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.