Open Banking challenges in MENA region: Measuring success.

Open Banking is steadily penetrating most of the world’s regions and MENA is no exception. With the majority of the region’s population being young and demonstrating one of the highest rates of smartphone usage globally, saying that this region is more than ready to fully welcome Open Banking sounds like an understatement.

The last couple of years brought important Open Banking regulatory developments in Arab countries, with Bahrain and KSA being on the frontline alongside UAE, Kuwait and other countries following. The regulators and other industry players keep pushing things forward and this article will focus on understanding how successful they have been up until now and what can be further done to ensure a prolific implementation of Open Banking.

Why do we need Open Banking?

Before deep diving into the metrics of Open Banking implementation in MENA, let’s take a look at why regulators in the region are creating opportunities for Open Banking.

According to the Open Banking Policy of Saudi Central Bank, it is “nurturing the rise of digital technologies and their impact on the new financial services enabled by them, as well as building the regulatory framework needed to adopt these initiatives. Open Banking represents an opportunity for stakeholders to leverage the data associated with financial transactions to imagine and access new ways of managing money. On the other hand, customers will benefit from better financial products and services, ranging from bringing all accounts into a single dashboard to creating smoother journeys into daily banking activities. Data are securely shared, and customers have a choice to consent to give access to third-party providers providing explicit and informed consent.”

Bahrain, on the other hand, promotes through its Central Bank “the vision … to expand the scope of traditional banking in Bahrain by promoting adoption of latest digital trends and innovative financial service solutions.”

In a nutshell, the answer to Why Open Banking is so important to MENA regulators is, among others, that it helps achieve or get closer to achieving targets like:

. Direct innovation
. Financial inclusion
. Increased competition
. Greater efficiency in financial services.

Metrics – what are they and why are they needed?

Setting targets is good but measuring how close is one to achieving them is even better. Our experience in helping the UK and European banks and FinTechs embrace open banking shows that setting KPIs and metrics, especially when it comes to measuring the current regulatory state, is a “must”. We have even asked several Central Banks in MENA about the stats they’re using in measuring open banking’s success, and the most frequent answer was “the number of TPPs”. The higher the number of registered TPPs, the greater the pricing, competition, and conditions are.

In our opinion, TPPs are important, but there are also other factors to consider when measuring open banking’s success.
For example, banks and FIs would better look at:

. Number of successful API calls
. Number of accounts accessed via Account Information flow
. Number of Payment Initiation requests
. Number of API errors grouped by type
. Percentage of availability of Open Banking APIs
. Number of customers using Open Banking services

On the other hand, TPPs can track their success in exploring Open Banking capabilities by monitoring:

. Number of successful API calls
. Number of API errors and root cause of such errors
. Retention Rate
. Customer Acquisition Cost.

Last but not least, open banking’s success should be measured from the developer community’s standpoint:

. Time to launch new products into the market
. Onboarding time with FIs
. Quality of API, relevant documentation, sandboxes, support.

Measuring Open Banking – the “champions”

When it comes to pointing to an Open Banking success story, the UK comes first to mind, including the way it is measuring its progress in the field. Its Open Banking Implementation Entity (OBIE) is bi-annually launching reports on the open banking metrics, mostly focusing on adoption rates, number of payments, availability of services, number of TPPs, number of live-to-market open banking-enabled solutions, and others. The data is collected and published anonymously, which is a good example to take upon for MENA regulators and open banking players.

For example, the OBIE report issued in June 2022, revealed the following statistics:

. 4-5% growth in adoption among digitally enabled consumers
. 10% month-on-month growth in open banking payments, resulting at 21.2m payments in March 2022
. Increased availability of services, mostly courtesy of non-regulated participants, like agents
. Static number of 128 regulated firms with live open banking solutions
. Higher business penetration of open banking rather than in retail (11% vs 10%)
. 30% of open banking customers are using open banking payments, 64% - data, while 6% are using both AIS and PIS.

Nevertheless, most of the European countries are focusing their metrics on TPPs, just as the MENA banks suggested in our discussions. Here are some TPP-related figures from the EU:

. The overall EEA number of TPPs reached 313 at the end of 2021
. There are 12 countries with over 100 TPPs (including passporting from other EEA member states). These include France, Spain, Sweden, Denmark, etc.
. The number of TPPs in the EU grew at a rate of 25% over 2021.

What can be done in MENA

There is always room for improvement, and this is especially applicable in MENA at this point of working towards open banking/finance.

Of course, it all starts with the regulators – on one side, and the TPPs – on the other side. For TPP’s number to grow, the regulator should set out a clear licensing process, alongside transparent requirements, liability models, etc.

The overall licensing and onboarding with banks for TPPs should be kept at a bare minimum of conditions, and companies should not find it unjustifiably complicated. Here are a few suggestions for regulators and banks when it comes to handling TPPs:

. Keep in mind that the number of registered TPPs shows the interest of FinTechs, the clarity of the regulatory requirements, and how streamlined the implementation of the licensing process is.
. Therefore, to encourage this number to constantly grow, the licensing process should be easy, since TPPs are low-risk – they are not in possession of funds and are not part of transaction execution flows.
. TPPs need support from the Central Bank, including regarding their business model, how it fits the regulation, what is and what is not allowed, and other important aspects. Keep in mind that some business models that are legally accepted in one part of the world may not work under another region’s legal framework so having an open communication channel with the regulator and Central Bank is vital in overcoming these challenges.
. Banks should also be open to communicating with TPPs. Sometimes it takes up to 3-4 months for a TPP to onboard with one single bank, requiring plenty of resources, which, to be honest, is somewhat surreal for a company to possess, especially when it’s at the beginning of its activity in open banking.

Final thoughts

We suggest everyone in MENA implement the abovementioned Open Banking metrics; it may seem difficult now, but it will definitely be rewarding in the long run.