Open Banking and Business Prospects for MENA

Open Banking is taking off in MENA (Photo by Shutterstock)

In this article Ahmad Abdel-Rahman looks at the outlook for Open Banking in MENA.

At the beginning of 2021, fintech quickly grew in the Middle East and North Africa (MENA). "The region is no stranger to this sector", says Shaimaa Al-Nazer, a researcher at the College of Computing and Information Technology at Taif University in Saudi Arabia. The world has seen the rise of influential companies over the past two years in such areas as buy now, pay later; wealth management; real estate; and payments. For example, there are three payments start-ups in the Middle East: Lean (Saudi Arabia), Dapi (Dubai), and Tarabut Gateway (Bahrain).

In February 2021, the Saudi Central Bank published the Open Banking Policy and a timetable for its full launch, which was in the first half of 2021. Open Banking (OB) is a technological innovation which enables customers to share their data with a third party in a secure environment.

However, the growth of fintech in the Middle East has been limited by the absence of regulatory frameworks for open banking services. This has led to missed opportunities for start-ups, banks, consumers and the technology ecosystem as a whole. "However, we have reached a turning point in which the Kingdom of Saudi Arabia is taking the helm, through its leadership of the legislative environment and regulatory frameworks to consolidate its position as a leader in the technology ecosystem in the Middle East and North Africa"., Al-Nazer added.

Financial institutions have been sharing customer data with third parties for nearly a decade. They have been sharing it for even longer with regulators. Hence, it is little wonder that data privacy and security issues are at the forefront of financial regulators' concerns.

What is happening in Saudi Arabia is of great importance to the rest of the region. As the largest market in the Middle East (about 24 million residents are less than 30 years old), Saudi Arabia announced its advanced future view of financial technology. It also joined with countries from around the world to support the financial services sector which aims to protect the customer and the future of financial institutions in the country. Once only the UAE and Bahrain attracted fintech founders but these days have gone.

This reflects Saudi Arabia's commitment and investment towards a knowledge-based economy. There has been a 55 per cent in direct financing of projects within its system, and this does not include investments by local funds such as Jidda and the Saudi Venture Investment Company. Fintech companies now have a supportive regulatory environment while providing access to the largest MENA markets (in terms of GDP).

According to a Magnitt report, a research company that is based in the UAE, investment in fintech increased by 19 per cent in 2020, making it the third largest funded sector in the region, despite very limited licensing activity. Taking a broader look at the opportunities available, the region is full of talent in financial services industry. The growing population of young people and mobile phone users has also resulted in a growing demand for payment services, electronic banking products,and digital mediation services, anong other things..

Much work remains to be done, as the Saudi regulatory framework must be put in place and banks in the region begin to engage players such as Lean Technologies to gain an understanding of open banking practices around the world.