Open banking in the GCC – picking up the pace

Building an ‘Open Data’ economy is one of the pillars of most of the GCC countries’ national strategies, to promote innovation and diversification from oil-based economies.

Countries in the Middle East are proactively engaging in initiatives to accelerate their positioning as global financial hubs, focusing on enabling sustainable and innovative digital banking and fintech ecosystems, wider financial inclusion and cutting-edge technologies such as big data, AI and cyber security.

As an enabler of most of the above goals, Open Banking is increasing the pace to unlock new business opportunities for banks (data holders) and open up new booming markets for fintech.

Bahrain

Bahrain pioneered the initiative in 2019, despite challenges, with a government-led and prescriptive approach. The key regulation (combining aspects of the European PSD2, UK OBIE, Australian Open Banking rules) and technical standards (based on ISO 20022) are now in place and have created a strong basis for the market to trigger new competition, encourage innovation and increase financial inclusion.

Thanks to the early promotion of the Open Banking initiative in the region, Bahrain has been able to support and export homegrown success stories such as Tarabut Gateway, a platform that emerged from the sandbox and is gaining market share in the UAE and Saudi Arabia as well.

Despite the relatively small size of the country compared to its neighbours, and despite initial skepticism towards adoption, Bahrain has established itself ahead of its Middle Eastern peers in enabling fintech experimentation, along with the UAE and Saudi Arabia.

Saudi Arabia

The Kingdom of Saudi Arabia has launched Open Banking in January 2021, with a regulator-led initiative run by the Saudi Central Bank (SAMA). In line with the objectives of the National Fintech Strategy, the imperatives of the Saudi Open Banking framework are to unlock innovation opportunities for established companies and fintech, to promote financial inclusion and to drive the digitization of the financial sector.

The comprehensive framework includes an Open Banking mandate regime, rules for TPP (third-party providers), technical standards and securities standards that market participants implement ahead of full realization by the end of 2022.

Complementary initiatives have also been launched: Fintech Saudi (2018), which acts as a catalyst for entrepreneurs to develop and advance their solutions and access funding; Regulatory sandboxes with rounding cohorts; and the Open Data Platform (2021), to provide economic, financial and monetary statistics and indicators for Saudi Arabia that can be obtained through API interfaces.

With this progressive approach, Saudi Arabia has allowed early-stage fintech ventures to grow and expand, as demonstrated by Lean Technologies (the first payment aggregator to attract the interest and investment of giants like Sequoia Capital).

United Arab Emirates

In the UAE, Open Banking has been more of a market-led initiative, supported by the Central Bank UAE and the Emirates’ Regulators with fintech-related initiatives, innovation hubs and funding. The Dubai Financial Services Authority (DFSA) has developed a licensing framework for TPPs (AIS and PIS) and in April 2022 announced its first Open Banking license (granted to Tarabut Gateway). Meanwhile, the penetration of digital services across the UAE has developed at a significant pace with public utilities and service payments now available via apps or online, fintech solutions that consumers are now used to accessing, and innovation mainly driven by customer demand and experience.

Going beyond regulation and the pure compliance exercise has enabled the UAE to nurture dynamic fintech companies, also supported by the Open Finance Lab launched in April 2022 by the DIFC (Dubai International Financial Centre).

In parallel, the Central Bank UAE is drafting a high-level open banking framework to set the rules and level the playing field among players.

Oman

In Oman, the Central Bank of Oman is running a first Open Banking initiative, which is not yet live. The country’s roadmap plans several ecosystem accelerators, including a regulatory sandbox, a cloud computing framework and an e-KYC initiative. The key drivers are to improve the country’s financial services sector and increase financial inclusion.

Kuwait

In Kuwait, Open Banking has not yet been defined, but an initiative has recently been taken. The country’s core objectives remain similar to the rest of the GCC of promoting financial inclusion through leveraging technology to address consumer and business needs at the heartland, coupled with the need to expand product offerings to SMEs and promote competition and diversification within the financial sector.

Open Banking will be led by the ‘Open Banking Working Group’, with participants from the main banks and the central bank.

The bigger picture in the Middle East

Widespread in the Middle East, Open Banking is gaining positions on government agendas, for example Egypt is focusing on improving its national payment system, paving the way for the growth of an Open Banking ecosystem. Morocco has introduced an updated payment regulation and is working on a framework for open banking. The Central Bank of Jordan is studying its approach to Open Finance.

The vibrant GCC Open Banking ecosystem points the way towards a digitally enabled financial sector, with an emphasis on customer experience. But success does not come without challenges: local timeframes must take into account agile approaches and time to market to keep pace with global developments, not just towards Open Finance, but beyond.

Key consultations and coordinated efforts by market participants allow for incremental engagement and, ultimately, adoption.

Opportunities are available to leverage global best practices and newly developed standards, although these must be combined with a deep understanding of the local financial sector and customer needs.

This article was first published in Open bank report 2022. Click here to download the report.

About Serena Sebastiani

Director in PwC Middle East, Management Consultant with 12+ years of experience in the EU and GCC with a focus on Fintech, Open Finance and the future of money. Business mentor and speaker at industry events. I advise regulators and the private sector to support the FS transformation agenda in the region.

About PwC

At PwC, our purpose is to build trust in society and solve important problems. We are present in 155 countries with over 327,000 people committed to delivering quality insurance, advisory and tax services. In the Middle East for 40 years, with 22 offices in 12 countries and 7,000 people.