The Middle East needs to prepare for open banking as the trend catches up

Open banking is changing the nature of banks and banking institutions. Many banking institutions in the region are currently considering open banking as a new revenue model with no regulatory limits.
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There are still no open banking regulations in the Middle East and in many parts of the world. However, initiatives are underway – for example, the publication of guidelines by the Saudi Central Bank (SAMA) earlier this year, which plans to launch Open Banking in the first half of 2022 and is currently working on the design and implementation of an Open Banking ecosystem. The Bahrain Central Bank (CBB) Open Banking Framework 2020 is another initiative that paves the way for open banking opportunities in the future.

The process is clearly ongoing in the above countries and in the United Arab Emirates. More countries in the region will soon be gradually adding this fast-paced and vital element of the financial sector.

Many banking institutions in the region are currently considering open banking as a new income generation model with no (for the time being) regulatory limits as well as an improved customer experience in the region and therefore banks here in the region must prepare for its arrival. Several key factors such as Saudi Arabia’s cashless agenda, infrastructure projects, internet penetration, increased collaboration in finance and banking, project ‘buts’ and many more are factors that are gradually driving adoption.

Although open banking is still in its infancy in the region, traditional banks are facing a serious challenge as their corporate IT was designed to protect data in the past, there is a lack of sharing options and there is a future of massive changes. Layers of security walls protect and protect the crown jewels of your banking information as well as the personal information of customers.

However, the new potential directives force them to open the “secure data fortress” while ensuring a high level of security for their data. The way banks use data will determine their future in this ever-growing online business world.

Yin and yang

Banks that run open banking initiatives should strike a balance between securing data and sharing it with third parties at the same time. Balance is key, as unjustified disclosure of data can create a risk of fraud. On the other hand, if data security is too rigid, it will ruin the sense and benefit of the revenue potential and improved customer service that open banking brings with it. And of course only data that should be disclosed and only to accredited and verified third parties should be allowed.

In the past, financial institutions have been reluctant to share data with third parties, even with customer consent. Foregoing control over customer data, banking experience and their money has posed a hurdle for banks when working with fintechs in recent years. However, they are now realizing that fintechs pose less of a threat compared to the big tech giants like Amazon, Apple and Google in order to gain prominence as big fintech players. Leveraging the power of customer analytics and great user experiences, these large technology companies stand out from traditional banking products. And it’s only a matter of time before customers begin to demand more personalized services like real-time interest management, real-time spending, budgeting tools, and so on. Hence, banks need to evaluate the value they deliver in this day and age or else you risk being separated from customers and being demoted as back-end service provider versus the aforementioned nimble customers versus digital tech competitors.

The use of “data” is the key to the success of banks in open banking. In the past, banks were monoliths designed to completely protect customers inside, banks are forced to share the data outside, and their future will now depend on how that data is used to generate revenue.

Lessons from Companies on the Path to Open Banking / Measures that companies in the Middle East must take with them on their path to Open Banking

1. First put the house in order

There is no point in fixing the outside world of open banking if your own systems are not up to date. It is crucial to examine the IT business from the perspective of the people, processes and technology and how they interact. efficient or otherwise. For example, evaluating a bank’s current technology base; It has old legacy systems stifling innovations that are inherently stack-oriented, hindering the transition to open banking with full access (open banking is inherently about real-time access to information). Contrary to popular belief that “Open Banking is all about APIs,” while true to some extent, it is imperative to get the internal order first before you get into the API management phase.

2. Have a consistent strategy

To get the internal house in order, a unified strategic approach is key. A piece meal approach would be detrimental to an open banking model – a unified bank-wide strategy is essential rather than departments developing their own solutions.

3. Make sure the company is connected

If a bank is not internally connected and operating in silos, open banking initiatives are inefficient and struggle. As a result, you have a connected business with data that is instantly accessible regardless of the number of back-end systems.

4. Ensure that internal processes are efficient

Before external services are offered to customers, internal efficiency must be promoted. Because financial institutions are traditionally an inherent nature, they are not used to frequent operational changes. However, this will become the norm as banks will be willing to adapt to several common iterative changes and third party requests and will need to be agile to adapt to changes.

5. Customer journey mapping

In addition to the regulatory aspects, open banking is primarily about improving customer service. Many banks in the region have already started mapping customer journeys to improve the customer experience. This helps with the precise targeting and sale of future open banking services. As is evident from PSD2 experience in Europe, one aspect of fraud prevention under PSD2 is authentication for transactions above a certain limit. While frustrating for some customers, these reviews are there to keep them safe and provide additional security. Here, too, the balance has to be right.

6. Plan / execute the plan

Plan your execution and carry out your plan. That is self-explanatory

Many European customers feel choked by the PSD2 regulation, so banks shouldn’t be embroiled in a pure compliance approach. Open banking is a great new source of income. It is encouraging that most Middle Eastern banks see open banking as an opportunity and a new innovative / inhibiting way to increase revenue and improve their customer service.

Fintechs are competitors, but also partners. Leading FSIs are building ecosystems that can include fintechs as well as other third parties. The bigger threats come from the big tech players mentioned earlier.

– Vijay Jaswal, Chief Technology Officer, Middle East and Turkey, Software AG.

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