New York City – The rapidly growing open banking sector in the Middle East is poised to revolutionize the financial landscape, offering significant benefits to both fintech companies and customers. This surge in open banking is part of a global trend that is expected to see over 130 million people using these services by next year, a fivefold increase since 2018.
According to World Economic Forum, the global open banking market could expand tenfold during the 2020s. Open banking technology, leveraging APIs (application programming interfaces), permits fintech companies to access individuals’ or companies’ financial data, traditionally confined to banks, and utilize it to offer tailored financial products or services. This technological advancement is transforming the financial industry by enabling innovation and development of new financial products for both individuals and businesses.
For customers, open banking presents a range of benefits, such as access to personalized financial insights, investment advice, and budgeting tools. In Bahrain, for example, the BenefitPay app exemplifies this transformation, facilitating near-real-time peer-to-peer payments and supporting small businesses previously limited to cash transactions. Bahrain’s focus on financial innovation aligns with broader regional efforts to diversify economies.
Open banking is gaining traction globally, with countries like the UK, Australia, Singapore, and Hong Kong leading the way. Regulatory approaches vary, with some countries mandating standards and others facilitating development.
In the Middle East, Bahrain stands out as a pioneer in open banking. The Central Bank of Bahrain issued regulations in 2018, followed by a comprehensive framework in 2020, establishing API specifications and guidelines focused on security and customer experience. Bahrain also introduced an onshore regulatory sandbox, allowing companies to test open banking solutions in a controlled environment. This move has been emulated by other regional players like Saudi Arabia and the UAE, each implementing their own initiatives to support economic growth and financial sector development.
Saudi Arabia’s Central Bank launched its Open Banking Lab as part of its 2030 economic vision, and the UAE’s Central Bank is working on a Financial Infrastructure Transformation Programme, set for completion by 2026. These efforts are part of a larger regional push towards open banking, aimed at enhancing financial integration and establishing the Middle East as a global fintech hub.
Open banking is not just about technological innovation but also financial inclusion. Central banks and monetary authorities in the MENA region are prioritizing financial inclusion, reshaping regulations to support this goal. Open banking facilitates data-sharing, improves financial transparency, and promotes collaboration across the financial sector. This approach can significantly enhance financial services accessibility for the unbanked and underbanked populations, offering SMEs better access to financial services and alternative methods of receiving payments.
Moreover, open banking enables more inclusive credit assessment processes by utilizing alternative data sources, thus broadening access to loans and personalized financial product offers. This paradigm shift in financial services is fostering a culture of innovation and competition, reducing barriers for new entrants and encouraging traditional banks to focus more on customer needs.
While still in its nascent stages in the Middle East, the current momentum in open banking suggests a transformative impact on the region’s financial landscape, aligning with government visions for economic diversification and growth.