Open Banking and the Future of Banking in MENA

My thoughts on how the transformation is upon us. 

Ever since the COVID-19 hit, the MENA region witnessed a rise in online payments penetration to 76% as well as an increase in smart-phone penetration to an average of 133%. And, while these indicators might only allude to the untapped potential within the MENA market, what are the factors that make it poised to become the leading region for Open Banking? And what is Open Banking really? 

The current pandemic poses pressure on the entire banking ecosystem, changing the narrative of life as we know it. As the virus spreads, more people are being pushed to remain distant from branches and perform their financial needs from afar requiring more forms of “Online Services”.

As a result, COVID-19 has been the catalyst for the ‘urgent’ adoption of digital banking, which requires FinTech partnerships to ultimately free banks from the shackles of legacy infrastructure (technology). Partnerships that will enable banks to remain as banks, the custodians of savings and granters of credit, whilst enabling FinTechs to innovate rapidly and adapt to the shifts within customer demands.

And yet, we ask ourselves, which of the top banks in the region are ready to grant loans through their mobile apps? Who’s granting finance without the need to handover a physical title deed? What banks are issuing credit cards by simply filling out an online form? For a society that is so “digital”, a lot of the banking remains processed “in person” with paper signatures being the primary method of authentication.

What happens then, if branches are closed, relationship managers are stuck at home, and banks’ bottom lines are tightening up? 

To that – and Simply put, a bank that embraces Open Banking is a bank that acknowledges and prepare themselves for a new era of partnerships – holding on to their core functions of being custodians of assets and granters of credit while allowing their partners to enhance customer experience.

Open Banking is an extension of their infrastructure that enables them to interact with the outside world, authenticating customers and sharing information through secure channels without the need for anything “in person”. Unfolding a new array of revenue streams that were previously not possible – introducing a new way of banking – a personalized banking service. 

There are a few factors that determine how fast or how well that happens, and in this article, I'll delve into why I believe the MENA Region has the opportunity to leapfrog and become the world leader in this race to "Personalized Banking".

 1. The current regulatory framework 

Regulations in the MENA region can be passed quickly and enforced even harder. Therefore, while the MENA region is still largely behind other jurisdictions, is this necessarily a bad thing? No. 

Regulations can be a double-edged sword, perceived as either an enabler or disabler. While regulations are fundamental in shaping the welfare of economies and societies, they can also at times hinder innovation. 

At present, the majority of regulators in MENA have prioritized FinTech as their number one item within their agenda and are putting forward their efforts in solidifying the region’s position as a financial hub.

Therefore, although the MENA is behind in passing Open Banking regulations, for the exception of Bahrain which kick-started the region’s Open Banking movement. There remains a lot of potential by introducing what is referred to as “Light Touch Regulation” that would help govern certain aspects like security, consent management, customer experience, etc while at the same time allowing innovation and stimulating institutions of all sorts to disrupt the current market. 

An example here would be Bahrain’s implementation of Open Banking – Once regulations were passed, ALL retail banks were mandated to comply within a 6 month period in comparison to other markets that have been are still struggling with some non-compliant banks for years. 

2.  Banks in MENA rely on PARTNERS for most TECH related projects

Traditionally, banks and financial institutions in the MENA region outsource a lot more of their functions to external parties rather to their global counterparts. This is mainly due to the sheer size of the target customer base. In comparison to banks in SE Asia, Europe, or the US, banks in MENA are generally smaller in size, which in turn means, a lot of the technology is outsourced. 

As such, collaborations with Third-Party Providers (“TPPs) is not a foreign concept within the market. If anything, against a backdrop of rapid technological disruption, there’s been a growing appetite for closer collaboration

An example to reinstate my point- During our experience within the Bahraini market, 90% of the banks opted for off the shelve compliance products when the Central Bank of Bahrain’s mandate was passed in 2018. 

3.  Untapped Potential – a chance to make a real impact

Isn’t it a bit strange that in a market where internet penetration is at 100%+ and people spend an average 3-5 hours a day on their phones, the banking approach remains a “One Size Fits All”. Today, if you logged in using my username to Amazon, you’d find the books I like to read, and my youtube, the videos I watch, yet you and I still face the same interface with our banks. 

Think about that for a second … with all that data … Where I shop, where I eat, how I spend, yet still, why do we both get the same interface? Why are we not offered with “personalized banking”?

Youtube has it. So does, Amazon and Google... which means that the tech is available. So why is it not yet leveraged by the financial sector?

Financial institutions across the MENA have yet to realize the importance and potential of data as a true asset. The enormous amounts of customer data need to be aggregated, enriched and distributed. Only then will we see the real value of optimized financial planning. 

The potential is huge – the technology is available – it is now just a matter of time. 

 4.  A new push for partnerships, amidst COVID

Amidst these challenging times, banks are being pushed out of their comfort zones, facing the need to recalibrate for the future and relay some of the groundwork for their distribution channels, to ensure the continuity of the business model. 

Margins have decreased, doors have closed, distance enforced. Then how else can we survive other than by embracing APIs?

In the same way, restaurants turned to the likes of Talabat, Deliveroo, or uber eats, banks will also need platforms which will ensure people get what they want when they want it in the comfort of their palms. They remain the Chefs, the Waiters, and the Owners of the kitchen, but it will no longer be their cars or drivers that deliver the orders.

A new wave – a personalized wave of fintech partnerships built on personalized data coming to MENA very soon.