Saudi Arabia readying to launch open banking in 2022
The Saudi Central Bank (SAMA) has come out with an open banking framework for the Kingdom, proposing to introduce the open banking ecosystem in 2022:
The Saudi Central Bank (SAMA) has announced the introduction of an open banking policy for the Kingdom in January 2021 to take it forward on the path of digital innovation in the financial services sector. The central bank hopes to go live with open banking in the first half of 2022 and ensure that digital technologies become the norm in the financial services domain and introduce newer services and products.
In a document outlining the open banking policy, SAMA has said: “Open banking will lead to direct innovation by enhancing opportunities to develop new products and services – either ` in-house’ or in collaboration with third parties – to increase financial players’ value proposition and create additional revenue streams. For instance, banks and fintechs may develop innovative applications that analyze financial transactions data – with customer consent – and offer tailored products related to consumption patterns to benefit the customers themselves.”
TRUST AMONG STAKEHOLDERS
SAMA hopes that open banking, apart from providing banking customers all the desired security in managing and sharing data, will offer customized products and services and improve trust among all stakeholders in a financial relationship. Open banking will also increase healthy competition among banking companies and at the same time attract new players, believes SAMA. At the same time it will also enable financial service providers devise customized products, which in turn will facilitate financial inclusion in the country.
The open banking initiative of the central bank is in alignment with the Saudi Vision 2030 and the Financial Sector Development Program, both aiming among other things developing a digital economy and fostering private sector growth to encourage participation by more entrepreneurs.
SAMA believes introduction of open banking will present new opportunities for fintech firms in the region. Saudi Arabia has some 60 fintechs in full operation, almost 40% operating in the payments realm. In the open banking scenario, fintechs will be able to deliver their services in a better manner and the Kingdom will be in alignment with other countries in the region, especially Bahrain and the UAE, which have already adopted open banking as a principle for banking organizations.
STRONG PAYMENTS SYSTEM
What makes Saudi Arabia unique is that it has relatively small number of banks and the country has a strong payments system. The state-of-the-art Saudi Payments, created by the central bank, is continuously modernizing. For example, the presentment and payment system, called Sadad, has facilitated account-toaccount transfers. This can help open banking to be introduced quite easily and without friction.
When open banking is finally adopted, payment startups, or paytechs, will have valuable access to customer information and they can enhance their products and services. The whole of the Middle East has 3 key startups today - Lean Technologies in Saudi Arabia, Dapi in Dubai, and Tarabut Gateway in Bahrain and these 3 which have an early mover advantage will be able to offer innovative, customized products.
Almost 70% of Saudi Arabia’s 34 million population is under the age of 30 and highly-digitally literate and hence it is readymade market for innovative products of fintechs. The CEO of Lean Technologies Hisham al-Falih has himself said open banking is essential for further modernization and digitization of Saudi banking and finance.
3-PHASE PROGRAM
SAMA has already analyzed how leading European and Asian countries have adopted open banking and as part of the elaborate plan to roll it out in 2022 it is assessing the potential impact it may have on the kingdom’s financial services sector. Alongside, it is also working on the most suitable approach it can have in introducing the system in the Kingdom.
SAMA has created 3 phases for the final roll-out - a design phase, an implementation phase and the go-live phase. In the design phase, SAMA will direct its efforts to the design of the open banking ecosystem (technologies and processes) and to the definition of a governance involving market participants. In the implementation phase it will look at the development of the defined frameworks, technology building blocks and rollout activities, including testing with financial market participants and enhancement of customer awareness. And in the go-live phase, the ecosystem will formally be launched in the Kingdom. In doing so, the central bank intends to adopt a staged approach to support customer awareness and guarantee a continuous improvement in developing the infrastructure.
SAMA has emphasized that in the open banking journey in the Kingdom, it will work with financial market participants seeking active collaboration to co-build the ecosystem, hoping that this approach will result in the optimally open banking framework to address all the stakeholders’ needs.