The future of commercial banking: How open finance leads to Central Bank Digital Currency and why traditional cash will remain a trust factor.
The key word of future commercial banking is open finance. The personal financial consultant at your local commercial bank will be able to increase his/her service by data driven tailor-made products. In the same way as future generation employees won’t easily return back to office giving up the comfort of working from home, future generations request more flexibility in payment options.
What is open finance?
According to the Central Bank of UAE, open finance is defined as “Open finance is a secure way for financial institutions to open their systems to accredited third-party providers.” Furthermore, “Using customers’ consented financial data to build applications and innovative financial services can create solutions that provide retail, SME, and corporate consumers with better ultimate control over their information. Ultimately, this system can offer customers greater choice in their financial services, and provide better service value.”
How does open finance have an impact on the future of commercial banking?
Samih Abutaleb , The Deputy Group CEO of Ahli United Banking mentioned in his interview in “The Arabian Business” a very decisive argument: “The Central Bank of Bahrain introduced regulatory frameworks for open finance nearly three years ago, and now we witness its growth driven by market demand. KSA and the UAE are also implementing open finance regulations. This trend of banks sharing data and collaborating with third parties will be a transformative force, fostering innovation and integration. Furthermore, open finance has the potential to unlock numerous blockchain use cases, and augment the ongoing discussions around Central Bank Digital Currency.” Read the article here: Thought leadership: In conversation with Samih Abutaleb.
As one trend supports the other, Central Bank Digital Currencies are being currently tested and will be very soon an additional option and secure freedom to handle payments. Meaning both, spending but also receiving money. Tanja He?d?rfer mentions in the podcast “How CBDC’s work” that financial inclusion is a great benefit of the digital currency meaning that a person can pay in a digital, secure way even without a bank account. Considering larger parts of the MENA region, this will offer many more citizens access to money therefore receiving, and keeping, salaries. Meaning, not only spending money, but also receiving money. This is of course independent from internet or electricity.
?Listen to the entire interview: G+D Spotlight: G+D Spotlight Podcast: How CBDCs work on Apple Podcasts
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Will digitization replace cash as a firm pillar in the cash cycle?
As Tanja He?d?rfer mentions in the podcast, there will be a balance between smaller purchases, like groceries or small services that are being paid in cash, and larger amounts being paid digitally. Certainly, the digital trend is guiding those financial institutions that want to provide extraordinarily convenient and seamless payment solutions, and boost activation as well as credit card and debit card transaction rates.
Indisputable seems, obviously, that our generation not only aims to more freedom and flexibility, but also the clear vision that digitization helps to connect the world and leads to extended paths of economic movements and therefore results in increasing prosperity.
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