Open Banking in the Arab World and API Monetization

It is no secret that the future of financial services in the Arab World depends on how fast we introduce Open Banking regulations, and the future of any Open Banking offering depends on the value it provides or the monetization options it creates.

Open banking is a banking practice that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs).

The value generated through Open Banking will depend on regulations, overall market proposition, customer-ownership model, partner value-adds and the share of risk and liability (Accenture 2020). Open Banking, which is now evolving into Open Finance, is demonstrating new monetization opportunities for financial institutions that outweigh the associated risks (AMF, 2020).

1. Banking-as-a-Service (or BaaS) refers to banks distributing their services through third party providers for a fee. Licensed banks integrate their digital banking services directly into the products of other non-bank businesses. This way, a non-bank business, such as your telco, can offer its customers digital banking services such as mobile bank accounts, debit cards, loans and payment services, without needing to acquire a banking licence. In open banking, non-bank businesses can also use the bank’s data for their products. 
2. Banking-as-a-Platform (BaaP) enables third-party developers to build products and services for bank customers. Developers can extend platform functionality using APIs, while the platform itself manages data exchange and oversees authentication, as well as ensuring compliance. Working together, the banks and third parties can better aggregate those offerings to provide new bank-branded products or third-party “white label” products.
3. Third-Party Providers (TPPs) refers to banks sourcing services from third parties to address customer lifestyle needs. The relationship between banks and third parties is the opposite of banking as a platform. There are two types of Third Party Provider (TPP): PISP – Payment Initiation Service Provider and AISP – Account Information Service Provider. Services include operating as a payment service provider and providing personal financial management. For example, banks can allow customers to view all their bank accounts, including those from other banks, on their mobile apps.

Open Banking can bring new value propositions to customers, whether those be retail customers, small business customers, wealth customers, commercial and corporate. It can also generate new sources of revenues to financial institutions. While Bahrain is so far the only Arab country that has introduced Open Banking regulations, we expect to see Saudi Arabia, Egypt and the United Arab Emirates follow suit very soon. The Arab region will require active and flexible collaboration between regulators, financial institutions and fintechs to realize the full value of Open Banking. The region also needs more platforms that can democratize financial services by providing stable and secure interoperability channels between the various industry players.