When considering possible trends in open banking and fintech in 2023, the first step is to recognise and acknowledge how far the industry has come in the last few years. 2022 was a year of exponential growth for the MENA fintech industry, and we anticipate that the coming year will be marked by transformation and technological innovation.
Solid foundations for open banking in MENA
Regulation, implementation, and adoption of open banking are driving the ecosystem towards a new era, with innovation and collaboration at the forefront. Open banking provides the power to accelerate regional growth of financial services – from simulation environments and service alignment to bank integration and payment innovation, the possibilities are wide and far-reaching. Fintech in the Gulf has advanced greatly, and many people in the public and private sectors deserve praise for the conception and development of today’s ecosystem. We are on the cusp of making great strides in financial services that will improve financial wellbeing for millions of people.
As recently as 2019, account information services (AIS) first went live in the region in Bahrain, with the country’s Central Bank launching its open banking framework in October 2020. In January 2021, the Saudi Central Bank (SAMA) followed suit launching its ‘Open Banking Policy’, while in May of that year phase one of Bahrain’s open banking framework went live for banks and third-party providers, with phase two right behind it in September. By November, Oman had introduced its open banking strategy API, and SAMA recently launched its regulatory sandbox. Kuwait, Egypt, and the UAE have all announced similar plans. In 2019 there were four regulatory fintech sandboxes in the MENA region, and today, there are eleven.
Note the pace of change through fast-occurring developments. It is driven by regulators across the region providing rules to enhance competitiveness, transparency, and efficiency of the financial services ecosystem – and the private sector is responding with innovations and practical solutions.
Over the next 12 months, we will see far greater adoption and implementation of open banking by fintechs and financial institutions, providing customers with faster, better, and more competitive products and services.
What then are the likely trends for the coming year? There are four developments to look for that will make 2023 special:
1. Wider access to lending through Open Banking
Firstly, we expect open banking technology to tackle easy access to personalised loans, most importantly to serve previously overlooked customers. This will be transformative, providing financing options for underserved customers and empowering them to realise their entrepreneurial ideas and improve their lives.
Many individuals have little to no credit, making even simple things like getting a credit card difficult. For the rest, lenders with costly borrowing terms are the sole alternative. The current lack of personal loans stems from an antiquated, slow and expensive diligence process for lending applications. Creditworthiness will be redefined with the tools open banking provides as lenders can quickly and effortlessly check financial data, and improved risk assessment capabilities can lower rates for applicants. Open banking provides an opportunity to make banking fairer for the underserved, building a world where financial services work well for everyone.
Needless to say, an active and efficient lending market will have a broad positive impact on the economy, enhancing consumer spending and business activity. It is not a hyperbole to suggest that financial services will offer social improvement in the span of a few years by creating more equitable access to personal advancement.
2. Newly launched neo banks spot open banking as an opportunity
Secondly, neo-banks are beginning to discover open banking and will start to actively compete with traditional banks for existing customers, not just the underserved. Competition is the best driver of innovation and creativity, and because of this commercial tussle, new products will come to market from all participants to the benefit of consumers.
Bahrain’s ila Bank and the UAE’s Zand are two examples of challengers heating up healthy financial services competition. Saudi Telecommunication Company (STC) recently also received its banking license in Saudi Arabia. New services like linking accounts, cross-selling, moving money between accounts rapidly and with ease, and an overall improved digital customer experience are the battlefields of MENA’s consumer banking industry to watch next year.
3. Open Banking supporting the backbone of our economies: SMEs
SMEs are the backbone of our economy, making up more than 90% of businesses in both KSA and the UAE. Yet, SMEs have often been left out of modern finance solutions – with only 5% having access to financing options. However, with open banking the traditional and time-consuming process can be automated and made simple. Open banking can accelerate the finance application process using data already compiled by SMEs through their shared banking activity. Consequently, businesses will flock to solutions employing open banking for improved financing and payment options. This will unleash access to capital to power SME growth, providing rising prosperity and employment.
4. Embedded finance and the rise of super apps
Finally, 2023 will see the continued rise of embedded finance and ‘super apps’ integrating financial services. With a growing part of our financial lives migrating online, combining financial services across providers into super apps with many functions is a logical next step. Jahez – a food delivery app – or Uber-backed ride-hailing provider Careem are potential candidates adapting the concept, which is hugely popular in East Asia.
The region’s largest market, the KSA, will see its first live use-cases of AIS early next year. Bahrain is set to launch its ‘Open Finance Framework’. Against the background of the lockstep of private and public sectors and the convincing business cases of the outlined trends, 2023 promises to be a year full of open banking-powered innovation.
