It’s no surprise that we are witnessing and participating in a hyper-accelerated digital transformation of the financial sector. As the world becomes increasingly interconnected, advances in technology, coupled with the demand for a better banking experience, have resulted in eager anticipation for the next generation of financial services.
Areas that have seen the most disruption to date include payments, lending, investment, current accounts, and remittances. This list will only continue to grow as regulatory changes, such as Open Banking, and market dynamics push the industry into its new stage of life.
To remain relevant and competitive, every industry will need to utilize embedded financial solutions in their user journey. For instance, grocers that once relied on cash at the checkout can now host new payment methods allowing their customers to pay using QR codes that connect directly to their mobile wallet.
To enable this new wave of financial innovation, a reliable and secure financial infrastructure needs to be made accessible to all businesses as fintech increases its horizontal reach across industries. However, connectivity to this type of infrastructure, such as customer financial data and payment rails, is accessible only to a small group of highly regulated incumbents.
Open Banking was introduced in the UK in 2018 to promote an even playing field for all financial institutions. The legislation, drafted by the FCA and mandated on the top nine banks, compelled financial institutions to provide Open APIs to access customer financial data and payment rails. This has since been adopted by regulators in dozens of global markets, including the EU (PSD2), Australia, Singapore, and Bahrain.
Open Banking returned to customers control over their personal data, allowing them to quickly and securely switch between providers at little-to-no cost. Thanks to Open Banking, customers have been placed back into the center of the value chain – and rightly so. With the customer’s explicit consent, third party apps can now access their financial data and initiate bank transfers. This has enabled smoother onboarding journeys, faster Know Your Customer (KYC) and Anti Money Laundering (AML) processes, better access to credit, and more compelling payments functionalities – and this is just the beginning!
Today, the finance community is using Open Banking as a way to build on their current value propositions and broaden their product offerings. As we look into the future, it’s inevitable that this connectivity will usher in a new wave of financial services and products that have never been envisioned before.
Financial institutions and fintechs are encouraged to strategically partner with the support of the government and work closely with regulators keen to expand the region’s financial prowess. With the excitement around the regulation and the strength of the MENA fintech community, increasing investment into the region will give businesses the funds to grow and make an impact. The MENA region can now take learnings from the UK and beyond to move fast and intelligently build on top of this framework.
The potential for innovation through Open Banking in Saudi Arabia is limitless. To support the development of the next generation of financial services outlined in the Kingdom’s Vision 2030, the Saudi Central Bank (SAMA) announced their plans to go live with their own Open Banking policy in mid-2022.
Open Banking will play a crucial part in Vision 2030 as accelerating technological growth in finance is only part of the overarching themes. This growth will drive initiatives that will be advantageous to both customers and the Kingdom’s financial ecosystem to advance securely.
As part of the manifesto, SAMA’s aims include developing the ecosystem for a cashless society, with the hope to make 70 percent of transactions non-cash by 2030, and increasing financing by 11 percent for small-to-medium-sized enterprises (SMEs). With the introduction of Open Banking, SMEs that previously relied on large banks for their financing needs, can now turn to non-bank lenders who are equipped with a wealth of new data seamlessly connected to the borrower's bank accounts. This can shed more insight on the health and creditworthiness of the innumerable overlooked and underbanked SMEs in the Kingdom, and can lend a much needed lifeline to businesses undergoing cash crunches.
This is just one such example of how Open Banking will become a beacon of innovation across the country. In order to fulfill these visions, close collaboration between regulators, financial institutions, and businesses is essential. It is only a matter of time before all regulators across the market follow suit to ensure that each country has the tools necessary to accelerate societal change through finance.
As we embrace APIs as a form of interconnectedness within the finance community, this technology will facilitate more connectivity, functionality, and innovation across all industries, disrupting decade-old business practices and realigning incentives with the customer at their forefront. The future will go beyond Open Banking, and on the near horizon, we will see more open data plays that usher in more accessible lending, investment, and insurance through deeper data sharing.
It may seem naive to suggest that one piece of regulation (and ultimately, technological change) can transform the way a whole global financial services industry will function, but proliferation of infrastructure often leads to powerful second-order consequences and long-term outcomes that cannot even be imagined at the time.
One example of how opening up data creates an ecosystem of new builders and innovators is Apple’s App Store. After over a decade of establishing itself, the App Store became a force to be reckoned with, making Apple an estimated $64 billion in 2020, but more importantly it created a new industry of mobile applications that have become staples in our everyday lives.
Opening up data sources to a new community - with the ability to create a myriad of financial apps - creates an informal Open Finance marketplace. The best way to achieve mass coverage is by working with those who already have the stronghold of customers and the data provided through Open Banking. This will enable fintechs and financial institutions to offer value beyond their original propositions.
The financial ecosystem is in constant metamorphosis, and as we can see the unbundling of financial services has already begun. Through the deconstruction and reimagining of what the industry can look like, fintechs have leapt away from the perceived notion of financial services and begun to revamp the future of financial well-being as it should be.
Open Banking will revolutionize the handling of data, the way everyone makes payments, and the way financial services collaborate. As a result, this will open up opportunities for new, life-changing applications to be built.
To keep up the cadence of innovation, everyone needs to do their part within the finance community. Whether that’s through partnerships, standalone offerings, forward-thinking regulations, or lucrative investments, the industry will continue to change the lives of the entire population, and ensure a long-lasting financial legacy across the region.
