A New Dawn: Tapping Into Opportunities Presented by Saudi Arabia's Open Banking Scene

Open banking, and at a wider level, open finance, provides the necessary environment for banks, fintech companies, and innovation players to successfully develop the future of banking in Saudi Arabia.

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Saudi Arabia's economic development and technological transformation meet at a crossroads when observing the Kingdom's banking ecosystem. Effectively empowering the population with next generation digital banking is fundamental in driving the ambitious financial, social, and economic guidelines of Vision 2030.

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Indeed, the creation of a seamless digital banking environment helps increase financial inclusion, reduces administrative and operational costs for financial institutions and fintech companies, and enables businesses with tools to compete across e-commerce and online services, including reducing the reliance on cash transactions.

Saudi Arabia has a population of more than 35 million people, but only has 11 major retail banks. Compare that to the UAE or Bahrain, which have significantly smaller populations, but with more than double the number of retail banks across those countries. As such, I believe that open banking will provide the Kingdom with a unique opportunity to efficiently increase innovation and competition across the banking industry.

Open banking, and at a wider level, open finance, provides the necessary environment for banks, fintech companies, and innovation players to successfully develop the future of banking in Saudi Arabia. In a nutshell, open banking application programming interfaces (APIs) enable banks to share financial data with one another. This enables banks and fintech companies to leverage financial data and develop products that are more relevant and tailored to customers. It's worth noting that customers have control over what type of financial data they share, whom they decide to share it with, and can revoke their consent at any given time.

In January 2021, the Saudi Central Bank (SAMA) issued its first open banking policy. This set out the regulatory guidelines that govern how open banking should be implemented in the Kingdom, with banks required to comply by June 2022. By the end of 2022, the first examples of consumer-facing open banking products and services will be live. The regulator has thus played an important role as the lead accelerator, and it has mapped the path for institutions and fintech companies to evolve the banking industry and financial services.

The Saudi Central Bank Open Banking Program includes regulation and collaboration between technical service providers (TSPs), who securely provide the financial data which powers open banking products and services; third party providers (TPPs), such as fintech startups, merchants, and enterprises that interact with banks to provide innovative services and products; and the banks.

Together, these organizations are evolving the standards for open banking and providing the foundation for building relevant products for Saudi consumers. Through this connected technical service provider model, fintech companies, and banks get easy access to data to build exciting new applications that innovate and automate many of the existing processes.

Meanwhile, banks are coming to the realization that they are no longer just competing with other banks to offer financial services but with technology companies that put the customer experience at the head of every offering. The landscape is changing across the region, and open banking is no longer seen as just a compliance checkbox, but rather a unique opportunity to better serve customers.

Concerns from banks include that sharing data opens up their customers to new products from other institutions and third parties, which might see an increase in competition. This is true, but it is more than compensated for by the unfolding of new opportunities for banks to innovate and build a new and personalized realm of financial services.

According to global data from Accenture, banks that embrace open banking can benefit from an increase in revenues of up to 20%. That figure could be even higher in Saudi Arabia, as product modernization and adoption can create a more inclusive financial system. However, as financial inclusion increases, regulation must keep pace with innovation. As such, the Saudi Central Bank has taken a positive approach with appropriate regulation to empower financial inclusion while also ensuring the competitiveness of institutions.

Banks across the Kingdom are already embracing open banking. For example, Riyad Bank has established an open innovation platform, Arab National Bank and Saudi National Bank have live sandbox environments for testing, and Alinma is in the process of developing similar processes for collaboration. Fintech companies are also rapidly taking advantage of the opportunity, with examples such as Mala'a Technologies, a startup that has developed an app for personal wealth management and budgeting. In March, Mala'a became the first fintech enterprise to obtain a permit from the Saudi Central Bank to roll out products using open banking APIs.

The evolving open banking environment in Saudi Arabia will be further fueled by the Kingdom's young and highly connected population. More than half of the population is under 25, and demand for digital financial services is high. With one of the world's strongest rates of internet penetration, the opportunity for accessible, inclusive, and empowering banking services has never been greater.

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