 2020, being home to the region’s first onshore fintech regulatory sandbox.
Saudi’s Central Bank SAMA is gearing for a launch of its Open Banking framework.
Around 70% of the kingdom’s 34 million population are below 30 years of age and are quite digitally adapted. This will make Open Banking an attractive market for fintech providers.
As well, the UAE is where 46% of MENA fintech start-ups are already based. Regulators there are increasingly incorporating fintech into payments while keeping a close eye on Open Banking developments.
Fintech players ready
Lean Technologies from Saudi, which recently raised $33 million, Dubai-based Dapi, and Bahrain’s Tarabut Gateway are some of the regional-based fintech companies ready to pounce on this sector’s growth.
Also, Tiger Global Management concluded a fundraising round for Tarabut Gateway at end of 2021, paving the way for the fintech to expand into Saudi.
Meanwhile, Rabet Financial has become the first company to secure regulatory permission in Saudi for its Open Banking solution, after demonstrating compliance with mandated regulatory requirements and extensive testing by SAMA.
It said it has been working with Saudi National Bank and Bank AlJazira who became the first institutions to connect to Rabet and onboard the first Open Banking users in the Kingdom.
All of these fintech companies have already rolled out APIs (application programming interfaces) with different financial institutions to espouse their services.
How APIs work
Open APIs deliver a computing interface to a software component that secures the sharing of authorized customer data with third-party providers.
This will allow partnership agreement to take place between banks and fintech towards enhancing the customer experience with new apps and services.
Meanwhile, personal finance apps will give fintech the ability to deliver seamless digital payments and differentiated money transfer services.
APIs enable users to greatly enhance ownership of their data.
APIs can, for instance, permit bank clients to pay for purchases at retailers using accumulated loyalty points.
Open Banking technology can also provide users with platforms that offer them personalized products and services. This is a welcome change from getting cold calls for products that are a hard sell in most cases.
But one thing is for sure: e-wallets are essential elements with Open Banking APIs. E-wallets allow customers to browse their entire financial activity through one digital interface.
Mobile wallets and smartphones
To derive true value from Open Banking, the financial sector will need an essential item: e-wallets.
The global mobile wallets industry is predicted to jump by almost 50% with more than 1.7 billion people expected to use them by 2024.
Nearly 62% of GCC consumers pay by card or digital wallets with Apple Pay and Google Pay leading the way, but other payment methods are rising.
Across the region, Mada, QPay, BenefitPay, and Fawry are also gaining traction with users.
Furthermore, the online payments penetration across the MENA has already reached 76% where e-commerce is anticipated to total $28.5 billion this year.
The key factor helping this is over 100% smartphone penetration.
Open Banking use cases
We list below some of the ways Open Banking makes life easy for banking clients.
Bank account opening made easy
The biggest hassle when trying to open a bank account today is moving all your financial history with you to the new bank.
Identity documents and proof of income can be easily fabricated or stolen, helping the process become lengthier and frustrating.
Open Banking reduces this to a ten-minute operation using a secure protocol for sharing data and requests.
Streamlining loan requests
No need for a mountain of paperwork when requesting a loan from a bank. The lender can assess creditworthiness in a hassle-free and speedy way using Open Banking.
Better advisory services
It gives users to advisory services that cater to their current and future needs, in addition to advice on personal finances.
More payment options
Open Banking gives merchants new ways to reduce payment costs while increasing ticket sizes at the point of purchase.
Should banks fear Open Banking?
Well, the danger for financial institutions, as well as primary insurance companies, is that they could become marginalized and commoditized in this market.
How? Well, any non-regulated (unlicensed) third party can offer Open Banking services simply by renting the license from a regulated holder. This allows the company to offer a Banking as a Service (BaaS) stack.
But, a strong regulatory system, especially like those in the GCC, can dispel those fears.
Banks need not fear the incoming waves of fintech but rather embrace them as an opportunity to expand and excel in their service provisions.
It’s truly a win-win situation.