Open to Change

Open banking offers a wide range of opportunities for better service and inclusion in financial services and Amol Bahuguna, Senior Vice President, Head of Corporate Technology and Change Management Section at Riyad Bank explains that Saudi Arabia is well positioned for its adoption.

With an influx of large number of fintechs working with new technologies on data sharing and big data applications, the banking sector has witnessed the building of a competitve landspace across different geographies. While newer and smaller banks struggle to access the market and grow a customer base, larger traditional banks strive to cope with the changing technologies and to recaliberate their operating models. However, despite several operational changes, all banks usually end up offering restricted and similar services to their customers, who do not get enough choices or control over their money or financial information. As competitiveness rises in the financial sector around innovations and customer experience, open banking is potentially the harbinger of colossal change in the financial services ecosystem, giving customers the freedom of choice to manage their finances and make informed decisions through access to the data.

Open banking is a collaborative practice that builds a strong network between customers, large and small financial organizations, and third-party service providers. The regulation of open banking has created opportunities and avenues for a network of unaffiliated parties to access consumers’ banking, transaction, and other data through secured APIs. This has enabled enhanced marketplace capabilities through building robust financial applications and innovative mobile banking platforms for customers to enjoy easy and reliable cross-platform payments and direct financial transactions with businesses. Besides benefitting the customers, open banking encourages traditional banks to adopt innovation, mitigates entrance barriers for newcomers, and promotes healthy competition between large and small banks while increasing the financial system’s efficiency and inclusion.

Since the implementation of Open Banking in the UK in 2018, the ecosystem now includes over 300 fintech and innovative service providers. The customers and companies in the UK increasingly utilize open banking-enabled products to manage their finances, acquire credit, pay for goods and services, and manage and maximize their money.

Open Banking in Saudi Arabia

The Kingdom of Saudi Arabia is one of the youngest countries adopting open banking to broaden its financial options as a part of the Vision 2030 plans to reduce its dependence on oil and boost the economy through fintech innovations. Since 2018, Saudi fintech start-ups have grown from ten to more than 60, with 40% focusing on payments innovation[1]. The Saudi Central Bank (SAMA) announced an open banking policy in January 2021, with plans to deploy the system in the first half of 2022.

The Saudi market is more open to embracing open banking. Some of its reasons are:

  • Fewer banks: The fewer financial organizations operating in the country makes adoption and standardization easy and quick.
  • Young minds: The country’s relatively youthful and digitally-savvy population is open to adopting, implementing, and using new financial/payment applications that are transparent, secure and quick.
  • Strong support: The Saudi Arabian government and the Central Bank are highly supportive of financial innovations to revolutionize the country’s fintech ecosystem. For example, SADAD, the national Electronic Bill Presentment and Payment (EBPP) system, has enabled account-to-account transactions that can serve as a stepping stone to open banking.

Benefits of Open Banking in Saudi Arabia

For a country that primarily depends on oil, revolutionary changes in the fintech marketplace can usher an eclectic mix of benefits for both consumers and financial services providers while boosting the region’s economy.

  • Financial awareness among customers: Open banking has the potential to disseminate financial literacy among customers, especially benefitting the low-income customers to make informed decisions in terms of expenditure and savings and have better control of finances.
  • Faster and smoother transaction: Open Banking can enable customers to instantly and securely share bank data with third parties who are more technologically skilled in managing financial information and enabling quicker and simpler transactions.
  • Revenue generation: Fintech innovations can lead to the design and development of new financial services applications and products, increasing the country’s value proposition and adding new sources of revenue.
  • Understanding customer concerns: Open banking can mitigate barriers for new entrants, increasing competitiveness in the banking and finance space. Intense competition levels can drive the focus of every participant towards addressing customer concerns and meeting customer demands.
  • Improve financial inclusion: The expanding third-party and other fintech service networks in open banking can expand customers’ access to credit and enable direct transactions with businesses, thereby enhancing transparency.

In a nutshell, open-banking systems and data sharing models via APIs have large potential for innovation in the fintech sector. Though it is difficult to predict the future of open banking, innovation will be the key to unleashing the complete potential of the system. Such innovations will revolutionize the business world. Economies with great financial data infrastructure surely can reap its benefits if implemented with caution.