What is Open Banking and Finance?
Open banking and finance is a concept that allows customers to access and share their financial data with third-party providers, such as fintechs, banks, and other institutions. This enables customers to have more choice, convenience, and control over their financial services, such as payments, loans, savings, investments, and insurance. Open banking and finance also fosters innovation and competition in the financial sector, leading to better products and services for customers.
Open banking and finance is enabled by the use of application programming interfaces (APIs), which are standardized and secure ways of exchanging data between different systems. APIs allow customers to grant permission to third-party providers to access their financial data or initiate transactions on their behalf, without compromising their privacy or security.
How is Open Banking and Finance Developing in the MENA Region?
The Middle East and North Africa (MENA) region is one of the most dynamic and diverse regions in the world, with a population of over 400 million people, a young and tech-savvy demographic, and a growing demand for digital and inclusive financial services. According to a recent white paper by Paytech, Arab Financial Services (AFS), and Brankas, the open finance technology company, the MENA region is expected to see a huge open banking and finance breakout in the next two years.
The white paper, titled The Future of Financial Services and Trust in the MENA Region, explores different themes surrounding open banking and finance, such as trust, monetization strategies, adoption, and regulation. The white paper also highlights the success stories and best practices of leading financial institutions and fintechs in the region, such as Emirates NBD, Banque Saudi Fransi, Mashreq Bank, and Aion Digital.
The white paper reveals that as of August 2023, over 65 countries have embraced open finance, and some of them, such as Australia, India, Brazil, and the UK, have extended the data-sharing mandate to non-banking sectors, such as telecom, utilities, and health. However, the MENA region is still in the early stages of open banking and finance adoption, with only two countries, Bahrain and Saudi Arabia, having implemented a full open banking policy and framework. Kuwait, Egypt, and the UAE have also announced plans to do so, while other countries, such as Jordan, Oman, and Morocco, are exploring the potential of open banking and finance.
What are the Benefits and Challenges of Open Banking and Finance in the MENA Region?
Open banking and finance offers various benefits for customers, financial institutions, and fintechs in the MENA region. For customers, open banking and finance can provide more choice, convenience, and control over their financial services, as well as lower costs, better rates, and personalized offers. For financial institutions, open banking and finance can help them enhance their customer experience, loyalty, and retention, as well as diversify their revenue streams, reduce their operational costs, and increase their market share. For fintechs, open banking and finance can enable them to access new customer segments, offer innovative solutions, and collaborate with financial institutions and other ecosystem players.
However, open banking and finance also poses some challenges and risks for the MENA region, such as data privacy, security, regulation, standardization, interoperability, and customer education. The white paper by Paytech, AFS, and Brankas suggests some key recommendations and best practices to address these challenges and risks, such as:
- Developing a clear and comprehensive regulatory framework that balances innovation and consumer protection, and that is aligned with international standards and best practices.
- Establishing a common and interoperable API standard that facilitates data exchange and integration across different platforms and providers, and that ensures security, reliability, and scalability.
- Building trust and awareness among customers and providers about the benefits and risks of open banking and finance, and ensuring that customers have full control and consent over their data and transactions.
- Creating a collaborative and competitive ecosystem that fosters innovation and cooperation among financial institutions, fintechs, regulators, and other stakeholders, and that leverages the existing infrastructure and capabilities of the region.
What is the Future of Open Banking and Finance in the MENA Region?
The white paper by Paytech, AFS, and Brankas concludes that open banking and finance is set to transform the financial landscape and customer experience in the MENA region in the next two years, and that the region has a unique opportunity to leapfrog the traditional banking model and become a global leader in open finance. The white paper also predicts that open banking and finance will evolve into open data and open innovation, where customers will be able to access and share not only their financial data, but also their non-financial data, such as identity, education, health, and social media, with different providers and platforms, and where providers will be able to offer more customized and holistic solutions that cater to the customers’ needs and preferences.
The white paper also emphasizes that open banking and finance is not a one-size-fits-all solution, and that each country and market in the MENA region has its own characteristics, challenges, and opportunities. Therefore, it is important for the stakeholders in the region to adopt a customer-centric, collaborative, and agile approach to open banking and finance, and to leverage the best practices and learnings from other regions and markets.
