The yin and yang of open banking

Read how Middle Eastern banks are beginning to embrace open banking, helping to improve their customers’ experience as well as gain new revenues.

Vijay Jaswal Vijay Jaswal

Open-banking initiatives are underway in the Middle East, as many banks in the region see it as a new revenue-generation model – without the regulatory boundaries (for the time being) – as well as helping them to enhance customer experience in the region.

Not all countries have mandatory open-banking regulations like in the EU, but the driver for open banking is not exclusively regulatory: It is a competitive necessity for future growth.

The Saudi Central Bank (SAMA) announced plans to launch open banking in the first half of 2022 and is currently working on the design and implementation of an open banking ecosystem. Saudi Arabia’s cashless agenda, infrastructure projects, elevated collaboration in the finance and banking segment, and cross-border payments Project “Aber” are all factors that are gradually driving the adoption.

Bahrain’s Open Banking Framework by the Central Bank of Bahrain (CBB) is another initiative paving the way for open banking opportunities in the future. The process is also underway in the UAE.

Open the data fortress

Open banking is still in its infancy in the region, and traditional banks ae struggling with a serious security challenge to implement it. Their enterprise IT was historically designed to protect data, with a lack of sharing capabilities. Layers of security walls safeguard and protect the crown jewels of their banking information, as well as personal information of customers.

Potential open banking directives, however, compel them to open their secure data fortresses while still maintaining tight security of their data. The way banks’ use the data will determine their future in this ever-growing online business world.

Yin and Yang

Banks undergoing open banking initiatives must ensure a balance between securing data and liberating it at the same time to third parties. Balance is key, as the liberation of data could lead to fraud risks. On the other hand, if data security is too rigid, it defeats the purpose and compromises the benefits of the revenue potentials and enhanced customer service that open banking brings. It is imperative to have control over the data that is meant to be exposed so that it is only available to accredited and verified third parties.

Historically, financial institutions have been hesitant to share data with third parties, even with customers’ approvals. Relinquishing control over customer data, banking experiences, and their funds created a hurdle for banks in partnering with fintech’s over the recent years.

However, they are now realizing big tech giants such as Amazon, Apple and Google, are gaining traction as competition. Using the power of customer analytics and excellent user experiences, these big tech companies stand out from traditional banking products.

Therefore, banks must assess the value they deliver in the present times or risk becoming disintermediated from customers, relegated as a backend utilities provider compared to their nimbler customer-facing digital tech competitors.

There are some lessons Middle Eastern banks can learn from companies in the middle of their transformation journeys to open banking. And some actions to be taken:

  1. Get the house in order first

There is no point in rushing to the outside world of open banking if your own systems are not up to date. It is vital to examine the IT enterprise from a people, processes, and technology perspective and how they interact; efficiently or otherwise. For instance, do you have old legacy systems that are batch-oriented in nature? Are they hampering your transition into all-access open banking? If open banking is all about APIs, it is imperative to achieve internal order first, even before you get to the API management stage.

  1. Have a unified strategy

A unified strategy approach is key. A piecemeal approach would be detrimental to an open banking model – a unified bank wide strategy is essential, rather than departments creating their own solutions.

  1. Ensure your enterprise is connected

If your bank is not integrated internally and operates in silos, open banking initiatives will not be efficient and will struggle. Therefore, having a connected enterprise, with data that is instantly accessible regardless of the number of back-end systems, is crucial.

  1. Internal operations must be efficient

Internal efficiency comes before external services are offered to customers. Financial institutions traditionally are not accustomed to frequent operational changes. This, however, will become the norm, where banks will be ready to adapt to frequent iterative changes and requests from third parties – and will need to be agile to adopt to changes.

  1. Customer journey mapping

In addition to the regulatory aspects, open banking is all about enhancing customer service. Many banks in the region have already started mapping customer journeys to enhance the customer experience. This aids in accurate targeting and selling of open banking future services.

  1. Plan/Execute the plan

Plan your execution and execute your plan. This is self-explanatory.

  1. Monetize

Many European customers feel strangled by the PSD2 regulation so banks should not be embroiled in a “compliance only” angle. Open banking is a great new source of revenue. It is heartening that most of the Middle Eastern banks foresee open banking as an opportunity and a new innovative/ inhibitive way to increase revenue and improve their customer services.

  1. Harness Fintechs

While fintech are competitors, they are also partners. Leading financial services institutions are building ecosystems that can include fintechs as well as other third parties.

This article originally appeared in Gulf News.