Unlike the United Kingdom and Europe, the use of application programming interfaces (APIs) by third parties to access consumers’ financial data with their consent — a process known as open banking — is still in its early days in the Middle East and North Africa (MENA).
But according to Nino Ocampo, chief product officer at Bahrain-based open banking platform Tarabut Gateway, the field presents exciting opportunities for emerging markets across the region, which appear to be following in the footsteps of their European counterparts.
“[Open banking adoption] is going to be regulatory driven [and] similar to what’s happened in the U.K. and Europe,” he told PYMNTS in an interview.
See also: State of Open Banking in Europe, Africa and the Middle East
Speaking on “progressive regulators” that have led the charge in implementing open banking frameworks across the region, Ocampo pointed to countries like Bahrain, the first MENA country to pass an open banking law, and the Kingdom of Saudi Arabia (KSA), which is set to publish similar legislation next month.
Other countries are following suit, with the United Arab Emirates expected to release details of its open banking plans at the end of this year. Egypt, Jordan, Kuwait and Oman are all looking to release some sort of mandate and guidelines in the coming months, he said.
What’s more, Ocampo said that MENA countries have the opportunity to learn from the mistakes of open banking legislation in Europe.
Giving the example of the U.K., he said that when banks and other financial institutions (FIs) were initially mandated to open up consumers’ account data for regulated providers to access, use and share, they were slow to act and “didn’t see any real incentive to really fully participate.”
In the KSA, on the other hand, regulators have taken proactive steps to provide FIs with incentives, such as establishing a framework for banks to build premium APIs that deliver a richer functionality than account information and payment initiation APIs.
In line with the impending regulation, the Bahraini firm has formed new banking partnerships with four Saudi banks to help them build their data-sharing APIs in a way that can be easily commercialized.
Read more: Open Banking Firm Tarabut Gateway Partners With Four Saudi Banks
While Saudi banks are preparing for the country’s open banking framework to come into effect, Ocampo pointed to the UAE as a key market for the firm due to its “large and burgeoning FinTech ecosystem.”
Tarabut Gateway has already received a license ahead of anticipated open banking legislation in the country, and the company was also selected as the preferred platform partner for the Dubai International Finance Center’s Open Finance Lab.
See more: DIFC Selects Tarabut Gateway for MENA’s First Open Finance Lab Partner
According to Ocampo, the objectives of the new lab are twofold: first to explore how to “unlock the benefits of open finance — not just open banking,” and second, to foster stronger bank-FinTech collaboration.
On that second point, he said unlike when the open banking movement started and “all the talk was bank versus FinTech,” banks and FinTechs have realized over time that they could benefit from greater collaboration as the field matures.
“FinTechs need a customer with scale, and at the same time, banks need FinTechs’ agility,” he explained.
In the U.K., Ocampo observed that “collaborations basically gave birth to new products and services that generated incremental engagement and revenue for both players,” adding, “that’s what we’re trying to do in the UAE in advance of the regulation.”
Read also: YAP CEO Says Collaboration, Not Competition, Creates More Wins for MENA Neobanks
Use Cases and Challenges
In addition to regulatory initiatives, consumer demand is also driving open banking in the region. Once again, MENA can learn from the ways in which open banking has unfolded in other regions in terms of which use cases could prove the most popular.
Ocampo said that personal financial management is one area where there is a high demand for the more personalized experience that open banking can create.
Another area of opportunity he pointed to is the need for open banking-powered products that increase access to credit for people with a “thin credit file,” adding that existing lending frameworks in countries like the UAE, where large immigrant populations have the most trouble accessing credit, have the most to gain from the open banking initiative.
See also: Bahrain Drives Open Banking Adoption in MENA
Moving forward, Ocampo said that the “tech readiness” of some banks is the biggest challenge open banking faces in the MENA region. However, “banks absolutely feel the need” to upgrade their legacy systems and will need to bridge the resource gap required for the complex process of re-platforming.
On this front, Ocampo said that MENA banks are increasingly open to outsourcing rather than building everything in-house, which he said has been “a smarter way to reap the benefits faster.”