Opinion

Can Open Banking Be Implemented Across the Middle East and Africa?

Open Banking is in its infancy across the Middle East and Africa (MEA) but can it, coupled with fintechs and wider technologies, develop strong partnerships, innovations and overall boost digital economic development?

The Middle East and Africa (MEA) remains to be in the early stage in terms of at least adopting, entertaining with the idea or even grasping the principles and benefits of open banking. To recap, open banking works when financial institutions such as banks allow for customer data to be shared through trusted third-party providers via open banking APIs. Fintechs have been playing a large part in the growth of open banking and their partnerships with financial institutions – or via direct.

Key areas in the world where open banking has been growing, to note, have been the European Union (EU), and specifically in the UK – which at the time of the growth of open banking was part of the EU prior to Brexit. Australia is also noted as another example of open banking seeing growth. The UK, the EU and Australia in large part have seen their open banking ecosystems grow as much of it was legislation driven.

Saying that, the world, at least with open APIs, even back in 2019 at least 87 per cent of countries had some form of open APIs. Via LearnBonds, it was estimated that over 10,000 financial institutions globally had open banking implementations. And this can be felt across the MEA region – or at least the idea of entertaining open banking.

A discussion point I’ve highlighted,  such as in-person at a recent event in Dubai called the MEBIS (Middle East Banking Innovation Summit), I’ve essentially summarised my own simplification of how open banking can work in not only MEA but globally.

Legislation–led: As highlighted, it can be legislation-led, which essentially is what happened in Europe, such as in the UK. In fact, much of the foundations of what the world knows about open banking can be stemmed from 2013, which was part of the European Commission’s revised Payment Services Directive 2 (PSD2) proposal, in which it recommended banks to permit third parties to access account data and initiate payments.

An example of how open banking has grown has been in the United Kingdom. Home to the global financial hub of London, the UK, as part of the EU at the time, is part of the PSD2. It essentially forced banks to adopt open banking they are approved by the Financial Conduct Authority (FCA) of the UK. This of course, by 2018, the UK had the nine largest banks (which included HSBCSantanderBarclays) comply with open banking via creating open APIs for third-parties. Coupled with the Open Banking Implementation Entity (OBIE) expanding and publishing the Open Banking Standard, it helps those in the UK help account providers meet API requirements. As shown in the UK, legislation-led open banking will involve some type of study/research that will ultimately conclude with a strategy. In the advanced stage of the UK, this has led to its implementation and the various mechanisms needed to achieve open banking.

As highlighted in the recent Fintech: Middle East and Africa 2021 report I main authored, open banking has also begun to take root in the MEA region – such as with Saudi Arabia and Bahrain with respect to legislation-led. With the ladder, Bahrain has been an early adopter of open banking compared to the rest of the region – the first in the region to pass open banking regulations and National Bank of Bahrain led the way in launching open banking services and open banking platform company, Tarabut Gateway.

The Saudi Central Bank (SAMA) has also announced its open banking policy to articulate the main objectives of implementing open banking in the Kingdom and its positive effects on the financial sector. The issuance of this policy builds on the efforts of SAMA in diligently pursuing the strategic objectives of the financial sector development programme, underscoring its commitment to promoting innovation, and trust within the sector, re-enforcing competition and raising efficiency.

In Kenya, the Central Bank of Kenya (CBK), prioritised open infrastructure as highlighted in its 2021-2025 strategy. It states, “CBK will facilitate the development of an industry-wide standard for open but secure APIs in a way that guarantees access, safety and integrity of data sharing systems. These standards will include API specifications for identification, verification, and authentication; customer account information/data access; transaction initiation; and formats and coding languages for APIs. Due to the risk associated with opening up data from financial institutions to third-parties, CBK will define clear risk management frameworks and standards, including providing clarity on liability and consumer protection.” As highlighted in the article by DLA Piper, Kenya is also acknowledging via its findings the need to develop open and secure APIs at least.

Industry-led or hybrid: In other parts of the world, such as in the United States and Singapore (which generally have been more laissez-faire and had the industry lead in this) or in India which has been more of a hybrid approach, areas such as in MEA with open banking can either have it industry-led or a hybrid of both legislation and industry.

It is clear in MEA that the industry has been paying attention to the topic – more so than ever and that the pandemic further accelerated it. This is demonstrated, for instance, in the number of events in the region – whether it be purely on open banking – or in wider financial services and/or fintech events where open banking often is becoming an integrated part in various conference agendas. On a personal level just the past few months, on a personal level this includes not only the innovation summit I mentioned but also others such as a Union of Arab Banks Digital Summit back in May or a Gulf Cooperation Council (GCC) Open Banking Summit and Saudi Arabia Open Banking Summit back in July – all three via virtual.

Also, much of MEA is highly digital and global. For instance, according to figures from the World Bank, the Middle East as a whole has a high level of internet penetration and mobile phone usage with a  population that embraces digital solutions. To spotlight, for instance, the United Arab Emirates (UAE) has one of the highest rates of internet penetration in the world at 99 per cent and a mobile phone penetration rate of 200 per cent. Another example is Saudi Arabia, with an internet penetration rate of 96 per cent and a mobile phone rate of 120 per cent. A growing and high digital population such as in mobile can further help drive consumer demand for efficient customer service, which can help further push the demand be me industry or at least hybrid led across MEA.

On a final note, whether it be legislation, industry or a hybrid, there still needs much more to be done with open banking globally, which also includes more advanced ecosystems like the UK. For instance, with the benefits to customers, they need to be aware of open banking in simplified terms and its benefits. For instance, even in the UK, according to ING research, only 23 per cent of British consumers are happy for their financial information to be shared via an open banking model. After all, digital transformation as a whole presents its own issues and doubts – in particular with big data and personal information and challenges such as cybersecurity. Saying that, since Q1 2020, Yapily has seen the number of open banking payments increase by 365 per cent, on average, every quarter. This exponential growth in payments made through open banking APIs is tangible proof from the market that does support research and predicts over two-thirds (64 per cent) of UK adults will be adopters by next year. The UK’s consumer adoption has been higher and has also played a success so far with open banking.

With regards to the benefits for financial institutions, looking at the UK again, they appear to have a more positive attitude towards open banking. There, nearly 70 per cent agree that open banking is viewed as an opportunity in their organisation, where 70 per cent have a clear strategy to realise the potential of open banking. Regions such as MEA will need to have these types of support from the industry such as in the UK for it to work. To add, it will be as well up to partnerships – which increasingly globally as a whole have been with the likes of fintechs and financial institutions, or even the ladder creating their own solutions – that can help boost and further justify the benefits. Therefore, for solutions such as with fintechs the benefits of their solutions needs to be clearer as well for financial institutions to promote collaboration and partnerships.

Open banking may appear to be complicated but it can at least be developed – whether in the Middle East and Africa or beyond – through at least partnerships and collaboration between the ecosystem of governments, the private sector (financial services institutions and innovation companies such as fintechs) and the consumer. It therefore can be accelerated – but will require a unique version of its strategy and implementation that can work across the region.

Richie Santosdiaz

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