Open Banking in the Middle East: Driving Adoption

Published  3 MIN READ

Since 2018, when Open Banking was launched in the UK and Europe’s revised Payment Services Directive (PSD2) was implemented, regulators around the globe have embraced a shift towards innovation that, finally, is helping the end-consumer. Indeed, the spirit of Open Banking has been a catalyst for many initiatives in different regions.

Open Banking has now arrived in the Middle East, with The Central Bank of Bahrain (CBB) launching the Bahrain Open Banking Framework in October 2020. Saudi Arabia also recently announced a draft regulation, which is expected to be implemented by mid-2022. Other Middle Eastern countries, such as the United Arab Emirates (UAE), Kuwait, Oman, and Egypt are likely to follow suit.

Why, some may ask, is the Middle East still only preparing to adopt Open Banking regulations, despite being a digitally advanced region, with one of the highest mobile penetration rates in the world?[1] Open Banking means regulators enable permitted third party service providers to access consumers’ data. While data-sharing consent comes from the consumers, very often these service providers are start-ups or fintechs. And, as this is a new concept, there are some misconceptions around data integrity and threat of data theft.

A survey conducted among finance professionals by Open Banking provider YTS revealed better education and guidance around this financial technology would help reduce fears around the potential security risks. Many respondents said they would adopt a wait-and-see approach before committing to using it.

Traditional banking was built on trust and, in the Middle East region has been something of a closed shop. However, by their very nature, Open Banking regulations demand opening up. This, in turn, means local banks need to embrace the necessary transformational change and apply it to their traditional banking model. Interestingly, although open banking regulation is still under discussion in the UAE, a 2020 survey by Finastra found that 88% of UAE banks are looking to open their APIs to enable Open Banking within the next year. So, progress is hopefully on the horizon.

This means that the Middle East will soon have a mature Open Banking ecosystem created by banks and fintechs to offer superior banking experiences. Indeed, there are regional players who are working with the regulators to provide open application programming interfaces (APIs). One example is, Tarabut Gateway, which is MENA’s first and largest regulated Open Banking platform that connects a regional network of banks and fintechs via a universal API.

As alluded to, the Middle East is adopting a regulator-driven approach to Open Banking. However, as yet, there is no visibility over API access restrictions. The details will only become known once these economies start seeing an influx of fintechs applying for licences to offer financial services directly to the consumers.

There are currently several Open Banking initiatives in the Middle East, mainly focused on retail customers. That said, Open Banking offers benefits for corporate treasurers too. Efficiencies across treasury can be achieved, from real-time access to accounts across different financial institutions to more efficient – and timely – accounts payable and receivable (AP/AR) processes.

And with the cultural shift to ‘bank-fintech’ collaboration rather than competition, the revenue opportunity Open Banking offers is enormous for banks and fintechs alike. So, no crystal ball is needed to see where the Middle East’s Open Banking journey is headed ­– what remains to be seen, however, is the speed with which goals can be reached.