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MENA Open Banking Vision – a point of view of Hakan Eroglu, Global Open Banking Lead, Advisors at Mastercard

Europe was just the beginning of the Open Banking global movement, with PSD2 in der EU and UK Open Banking the world’s most popular and frequently cited regulation and initiatives.

In the past few years, I have been involved in multiple discussions with fintech, banking associations and regulators on how they can learn from Europe. Today, I’m getting more and more questions on the developments among the new trend setters – in Latin America we have Brazil and Mexico with Open Finance, in Australia we have Open Data, in Nigeria Open Banking and in MEA with its developments in Bahrain.

This blog series will aim to demystify Open Banking and suggest a MENA vision from regional and global thought leaders.

Let’s take a look at what a MENA Open Banking ecosystem could look like and how it can serve consumers with better financial products and services:

“To Be Regulated, or Not To Be Regulated” this is NOT the question here

Regulation can play a role in helping banks and fintechs to technically prepare for Open Banking. But it can especially help to develop new business models and foster innovation for financial inclusion. However, the ecosystem can come up with market-driven Open Banking frameworks with the blessing of the regulators as well. At the end of the day, it will only be successful if fintechs and banks are working together to solve customers’ problems by meaningful applications with cutting-edge data-driven technologies and frictionless customer experiences.

In mandated jurisdictions Open Banking require banks to share their consumer bank account data and initiate transactions such a payment through application programming interfaces (API). These APIs can then be used — with customers’ consent — by third party providers (TPPs) such as fintechs to open up the financial services industry and offer consumers products tailor-made for their individual needs.

Open Banking is the answer to the change, not a threat

Disruption in the financial services industry is already ongoing — whether banks want it or not. Open Banking is seen as a potential threat to banks that is disrupting their business models. The reality is that tech giants and emerging payment service providers are using Open API concepts to tap into the banking space and compete against incumbent players. Banks need to get up to speed to compete and become faster in digital transformation.

The current COVID-19 pandemic has changed customer behaviour with increasing contactless payment, ecommerce and gig economy growth. Banks need to be in a position to keep pace with this rapid change, that is further accelerating with the pandemic as a catalyst. Open Banking is a friend rather than an enemy.

At this time of global concern, the MENA Fintech Association considered how we could shine a light on the global Open Banking movement that is rapidly gathering momentum.

This silent technological revolution can play a major role in positively impacting those in need.

A Vision for MENA

The MENA region should use the global momentum to come up with more progressive Open Banking — or even an Open Finance ecosystem. The experiences in Bahrain with the first wave of Open Banking regulation combined with the approaches in the new global hubs could help to shape it. The goal is to develop a truly innovative set of use cases for all relevant customer segments. This will help banks to lead revolutionizing banking and be super fast in addressing constantly changing customer needs. Key areas for a new framework could be the following:

  • Use cases in scope: 360-degree view of customer, financial advisor for retails, businesses and affluent customers, SME liquidity and cash management, bookkeeping, account, loans & mortgage application & switching, remittance, frictionless creditworthiness and more – forming a cross-FS ecosystem of core banking and payments capabilities
  • Banking products in scope: all types of deposit accounts, credit cards, ewallets (fiat and crypto currencies), loans, mortgages, capital market instruments (e.g. stocks, ETFs), insurance policies
  • Access to banking products: access to account balances/values and transaction information – and write access, namely initiating transactions such as domestic and remittance payments, buy/sell stocks
  • Real-time payments: any open banking enabled payment flow should be fully integrated with real-time payments to allow frictionless and instant payments between customers, fintechs and banks.
  • Standardized onboarding and licencing of fintechs: data security and privacy are super important on the one hand and on the other hand access to data should be granted to fintechs in a simplified process

 

The MENA Fintech Association believes that open banking will be a positive force of change across the Middle East and North Africa during and after this incredibly difficult time.

 

This is the first of a six blog post series.  More will be revealed.

 

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Open Banking Uncategorized

Why Open Banking Is The New Normal

The COVID-19 pandemic has caused a huge shake-up of our normal day to day lives. Deaths and disruptions reached even the farthest corners of the globe — it has been all-encompassing. Now, it’s time to think about living in the post-pandemic world.

Consumers and businesses are rapidly adapting to a new normal — the way they live, operate, and consume goods and services. The current situation is undeniably boosting the growth of e-commerce and digital offerings. But what does this mean to banks? It is crucial for banks to come up with new ideas to remain relevant to their customers, who are expecting more innovative and fully mobile digital services to enable frictionless customer experiences.

Let’s take a look at some facts and figures: Customers in the US have spent more money online between April and May 2020 than the last 12 Cyber Mondays combined, around 93% of growth in May compared to 27% on average to the prior 12 months. In the Middle East & Africa, too, we see a rapid shift to cashless and innovative payments, as more than 70% of consumers in the region are now using some form of contactless payment methods.

As a result of this shift to e-commerce and digital, we see banks prioritizing and driving digital banking and payments to meet the increasing demand for online and mobile solutions. With consumers experiencing the benefits and convenience that digital banking and payments offer, it is unlikely that they will go back to traditional banking anytime soon.

Open banking to cope with post-COVID challenges

In this digital-first landscape, we can observe an emerging concept that has the potential to accelerate innovation and solve the new challenges that banks are facing: open banking.

Open banking, although around for a few years now, is still a fairly new concept to most, especially here in the Middle East and North Africa (MENA). In a nutshell, open banking is a concept to allow third-party providers (TPPs) — such as fintechs — to connect and collaborate with banks using their open Application Programming Interfaces (APIs). However, in Europe, open banking has been mandated by the regulators in the form of the Revised Payment Services Directive (PSD2) in the European Commission, in the UK by the Competition and Market Authority, and in Australia by the Australian Competition and Consumer Commission. In the US, open banking has been left largely to the market. In the MENA region, we are now seeing the first trend setters such as the Open Banking Regulation in Bahrain.

As a result of the different approaches, it’s no surprise therefore that open banking means different things to different people; in fact, when talking to banks, fintechs and regulators, everybody has varying interpretations of what it means for them as financial institutions, associations, businesses and consumers.

Open banking as a powerful framework designed to promote much-needed innovation in the financial sector underpinned by two main pillars:

Regulatory initiatives: Regulators utilize open banking as a means to create a level-playing field between banks, FinTechs and established payment companies with standards and guidelines. Regulated use cases usually include banks opening up for payment account information, payment initiation and customer and banking product information.
Bank innovation and monetization: Banks develop business models that leverage partnerships and monetize open banking. They become technically and culturally capable to innovate with FinTechs and close their digital capability gaps with them in the post COVID-19-era.

Logical next evolution step or the actual first step?

Does open banking go far enough? Should open banking be seen as a means to build a level-playing field with API standards and use cases for everyone, as well as offer competitive products to consumers and foster financial inclusion? Or, should we regard open banking as the stepping-stone to open finance that is expected to be far more disruptive?

Open banking now is limited in that it currently only applies to payment service operators. Over time, it will bring the ‘real prize’ that covers all aspects of finance for consumers and business including:

Use cases: 360-degree view of customers, financial advisors for retail, businesses and affluent customers, SME liquidity and cash management, account, loans & mortgage application and switching, frictionless creditworthiness and more — forming an open scheme-like cross-financial services ecosystem of core banking and payments capabilities.
Asset classes: All types of deposit accounts, credit cards, e-wallets (fiat and crypto currencies), loans, mortgages, capital market instruments (e.g. stocks, ETFs) and insurance policies.
Access types: Access to account balances/values and transaction information — and write access, namely initiating transactions such as domestic and remittance payments, buy/sell stocks.

Regulators as innovators in open finance?

We see FinTechs innovating, banks collaborating and regulators playing more and more of a leading role in forming the open finance framework. However, this field is changing rapidly; a one-size-fits-all regulation won’t suffice or be effective. In order to take us to the next level, the industry needs to think out of the box and develop an agile and efficient system that can keep pace with development.

There is everything to play for. And with this in mind, regulators have the opportunity to be innovative themselves and redefine the role they play in progressive banking and payments by regulating in an agile way. ‘Regulators as innovators’ could describe this more aptly.

We are increasingly observing that hotspots of innovation and growth are in the areas created by new regulations or are a conscious decision to simplify regulations. Today, global consumer choice in terms of financial services is more vibrant than ever, largely supported by regulators. There are several tools, including consumer legislation, bank licensing requirements and newer initiatives such as ‘sandboxes’—ADGM’s regulatory sandbox in the UAE, and the upcoming second version of the open banking regulation in Bahrain.

The future looks bright and open.

 

Source: Forbes Middle East