a booming market

Why has MENA become the promised land for Open Banking investments?

open banking in mena region

Economic growth in the MENA region is standing up, with Gulf countries leading the path. The speed of innovation in realities such as the Saudi Arabia or UAE is attracting foreign investment at a rapid rate, which, combined with tech-focused central programmes, and an increasingly skilled workforce, sees the MENA region stand out on a global front. In this framework, local authorities are pushing and facilitating financial progress in particular. 

In the past decade, the MENA countries have meticulously cultivated a fertile soil that’s ready to blossom. And it’s starting to flower thanks to technological advances driving concepts like open banking that have the power to transform our financial future forever.

MENA as an emerging hotspot for investment

The MENA region is emerging as a hotspot for investment. Thus, what are the opportunities for fintechs? Before discussing such opportunities, we should take a step back to comprehend why there is an opportunity in the first place. According to data, the MENA population is one of the youngest globally, with an estimated 60% of the population under 30. Thus, the region’s demographics should enthuse any investor looking for innovation.

Moreover, internet penetration in MENA is one of the highest in the world. Much of the MENA’s countries youth are also motivated to embrace new ways of thinking and leverage digital technologies to improve both their own lives and those of their communities.

According to research by Deloitte in 2020, 82% of customers in the Middle East are eager to start using fintech solutions, which coincides with the rise of a cashless economy. It means the local population has proved willing to adopt digital solutions for their financial needs. Local and foreign entrepreneurs are already stepping up everywhere to capitalize on this market demand.

Backed by the financially progressive infrastructure – which provides fintechs with regulatory support and government incentives – the fintech sector in the region has a very high growth rate. 

For example, local GCC banks appear well positioned to capitalize on a strong internet banking trend, based on a number of fundamental indicators including changing consumer demographics, a shift in online behaviour, and an increased e-adoption rate. Another example is the UAE that has become a hive of fintech activity – 465 fintechs there are set to generate over $2B in investment capital funding in the upcoming year, compared to merely $80M five years ago. 

How Open Banking is transforming the regional financial services

As well as in other markets, consumers here want freedom to handle their finances. It means there is a genuine need for better banking solutions, such as instant access to money and fully digitized payments. The answer is Open Banking.

Open Banking is an essential strategy for financial firms to compete and flourish. As underlined by Tarabut Gateway’s 2022 MENA Open Banking Spotlight, banks in the region have shown an appetite for Open Banking, as they realize that innovation is imperative. Banks now face high cost pressures, intense competition and demanding customer expectations: banks are rising up to these challenges, with Open Banking as the gateway to do just that, the report said.

Today, the MENA’s Open Banking frontier is evolving, and is changing the very nature of banking and banking institutions. And the whole sector is benefiting from institutions' support. According to data, the Saudi Central Bank has announced the launch of an Open Banking framework, expected to go live in 2022. In the UAE, the Dubai Financial Services Authority (DFSA) granted specific licences in April 2020 commencing their involvement within the Open Banking scene.

Among the leaders, the small country of Bahrain is the forerunner. The Central Bank of Bahrain (CBB) has actively enhanced the fintech environment through many initiatives, including launching a regulatory sandbox in May 2017 and introducing open banking regulations during November 2018, both being unique initiatives in the region. To further strengthen the ecosystem, the CBB during November 2020 released the second phase of OB regulations, the Bahrain Open Banking Framework (BOBF). Even Iran is pushing on API technologies due to developing its own Open Banking system.

Future solutions 

However, MENA countries are now at the beginning of the Open Banking payments journey, but a vibrant future is coming. As pointed out by Hakan Eroglu, Global Open Banking Lead Advisor at Mastercard, “Open Banking is a friend rather than an enemy, especially after the Covid-19 outbreak. The MENA region should use the global momentum to come up with more progressive Open Banking — or even an Open Finance ecosystem”, added Hakan Eroglu. The goal is to develop a truly innovative set of use cases for all relevant customer segments. This will help banks to revolutionize banking and be fast in addressing constantly changing customer needs. 

As we have seen, Open banking in the MENA region is mainly powered by the combined forces of regulations and fintech startups. Regulators across the regions are taking major steps to implement frameworks, and there have also been huge investments channelled to the fintech startups. Whereas banking institutions formerly faced commoditization as providers of financial infrastructure to third-party providers, Open Banking is today viewed as a possible source of new income and a foundation for creativity.

Several banking majors in the region have also launched their separate digital banks to test the markets. “Banks are beginning to embrace the advantages of Open Banking as it brings them a very cost-efficient structure and at the same time also streamlines the banking transactions and security on the customer’s part”, said Vericash, an Egypt-based fintech. 

Is Open Banking entering into a new phase in MENA? Indicators have suggested a positive answer to this question. Today authorities and banking, as well as finance majors, have understood its unparalleled benefits in promoting a secure and convenient digital financial transactions' environment between customers and retailers. Despite the technology of Open Banking came into significance late in the MENA,  the regulations for Open Banking in the MENA region would need to be more streamlined and made efficient to practice. 

The future of the digital payment and processing ecosystem looks revolutionizing with the technologies of Open Banking and API making banking highly efficient and collaborative. As the new normal has changed how we used to perform our banking before, people have reduced going to banks and interacting with people. A process that accelerated after the pandemic outbreak. Open banking is considered to be the most probable cross-selling opportunity among the countries in the MENA region and today with the purpose to increase the customer’s engagements, fintech and the banks have to go digital with technologies of API and Open Banking.