How open banking is levelling the financial playing field in the Middle East

By next year, over 130 million people worldwide are expected to be using open banking services, around a fivefold increase in just four years. The global size of the open banking market is projected to grow approximately tenfold during the 2020s.

Open banking technology allows fintech companies – with explicit consent – to access an individual’s or a company’s financial data through software protocols known as APIs (application programming interfaces). Such financial data was traditionally known only to the customer’s bank. These companies can then use this data to offer customized and enhanced financial products or services.

It is a development that is transforming the financial industry by fostering innovation and enabling the development of innovative financial products for individuals and businesses. For customers, the benefits of open banking are clear: It allows them to access new financial services and tools such as personalized insights into their spending patterns, investment advice and budgeting tools, among others.

Open banking also enables fintech providers to develop new products, such as more efficient payment and fund-transfer solutions. BenefitPay, for instance, is a Bahraini app that facilitates near-real time peer-to-peer payments between individuals or from individuals to businesses.

Services such as BenefitPay are a game-changer for the payments sector and for customer experience. The customer experience dimension is underscored by the surge in the BenefitPay transactions volume, which has grown by a compound annual growth rate of 73% over the past three years. Such apps also support underserved small businesses that have traditionally found it challenging to access card payment channels. No longer forced to rely on cash, these small entrepreneurs are better able to grow their businesses.

In this way, financial innovation is a key strategy for governments keen to diversify their economies. The market opportunity in the Middle East is significant due to its growing population and high level of smartphone adoption: Bahrain, for example, has a 98% internet penetration rate.

Open banking is taking off in all regions, with countries such as the UK, Australia, Singapore and Hong Kong all recognized as first movers in this space. While some regulators are mandating open banking standards through regulations, others are taking the role of facilitators.

In the Middle East, Bahrain was the first to adopt open banking. The Central Bank of Bahrain issued regulations specific to open banking in 2018, followed in 2020 by the Bahrain Open Banking Framework, which ensures consistency by establishing a common set of API specifications and guidelines on security and customer experience.

Bahrain was also the first country in the region to offer an onshore regulatory sandbox, enabling companies to test their open banking solutions in a controlled environment, encouraging experimentation and growth. Other countries in the region such as Saudi Arabia and the UAE are also introducing or developing similar approaches.

The Saudi Central Bank (SAMA), for example, launched its Open Banking Lab in January 2023 to support the country's 2030 vision for economic growth by deploying a sandbox environment, corporate and retail use cases, regulations and certification requirements. The Central Bank of UAE is working on a Financial Infrastructure Transformation Programme, set to be implemented by 2026.

As more Gulf Cooperation Council (GCC) countries adopt open banking regulations, cross-border collaboration to align national approaches can enhance regional financial integration and strengthen the Middle East’s positioning as a global hub for fintech investment and talent.

With increasing evidence of the societal benefits of open banking, eight of the 18 central banks and monetary authorities in the MENA region highlight financial inclusion as a top priority as they reshape their financial regulations.

Open banking has the potential to create an integrated financial ecosystem by enabling data-sharing and improving financial transparency. It allows the seamless movement of funds through integrated payment solutions and promotes collaboration between the different players in the financial sector. This cooperation allows for the development of new financial products and services that focus on customers’ needs, improving customer satisfaction and loyalty in the process. It also fosters financial inclusion by making financial services more accessible to the unbanked and underbanked population.

GCC governments have already taken positive and effective steps towards financial inclusion. Open banking can help further by offering SMEs better access to financial services and by providing an alternative means of receiving payment for SMEs who don’t have access to merchant acquisition services.

Open banking also enables banks to access alternative data sources for credit assessment purposes, as traditional assessments often rely on a narrow set of data that can exclude SMEs and individuals who haven’t had the opportunity to build a conventional credit profile. This widens access to loans, by reducing the hassle involved for lenders in gathering data on which to base lending offers. It also enables financial service providers to personalize offers of other financial products, rather than targeting a whole class of customers.

Finally, open banking allows regulated third-party providers to create superior financial products and services, helping customers to access financial solutions that are better suited to their needs.

Experiences from more mature open banking markets showcase the potential of the sector to cultivate a new culture of innovation and competition in financial services, by reducing barriers to entry for new players and incentivizing traditional banks to become more customer-centric.

While open banking in the Middle East is still in its early stages of implementation, the current rate of progress points towards a strong potential to realize governments’ economic visions by transforming the region’s financial landscape.