Author: Abdulla Almoayed, Founder & CEO of Tarabut Gateway
The emergence of new technologies revolutionized and transformed financial markets across the world. Changing consumer expectations and new regulations combined with technological advancements gave birth to new verticals within the Fintech landscape. Open Banking, which has been the talk of the town recently, is expected to transform the sector by broadening banking offerings and offering greater value to customers.
Open Banking is the secure way banking customers can grant consent to licensed third-party providers (TPPs) to access their financial data, and initiate payments on their behalf. Through allowing access to this data, both banks and TPPs would be able to leverage the data collected to ultimately create better and more personalized products. Read more about how Open Banking works.
Due to the various opportunities that Open Banking can conceive, it has created quite the rumble recently in the MENA region. While Bahrain spearheaded the movement by introducing MENA’s first set of Open Banking regulations in 2018, neighboring countries are expected to follow.
But what is driving this change? Global supporters believe that the introduction of Open Banking can strongly increase competition and boost economies. A study conducted by the Centre for Economics and Business Research highlights that in the UK alone, the introduction of this new movement could boost the economy by 1 billion pounds. This is attributed not only to the creation of almost 17,000 jobs but also due to the increased uptake of financial products.
Hence one can only ponder…. is the MENA region ready to embrace Open Banking? Although several regional banks have been taking big strides to accelerate innovation, a lot remains to be done.
Here are 4 tips that the MENA region can follow in order to welcome Open Banking:
1. Embrace an open API ecosystem
The use of APIs (“Application Programming Interface”) to facilitate the creation of new enhanced products and channels is true to all industries. APIs are a set of codes that decide how different software components should interact – they essentially allow different applications to communicate with one another.
Within the financial services sector, the argument goes that through the use of APIs, banks can now innovate much faster than they could through collaborating with FinTechs. However, while leading banks in the region have embraced API based growth strategies, the benefits can only be reaped if the rest follow.
2. Introduce Open Banking regulations
In many ways, Open Banking represents the original ideals of the digital-based economy, i.e. returning control to customers and lowering barriers to entry. An array of different policy initiatives across the world have emerged to try to make this a reality.
Regulatory involvement and consumer protections will help put consumers at ease and allow open banking adoption to take off, potentially creating a hockey stick effect in the not-too-distant future. By nature, most regulations take time to develop and improve within any jurisdiction and so the need for immediate regulatory directives is vital in unlocking the potential benefits for the MENA region.
3. Raise greater awareness between consumers
Customer expectations are being shaped by their interactions outside of the banking industry – they increasingly want the type and quality of service they receive from industries that place a significant focus on customer experience.
According to a recent PwC study, customer trust is at an all-time low. Customers today want more convenient and relevant banking experiences that cater to their needs. They are also concerned about privacy and security, as more of their personal information and financial life migrates online. As such, raising greater awareness of how Open Banking works gives ownership of data back to consumers and is not only integral but pivotal to the success of the movement.
4. Bank and FinTech partnerships need to evolve
Within the Middle East, banks and financial institutions traditionally have outsourced a lot of their functions to external parties rather than their global counterparts due to the sheer size of the target market.
Bearing that in mind, these collaborations have been shaped around a supplier relationship model rather than a true partnership framework. Therefore, in the rush to open up the market to newcomers, incumbent banks have to recognize the importance of forming a sustainable fintech partnership model to accelerate innovation.
A lot is changing in the banking landscape- with changes in regulation, technology, and competition frameworks. There is still much work to be done, however, the ultimate endgame is clear- a new personalized way of banking.
Originally published here.