Recently, Open Banking has been witnessing a steady rise and some promising strides across the MENA region. Saudi Arabia for instance is in its first phase of open banking implementation. While the UAE is also fast on their tracks. Oman just recently launched their Open API strategy. Finally, Bahrain was the original pioneer for open banking in the region, and the first to adopt an open banking framework.
As we are getting more familiar with Open Banking, another trending term has come up: Open Finance. So, what is Open Finance? And how is it different from Open Banking?
Simply, think of Open Finance as an extension to Open Banking, or the next step in the Open Banking movement. Open Banking has set the rules and foundation for the data-sharing model amongst banks and approved third party providers. Data that is accessed within Open Banking covers checking accounts, savings, payments and credit products and services. Through Open Banking (and with customer’s consent first and foremost) and leveraging of such financial data, companies can now develop new innovative and personalized financial products and services.
So, what is Open Finance?
Open Finance builds on the Open Banking data-sharing model with access to a wider range of data sources, meaning there will be more in-depth data sharing across a broader range of financial products and services. The data sources include insurances, investment platforms, pension funds, utility providers such as electricity & water companies for instance. It’s more than likely that Open Finance will be integrated across all industries and not just financial services. The health, transportation, insurance, telecommunication sectors, to name a few, will be able to benefit from Open Finance. With Open Finance, better and even more enhanced products and services can be built and offered that goes beyond just banking.
What are the benefits of Open Finance?
Through Open Finance consumers and businesses will be empowered to make even more calculated financial decisions, and to compare products and prices, and make a switch if need be. This will help boost competition and innovation, and lower price discrimination. Furthermore, Open Finance will help drive further improvement to existing products that operate under Open Banking.
Regulators will play an instrumental role in enabling Open Finance in the MENA region. As we have seen, countries such as Bahrain and KSA have led the way with Open Banking regulations and implementation plans. The Central Bank of Bahrain has also highlighted their plans to introduce an Open Finance framework in the near future as part of their economic progression plans. We are soon to see other countries in the region follow suit to move towards building an Open Data economy.
Finally, while open banking grants regulated products and services to access transaction data from banks, open finance will provide access to a consumer’s entire financial footprint – with consumer consent.