• Sanjeev Kumar & Risav Chakraborty

Opening Doors for Open Banking in the GCC

The emergence of Open Banking, a paradigm allowing consumers to consent to third parties to get access to financial data through standardised APIs, is playing a pivotal role in forging the future of finance worldwide. In the Gulf Cooperation Council (GCC), the Open Banking phenomenon is evolving at a rapid pace, with certain countries embracing the imperative far more aggressively. As we analysed in our report published earlier this year in partnership with Spire, Open Banking in the GCC region has the potential to unlock a broader range of open finance use cases – personal finance management, payments initiation, wealth management, BNPL, and alternative credit scoring for consumers and automated accounting, payments acceptance, cash flow forecasting, alternative SME financing, and automated tax planning for MSMEs.

GCC Regulators Drive Open Banking Initiatives in the Region

In the GCC, regulators have been quick to acknowledge the potential of Open Banking to drastically transform traditional banking services in the region. The watchdogs have undertaken a structured approach by carefully examining the already existing legislative frameworks for Open Banking in the UK, Europe, Australia and parts of the world. The growth of FinTech ecosystems in the GCC has been a major driver behind the establishment of regulatory sandboxes in all the member states, which aids the experimentation of novel use cases powered by Open Banking. Several financial regulators in GCC have embarked upon a slew of initiatives to catalyse the FinTech sector in the region. This involves initiatives like publishing guidelines for the development and use of APIs, issuing licences to non-banking entities, launching Open Banking data aggregation and payment initiation licences, as well as drafting regulatory frameworks to implement Open Banking.


Open Banking Frontrunners in the GCC

Bahrain, Saudi Arabia, and the UAE have emerged as the flag-bearers of Open Banking in the GCC. A unique amalgamation of regulatory-driven and industry-led approaches have paved the way for a seamless implementation of Open Banking in these countries. The central banks have undertaken a principle-based, phased implementation strategy while drafting frameworks relevant to Open Banking and issuing relevant licences to data aggregation firms. With Open Banking seen as a key enabler of FinTech innovation in the region, the countries have established digital sandboxes and FinTech hubs in a bid to create an open ecosystem comprising data aggregators, financial institutions, and other third-party players such as FinTechs and non-banks.


Open Banking Fast Followers in the GCC

Open Banking has been gaining momentum in the GCC, with Qatar, Oman and Kuwait emerging as fast followers. All three countries have established a regulatory sandbox, and in July 2022, Qatar National Bank launched an Open Banking platform. Both Kuwait and Oman have hopped onto the Open Banking bandwagon by announcing plans to develop related products and services in their respective sandboxes. With a structured FinTech strategy already in place, the rapid growth of digital banks is all set to play a pivotal role in developing an Open Banking ecosystem in these countries.


The Outlook from Open Banking to Open Finance

The global pandemic, along with the region’s young and tech-savvy population, is acting as the major catalyst for the growth of Open Banking in the GCC. However, as the number of use cases addressed by the sector expands beyond banking to other use cases such as investments, insurance, pensions, etc., ‘open finance’ seems a more suitable moniker for the phenomenon. The growing FinTech ecosystem and embedded finance aspirants in the region can leverage open finance to create a broad spectrum of inclusive financial services to serve the unbanked/underbanked population in the GCC. As per a recent report released by FinTech Galaxy, the local Open Banking market is poised to grow by 25% annually over the next five years, and the open finance market is projected to nearly double by 2027. Multiple stakeholders can, thus, leverage its potential by establishing an interoperable infrastructure to foster seamless collaboration among the ecosystem players. A progressive regulatory approach involving sandbox setups, transitional regulatory periods, alternative licensing arrangements, and phased implementation is needed to ensure that Open Banking and open finance delivers on their promise in the region. And the promise is to create financial inclusion and wellness for consumers and businesses while unlocking a trend of competition, innovation, and collaboration in the financial industry.