Breaking down a global movement: learning from the Middle East’s approach to open banking

by Chris Michael, CEO and Co-founder, Ozone API

It’s taken a global effort to reach the point the open banking and finance sector is now at – and yet no two countries have taken the same approach. The UK stands out as one of the sector’s formative players for launching the first regulated open banking standards and kicking off a global movement. Many other markets have since adopted their own regulation, or seen market-led approaches. 

New initiatives are now emerging almost daily. Governments around the world are looking to create their own approach to the rollout, each with unique timelines, policy objectives and products and services. As a result, open banking looks slightly different in every market. And while there are similarities, what works in one market won’t necessarily spell success in another.

The Middle East’s approach stands apart, having learnt from the UK and other deployments and carved its own path as a result. It’s worth reflecting on what the rest of the world can learn from its approach to open banking. 

Forging a new path 

The Middle East is embracing the potential of open banking and open finance, and it’s particularly interesting to see how various countries in the region have successfully adapted models from other countries, like the UK. 

Looking at Bahrain, for example, we can see that it originally deployed a model very similar to the UK’s and is now considering how a reset could plug the gaps in this approach. The Central Bank of Bahrain issued its first open banking regulations in 2018, followed by the Bahrain Open Banking Framework in 2020, which established a common set of API specifications and security guidelines. The country is now focusing more on experimentation and growth, pioneering the region’s first regulatory sandbox to enable companies to test their open banking solutions in a controlled environment. 

The Kingdom of Saudi Arabia (KSA) also originally built on the UK’s model but has now placed a much bigger focus on use cases, with a strong drive for conformance certification.

This approach has avoided one of the key pitfalls that Europe’s open banking initiatives faced: not setting clear goals from the outset. Linking specific open banking and finance KPIs, such as the number of fintechs created, back to the country’s 2030 economic vision means that there are highly relevant targets to measure success against. Furthermore, the regulator’s focus on consumer use cases such as bill payments and e-commerce has helped financial institutions understand the fundamental value of more open ecosystems. In Europe, in comparison, there was no real discussion of these functionalities and, while there was an expectation for open banking payments to offer a viable alternative to cards, the limitations imposed by the regulations, combined with the lack of commercial incentives for banks, has effectively prevented this from happening.

The UAE has also watched and learnt from other global deployments. Taking a broader focus on open finance, the UAE has considered use cases beyond open banking, like insurance, from the outset, with the aim of futureproofing its frameworks. Similarly to the KSA, open banking is part of a broader initiative, The Financial Infrastructure Transformation Programme, which is set for implementation by 2026.

Another crucial difference is the UAE’s decision to create a single API infrastructure that banks and fintechs can connect to, compared to setting standards that must be adhered to by banks and mandating that they develop their own APIs. This decision is set to significantly speed up the implementation process for financial institutions and made it more cost effective, plus is creating a consistent user journey. In turn, the UAE has avoided some of the key challenges with securing bank buy-in faced in Europe – and developed a better approach for all stakeholders involved.

What lies ahead

It remains to be seen where the rest of the region will go from here. We are already seeing movement in several other markets in MENA, including Jordan, Qatar, Egypt, Oman and Kuwait. The big question is how these markets will move forward – will they learn from and build on implementations in Bahrain, KSA and the UAE; make the same mistakes as the UK and EU; or re-invent the wheel – at huge cost and risk?

But if Middle Eastern countries continue to iterate approaches, foster experimentation, and align national frameworks to the banking sector’s goals, then they look to be paving a good path. By carefully applying lessons from early pioneers, countries like Bahrain, Saudi Arabia and the UAE are paving the way towards establishing the Middle East as a world-leading hub for fintech and open banking. In turn, the region looks to set to shape the future of open finance – and eventually, an open data economy – globally.

Image source: https://www.retailbankerinternational.com/wp-content/uploads/sites/2/2022/12/2.-Chris-Michael-Headshot-_-CEO-Ozone-API-1.jpg