The Open Banking revolution

The outbreak of the COVID-19 pandemic is shaping up to be a crucial turning point in the financial service sector, driving the regulatory and market change in Open Banking

Besides being a powerful enabler of transformation in how banks handle their customers’ financial information, putting control back in the hands of the consumer, Open Banking is driving competitiveness in the financial service industry across the GCC.

Open Banking is described as a connected ecosystem of financial services that allows two or more unaffiliated banks to enrich their digital offerings in a safe and secure manner, bringing greater financial transparency and new and tailored customer services to the region.

Shashank Nagavajhala, Enterprise Architect, Arqitek, said, “Open Banking is particularly important as a market disruptor because it can be considered to be part of a broader trend towards the API economy.”

According to KPMG, “In practice, open banking can take many forms including standards and directives such as PSD2 in Europe and Open Banking in the UK. Consumers’ increasing desire for frictionless, more seamless, and intuitive value-added banking experiences and there are a growing number of fintechs and ‘challenger banks’ seeking to capitalize on these developments.

“The rise of technology use and significant mobile penetration has created a new ‘digital native’ banking consumer, who demand online services that are quick, agile, and on par with what in the market of how money is flowing and where it is going,” said Wissam Khoury, Head of International at Finastra.

Through the use of Application Programming Interfaces (APIs), a set of communication protocols used to develop computer applications, Open Banking platforms typically authorizes retail and enterprise clients to access consumers’ financial data in real-time and share account information and transaction history with external parties such as vendors, suppliers, business partners and other banks.

GCC’s open future

The outbreak of the COVID-19 pandemic is shaping up to be a crucial turning point in the financial service sector, driving the regulatory and market change in Open Banking. PwC said that globally and in emerging markets such as the Gulf region, Opening Banking has the potential to reshape the financial services landscape and other countries are also making considerable moves in this space. In the Middle East, Bahrain was the first country to adopt open banking in 2018, replicating the efforts of global finance hubs in Europe and Asia. In October 2020, the Kingdom launched the Bahrain Open Banking Framework (Bahrain OBF) and the framework is holistic in defining the Open Banking Regulation, guidelines, technical standards for Open API platforms, security standards (including data privacy), and overall governance.

“The largest benefit that arises from open banking is the power to enhance the development of service platforms, as well as financial services,” said Mohamed Abdel Razek, CIO, Standard Chartered AME & Islamic Banking.

In the UAE, PwC stated that new Open Banking platforms are rising with fintechs and lenders moving towards the adoption of open API solutions amid the defining of the roadmap towards open financial markets by national and offshored regulators. Recently, the Central Bank of the UAE revealed that it would launch a FinTech Office to support financial innovation in the country while the ADGM showed support toward the Open Banking idea having awarded its first fully digital banking license and Category 1 status to Anglo-Gulf Trade Bank.

The Saudis are also fully investing in the development of their financial services sector as part of the kingdom’s economic transformation program under its Vision 2030. The Saudi Central Bank “SAMA” opened 2021 by issuing the “Open Banking Policy” to ensure the Saudi financial sector’s infrastructure readiness to leverage “the most prominent financial technologies” and ensure the implementation of necessary regulatory practices.