Open banking in the UAE is leaping forward

The financial district, Dubai, UAE

There is a promising future for open banking services in the UAE, writes Ahmad Abdel-Rahman.

The United Arab Emirates (UAE) seeks to establish itself as a major digital hub in the Middle East. The UAE, with its young, tech-savvy and entrepreneurial community, is leading the way in financial technology and digital-based companies. The UAE is aware that digital technology companies are the main drivers of growth. This is reinforced by the availability of digital infrastructure and government investment.

Bahrain launched the Open Banking (OB) Framework in October 2020, the first time in the Middle East there was OB legislation. Saudi Arabia is also introducing legislation for OB. It is scheduled to enter into force in mid-2022.

Some may ask why the UAE has not yet launched a framework for OB, despite being a relatively technologically advanced country with one of the highest mobile penetration rates in the world and the largest number of banks in the Middle East. The UAE is an ideal incubator for the launch of the OB revolution, shaping future banking services, and promoting the acceleration towards a non-monetary economy.

Studies have also shown that consumers in the UAE prefer online payment options to other payment methods, thereby giving them greater control over their banking and financial transactions. Increasingly too, consumers are linking online payments to their bank accounts and wallets.

OB is the system in which central bank regulators give approved third-party providers (TPPs)—usually financial technology companies—access to consumers' banking data. In addition, these companies provide necessary guidance and direction to banks on how to make their retail banking and commercial banking data primarily available to TPP companies for payment, money transfer and financial accounting transactions.

The government, as a central bank regulator, typically sets the basic regulatory system, standard operating procedures, and network infrastructure covering data sharing, integration, synchronization, privacy, security, and fraud management. Most importantly, the government monitors the OB platform to ensure that there is a level playing field between fintech companies and approved Third Party Providers (TPPs) to prevent any regulatory takeovers and exposure to market volatility.

Advantages of Open Banking

-Development of a new digital ecosystem: The OB system will enable the development of a digital banking system that includes relevant stakeholders such as regulators, banking and financial institutions, fintech companies, ICT providers and digital platform management companies. OB will help the banking environment to move away from the old traditional banking model to a new ecosystem that is flexible and adapts to new solutions used by TPPs.

-Supporting the business model innovation: Through OB, customers can share their bank data information with authorised third-party providers in an instant, encouraging them to develop more innovative and efficient methods of managing financial data and completing transactions.

-Encouraging an innovation-based economy: The OB system promotes the achievement of national economic goals, leading to an innovation-based economy where data and digitization become the main drivers of economic development.

-Enhancing economic competitiveness: The OB system does not only stop at enhancing productivity and competitiveness in the banking and financial sector, but also affects development and innovation in other sectors of the economy.

-Supporting inclusion: The OB services system seeks to promote financial inclusion by providing innovative financial products and services to certain categories of customers, especially low-income segments of society who do not usually deal with banks.

-Achieving higher profit rates: The OB system is based on a basic concept that allows financial institutions to provide a full range of services at low operating costs, allowing them to increase the proportion of revenues.

-Increased interoperability: OB customers will be able to see, update and control all their accounts with a one-time login, and consolidate all their financial data into a single application.

The question is, how can the UAE adopt an OB ecosystem?

-By developing a medium to long-term strategic roadmap for OB services.

-Fast-track development of an open banking framework (regulatory, licensing, privacy, security, technology, market governance.

-Enhancing the OB innovation ecosystem through attracting more startups, and financial firms to develop new solutions with banks and UAE Central Bank.

With all the distinct advantages and added value that can be achieved in the near future, the UAE is sure to succeed in its efforts to implement an OB system soon.

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Saturday, 30 September 2023