Bahrain - among the top adopters of open banking
Bahrain, already a financial services hub, is in the process of adopting an open banking system:
The Kingdom of Bahrain has been known as a key player in the data revolution happening in the financial services domain and authorities in the country have been working closely with fintechs and startups to develop data-driven, transparent and secure banking model.
Bahrain was also the first country in the MENA region to launch a sandbox policy. Some 34 fintechs had applied under the sandbox and within a year, the Central Bank of Bahrain (CBB) granted full fledged operational license to 2 - Tarabut Gateway and Rain. These companies have now received operational licenses and among them Tarabut is working in the open banking area and Rain in crypto trading platform.
In consonance with the approach of creating an efficient and transparent banking system, the country is today among the t op i n pursuing open banking. While regulators want to have a competitive, robust banking infrastructure, they consider open banking as one pillar of a wider vision of digitization and of a paperless economy.
Bahrain has keenly studied the EU model of open banking and the CBB had given guidelines which put the customer rights and security as a primary focus; no customer data can be accessed by third parties without proper l icensing and customer consent. In contrast to other jurisdictions, every bank in the country has had to open up their APIs. The CBB required banks to publish every piece of data they hold on a customer through these APIs. It had actually given banks 30 June 2019 as the deadline to comply and most of the banks have experimented with the system.
FIRST IN MENA
National Bank of Bahrain is the first bank in the whole of MENA region to launch open banking solutions in December 2019. The bank partnered with Tarabut Gateway for creating a technology platform for the purpose. The bank describes its service as `Aggregator’ service and it has invested heavily in the development of the necessary systems to meet and exceed the regulatory requirements. It has activated the first phase of its account aggregation services through its online app. The bank intends to roll out the full services in phases, with Account aggregation being the first. Initially, NBB’s customers will be able to view and track their finances across all their accounts. Financial transactions and full-fledged services will be enabled subsequently. NBB expects that the Aggregation service will make banking more accessible and convenient for customers as they will have a holistic view of their finances, which will help them make instant transactions and informed decisions on competitive products and services at the click of a button.
The open banking framework adopted by the country is said to be almost similar to the European Union’s PSD2 framework and is touted as `technologically neutral’. The regulations stipulate that third party payment initiation service providers (PISPs) and account information service providers (AISPs) should be able to gain `unhindered and efficient’ access to bank customer accounts, with a view to those companies providing innovative new services to those customers in the country. Some of the examples of new services that open banking could provide for include new channels for internet payments without the use of credit cards/debit cards, the aggregation of account information from different providers, and proactive financial management and budgeting tools for users, according to the CBB.
LIKE PSD2
The new regulations put strong emphasis on customer authentication and common secure open standards of communication, which underpin the reforms provided for in the EU’s PSD2. Like under PSD2, retail banks will need to ensure that they only provide access to customer accounts where customers give their consent. However, banks are required to provide a facility for new AISPs and PISPs to test their integration with the relevant interface - which in many cases will be a dedicated API. However, the regulations are silent on the timeframe on when this testing facility needs to be made available.
The regulations are, however, ahead of the EU’s customer authentication standards as they incorporate threefactor authentication. Some experts say this could affect customer experience and may create friction.
TRANSFORMATIVE
Khalid Hamad, executive director of banking supervision at the CBB, is confident that open banking would be `a transformative development within financial services in the Kingdom of Bahrain’. He adds that the concept of open banking is part of a larger `disruption’ that is taking place with increasing use of mobile devices, and the disruptions taking place in banking have been given a boost by the innovation taking place and the adoption of new technologies.
With some 400 financial institutions and most of them getting ready for the open banking experiment, Bahrain is rapidly progressing to become a financial services hub. The financial services sector is the second biggest sector contributing to the GDP after oil and energy and also the biggest employers in the country.