The Future is Now for Open Banking in the United Arab Emirates

The United Arab Emirates (UAE) is well on its way to consolidating itself as a major digital hub in the Middle-East. With its youthful, tech-savvy and entrepreneurial community, the UAE continues to be a popular destination for Fintech and digital – based businesses. Digitech firms in the UAE have been recognized as major drivers of potential growth, backed by superior digi-comm infrastructure and government investment, firmly placing the UAE as a rapidly developing regional digital business hub.

In the MENA region, Open Banking (OB) is taking a foothold.??Bahrain launched an Open Banking Framework in October 2020, ushering in the Middle-East's first foray in Open Banking.??Saudi Arabia has also just approved a regulation on Open Banking, which is set to go into effect in mid-2022. Globally, many developed and some developing countries such as Kenya have some form of Open Banking system in the last 5 years.??However, more countries in MENA have yet to follow suit. Some may wonder why the UAE has not yet launched an Open Banking framework, despite being a relatively technologically sophisticated country with one of the highest mobile penetration rates in the world, and with one of the highest number of banks. Studies have shown that UAE consumers prefer online payment options as well as more control over their bank-financial transactions. Consumers are increasingly linking online payments to their bank accounts and wallets.??This is where Open Banking will revolutionize the future of banking and enhance the acceleration towards a cashless-based economy.?

Open Banking refers to a regime where central bank regulators grant authorized Third-Party Providers (TPPs) – typically Fintechs- to access consumers' banking data, along with providing guidance to banks on the modus operandi to open their retail (mainly) & business banking data to TPP companies for payment transactions, funds transfers, remittances and financial accounting. Due diligence on KYCs (Know – Your - Customers) is done minimally and mainly once; and is portable with any bank accounts that participate in the Open Banking System.??Blockchain technologies and the like are enabling the KYC process in a major way.??The role of the government – typically the Central Bank regulator-??is to set the basic regulatory regime, SOPs and network infrastructure covering data sharing, integration & harmonization, privacy, security and fraud management.??More importantly, the government monitors the Open Banking Platform to ensure there is a level playing field among TPPs/Fintechs to prevent regulatory capture and market distortions, and that consumers have choice in choosing solutions that meet their retail and business banking needs.??There are many benefits of Open Banking:

·???????Develops new digital banking ecosystem:?OB will enable the development of a digital banking ecosystem that includes relevant stakeholders such as regulators, banking and finance institutions, FinTech firms, ICT providers & platform companies.???This OB ecosystem will help banks to move away from the old traditional banking model to a new ecosystem that is agile and adaptive to new solutions utilizing TPPs.

·???????Harnesses business Model Innovation:?Through OB,?customers can share their banking data information with a TPP in an instant. This encourages banks and TPPs to develop more innovative and efficient methods for managing financial data and completing transactions.

·???????Drives Innovation-Based Economy:?OB will?enable the national economic goals of achieving an innovation -based economy where data and digitalization becomes the key engines of economic development.??

·???????Enhances Economic Competitiveness:?OB will not only enhance the?productivity and competitiveness in the banking & finance sector, but will also affect the development and innovation in other sectors of the economy. OB is projected to increase competition by enabling a fair entry barrier for new players and giving them a better knowledge of client demands.

·???????Builds Inclusion:?OB will enhance financial inclusion by introducing innovative financial products and services for particular client categories, especially low- income segments of society who are usually unbanked.

·???????Increase Customer Centricity:?OB has the ability to elevate the customer experience and facilitate the creation of customer-centric business models which is line with new consumer trends.

·???????Generate Higher Profitability:?OB is a "plug and play" concept that allows financial institutions to offer a full range of services at lower operational costs, allowing them to increase revenues.

·???????Increase interoperability:?OB customers will be able to see, update, and control all of their accounts with a single log in, consolidating their total financial data into one app.

So how can the UAE adopt an Open Banking ecosystem?

·???????Develop a mid to long term strategic roadmap for Open Banking.

·???????Fast track the development of an Open banking framework (regulations, licensing, privacy, security, technology, APIs, market governance etc.).

·???????Enhance the ecosystem for Open banking innovation (attract more startups, fintechs, unicorns, etc. to develop new solutions with banks and the UAE Central Bank).

The race for OB has become a hallmark and bell-weather for many countries aiming to harness the power of technology to drive their national digital strategies.??The state of OB underpins progress toward becoming a digitally advanced society that attracts investment, know-how, research, talent and capital. OB has also enabled the rise of “unicorns” – USD billion- dollar value firms with massive scalability and market appeal.??With all the benefits and value it brings, I am confident that the UAE will succeed in its efforts to implement an Open Banking system soon.?