Open Banking – The Silent (R)evolution

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Throughout these years in banking, consulting and high tech, I’ve learned a thing or two about disruption.  I have been disrupted and I have disrupted others.  To clarify, disruption means; to break apart; to throw into disorder; to interrupt the normal course or unity.

Open Banking Is The Solution, Not The Source, Of Disruption

Banks can avoid disruption through an open financial services ecosystem built for collaboration and innovation. We call that open banking.  To quote Charles Darwin, “In the long history of humankind, those who learned to collaborate and improvise most effectively have prevailed”.  Businesses are built by humans, so naturally, the very same rules apply to business.

Where mandated, open banking rules require banks to share their consumer bank account data and initiate bank transactions through application programming interfaces (API). These APIs can then be used — with the customers’ consent — by third parties to open up the financial services industry, and offer consumers with products tailor made for their individual needs.  Park your security concerns for a moment.   There are a collection of innovative and secure solutions building out new market places to cater to your everyday needs.

Covid-19 – A Catalyst For Change

Clearly these are worrying times for all and they will be exacerbated by economic uncertainty, potentially for a considerable amount of time post-coronavirus, affecting many individuals and businesses. First and foremost, our hearts go out to anyone who’s been impacted by the virus, either directly or indirectly.

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.

As the majority of us are working from home right now, it is only natural for businesses and individuals alike to be laser focused on their cash flows.  Many governments in the region have reacted swiftly offering companies and individuals access to funds to protect income lost.  However, given the manually intensive tasks involved, actual application reviews, calculation and distribution of such funds will no doubt be time consuming and labor intensive.  With existing open banking technology, we can reduce friction in the process by answering three basic questions: 1) Is the potential beneficiary eligible?  2) Is the correct person being paid?  3) How will that person get their money?

Using open banking solutions, governments can obtain transaction history from an individual’s bank account. Data is categorized to see “income” over that time and calculate what percentage is owed. Using the bank-registered customer name allows governments to confirm the intended recipient is who they say they are and reconcile against data sets they already hold. Then, within minutes of the process starting, it’s possible to use existing open banking infrastructures to initiate the payment over the real-time payment networks to ensure that beneficiaries receive funds in the fastest possible time.

This solution clearly has a broader application for anyone looking to receive money from a third party, be it a charitable disbursement or a loan. In both situations you would want to have some certainty as to the identity of the beneficiary and a needs analysis, or (in the loan example) an ability to analyze capability to repay before you distribute the funds.

Request to Pay Service

This service is needed now more than ever for workers, such as those in the gig economy, or individuals who do not want to pay by Direct Debit where the alternative was cash.  Request to Pay gives individuals and businesses a new way to communicate bill payment requests to their customers and allow them to pay remotely. It has the flexibility of cash but the automation advantages of a digital payment solution.

Alternative to Existing Payment Schemes 

As a business, it is also vital that you are able to maximize the profit on any sale and ensure a frictionless customer experience. You may therefore need an alternative to existing payment mechanisms as they can be cumbersome or expensive, particularly if you process high value transactions (such as B2B corporate payments) or if the international payment schemes classify your sector as high-risk. With Open Banking, you could leverage instant account-to-account payments that pay directly into your account and help improve liquidity. For some merchants, fraudulent chargebacks can also be a problem and may be an issue that we see on the rise.  Other challenges to be tackled through open banking include chargeback and dispute systems.

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 four blog post series.  More will be revealed.

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