The financial landscape is constantly transforming, verging the modern world closer to a digitally dominated future. SMEs, being the economy boosters, choose the approach to strive and develop in this new digital realm. The World Bank reports that SMEs represent 90% of businesses and more than 50% of employment worldwide. In the wake of a post-Covid push for digitalization, SMEs have started to adopt and implement several new technologies into their strategy, ranging from AI automation to Open Banking and Open Finance-enabled solutions, in a bid to streamline their growth.

Technology is an enabler; digital transformation comes in many forms making traditional business practices redundant. Going digital allows a company to reap the benefits of having data-driven insights, especially with the advent of Open Banking and Open Finance. There is a growing demand for companies to access their banking data, both from a business and personal perspective. Open Banking, aiming to promote competition in the banking industry, allows SMEs better access to financial products and services and enables them to break into a market that has long been dominated by corporate titans, paving the way for a myriad of new use cases around Open Banking and Open Finance.

The level of Openness in the MENA region

Coming out of the COVID-19 pandemic, MENA SMEs are much more digital in their banking expectations, a fact proven by multiple pieces of research, including Ernst & Young Global Limited:

• 65% are citing mobile or online as their preferred channel for fulfilling banking needs;
• 46% are also increasingly frustrated with the amount of paperwork and repeated steps with the onboarding processes of traditional banks; and
• 74% stated that they would share far more personal data in exchange for better banking services.

Secure and standardized access to financial data opens up space for a wide variety of Open Banking and Open Finance-powered use cases that could solve many of the challenges that SMEs are facing. Tech-savvy and hungry for innovation, the MENA region is gaining traction working toward this new paradigm shift. According to Fintech Galaxy's recent report, the local Open Banking market, driven by the impact of the COVID-19 pandemic and the population being young and digitally advanced, is expected to grow by 25% annually during the next five years. The Open Finance market, as a tool for accelerating financial inclusion in the MENA region, is projected to almost double by 2027.

Let's take a closer look at the emerging Retail and Business Open Banking and Open Finance-enabled use cases in MENA, including some of the most recently rolled out in KSA by the Saudi Central Bank, aka SAMA.

Personal & Business Financial Management (PFM/BFM)

Open Banking/Finance transforms the way customers and businesses manage all their financials. Financial data from all their accounts, including current, saving, mortgage, investment, insurance, pensions, and loyalty, is automatically aggregated in one place, enabling actionable budgeting advice and personalized saving recommendations. Open Banking fosters automation of key business processes, including accounting, billing, and invoicing, eliminating the need to enter all the details manually, and thus saving time, money and resources. Aggregated view of personal and business financials with features such as financial 360o view, analytics, insights and recommendations help to manage finances proactively.

Merchant Payments

Using Open Banking, consumers can initiate payment to a merchant directly from Bank Account to Bank Account. With Open Banking Payment Initiation Service (PIS), funds are transferred to the merchant immediately – fast, secure, and without cards or the need to enter any sensitive data. Bypassing the traditional intermediaries and card schemes, merchants get rid of additional fees, and the legacy issues still affecting the business of getting paid online.

Digital Identity Verification

Open Banking has created a secure framework based on Account Information APIs and extended customer attributes, allowing customers to digitally authenticate themselves to third-party providers to share data, make payments, and easily access products and services. This helps to tackle the fundamental social and economic imperative of securely validating personal identity online and adhering to strong privacy, KYC and AML regulatory requirements.

Credit Assessment

Open Banking/Finance enables the digitalization of major lending operations, providing access to real-time financial data directly from banks and financial institutions via a single API. Credit Bureau information augmented by Open Banking transaction data enables lenders to make more informed decisions on loan applications. Real-time financial data accessed directly from a consenting customer's accounts reduces friction, reduces errors, speeds-up onboarding, improves customer experience, and eliminates the need for any physical documents.

Liquidity Management

Open Banking provides alternatives for accessing multiple bank accounts with one platform. An aggregated view of a company's account and transaction information offers a better picture of its liquidity profile and enables easier funds-moving around the banking system and out of it. API-driven Open Banking helps greatly improve cash visibility, reducing the risk of human error, allowing corporates to orchestrate their multiple accounts held at various banks in one place, and providing better oversight of globally scattered corporate bank data in real time.

Letter of Guarantee (LG) Service

Enabling Business customers to request their bank to issue a Letter of Guarantee (LG) and make it available directly to the LG requestor, hence automating the process, minimizing the risk of disputes and fraud, and improving the flexibility and efficiency of handling of LGs.

Peer-2-Peer Payments

Open Banking technology enables Payment Initiation capabilities that allow customers to make secure, frictionless account-to-account payments across all integrated banks or financial institutions. The API-driven, embedded nature of Open Banking-enabled payments can be integrated into existing payment flows without manually entering bank details or completing a lengthy authorization form. Anyone with a bank account can use PIS, meaning that potential coverage expands internationally.

Income/Salary Verification

Open Banking allows real-time verification of recurring transactions, such as monthly income/salary, using APIs and basic pattern recognition algorithms. In addition, with the help of Machine Learning and AI, the sources of income can also be confirmed, which plays a great role in mitigating risks associated with outdated or false information. With more consumer-consented data sources and eliminating error-prone manual checks, income verification becomes more streamlined and reliable.

How ready are businesses for Open Banking/Finance?

Digital transformation solutions come in many shapes and forms, and Open Banking/Finance is one of the key accelerators that help businesses become more proactive on their digitalization journey.

According to the latest Open Banking Implementation Entity (OBIE) report, Open Banking aims to give small businesses the means to:

• control finances more effectively
• get real-time visibility of relevant data and insights to make better decisions,
• manage cash flow, and
• reduce the cost of their operations.

 The report shows that Business penetration is slightly higher at around 11% versus Retail penetration at 10%. However, the gap between Business and Retail penetration has closed, with consumer adoption lagging about one year behind.

 Numbers show that Open Banking-enabled services delivered long-term positive outcomes in terms of enhancing small business productivity and efficiency and providing additional insights into business performance. Improved financial decision-making - a very high proportion of small businesses reported that services provided them with:

• better insights into business performance (+73% net agreement)
• improved decision-making (+75%)
• managing late payments (+63%)
• enhanced productivity and efficiency (+82%)
• reduce internal costs (+48%), and
• reduce external costs (+53%). 

Open Banking and Open Finance technology brings tangible value to all the ecosystem participants and should be considered an opportunity rather than a drawback.

So, what about Open Finance?

While Open Finance is not included within legal frameworks yet, all relations between participants in the Open Banking framework are regulated and controlled by national regulators with established terms and standards.

1. National regulators benefit from Open Banking and Open Finance by promoting financial inclusion and helping all the members of society access innovative services.

2. Open Banking and Open Finance adoption stimulates the digital transformation of the traditionally conservative financial sector and improves the national socioeconomic conditions.

3. A more competitive environment born of Open Banking helps reduce fees for banking services for both consumers and businesses, improve security, and mitigate risks.

4. By stimulating the growth of the financial literacy of the population, regulators boost financial inclusion.

Banks as a one-stop-shop

Another driver of Open Banking is banks representing the core of this phenomenon. The advantages of Open Banking interfaces for banks are not so obvious at first glance – the end-user has opportunities to choose from more products and services and change providers, as a result of which banks need to invest more efforts to remain competitive. Nevertheless, many banks don't realize that they may also benefit from providing access to their Open Banking channels or connecting to the channels of other banks. For example, accessing Open Banking accounts and transaction information can help banks streamline and automate various processes such as identity verification, income verification, and creditworthiness.

Open Banking allows banks to become a comprehensive one-stop-shop for their Business and Retail clients, equipping them with the ability to connect all their accounts held at other banks and financial institutions to their mobile/web banking app. Providing an aggregated 360o view of all accounts, financials, transaction history, and spending categories, as well as seamlessly moving money around, all from one place, has transformed bank apps into autonomous, self-sufficient finance management platforms, bolstered with value-added features, such budgeting, reporting, forecasting, and actionable insights. Moreover, banks can offer merchants the ability to receive instant payments for goods and services from any account at any bank without any card details or hefty fees. In addition, offering premium APIs to the market can create new revenue streams for the banks, and in the case of BaaS (Banking-as-a-Service), enabling their products and services to be promoted and sold through new Channels via TPPs. Lastly, the one-stop-shop approach also allows a bank to augment its offerings with products and services from other banks or FinTechs, reducing market time and increasing revenue.

Yet are FinTechs the ones winning the race?

No wonder innovative FinTechs avail the most benefits from Open Banking and Open Finance in terms of having a considerably broader opportunity to provide their services. TPPs are authorized service providers who integrate with Open Banking channels and deliver new and innovative products and services to both consumers and businesses on top of account information and payment initiation.

1. Based on consumer-consented data, FinTechs combine Open Banking and Open Finance capabilities to develop new products and services for end-users with a major focus on improving customer experience.

2. They bring automation to traditionally paper-intensive processes such as identity/income verification, accounting, billing, invoicing, lending, and reporting, eliminating risks associated manual handling of information.

3. Open Finance goes beyond standard APIs, by exploring the synergies with financial products that fall outside of banking, including insurance, logistics, transportation, real estate, freelancing and many others.

4. Innovative TPPs build new interfaces to interact with customers, including using Artificial intelligence with voice, chatbots, and smart triggers/notifications.

5. Open Banking takes payments to the next level by reducing fees, striking off the risk of fraudulent activities with bank cards, and introducing game-changing capabilities such as VRPs (Variable Recurring Payments).

The Big game

Open Banking and Open Finance open up new horizons not only for SMEs, but for large corporations, allowing the latter to benefit from a wide spectrum of emerging opportunities that enable greater risk control, boost operational efficiencies, and develop even more dimensions for growth.

1. With Open Banking technology, traditional and sluggish corporations get an instant overview of all financial data by connecting all accounts held at any global financial institution to one platform. Corporates can orchestrate in real-time their globally scattered corporate bank accounts.

2. To ensure the efficient management of all financial sources, Open Banking-enabled tools help offer access to all finances, transaction history, and spending categories in one unified format, making sharing them easier with auditors, tax authorities, and potential investors.

3. Open Banking-enabled payments streamline communication across a company's subsidiaries by incorporating real-time visibility and instant payments. Corporates can leverage Payment Initiation APIs to pay taxes, utilities, and salaries from their business accounts in any bank - directly from their accounting, enterprise or government software.

4. Open Banking enables access to business customers' credit and debit transaction details to provide streamlined and automated reconciliation of payables & receivables and enable the customers to submit accurate filings to Tax Authorities.

Closing thoughts

Disruptive technologies and digital-native Open banking and Open Finance ecosystem have a huge potential to change our world. We can marvel at how many new use cases will appear in the coming future. Open Banking and Open Finance aim to create outstanding experiences within financial services for both consumers and businesses and to unleash the potential of living in the digital and open realm.