In the Middle East and North Africa (MENA) region, Bahrain is the undeniable leader when it comes to open banking, a position the country earned thanks to its financial regulator’s proactiveness in introducing formal regulations and implementing technical standards. Now, with this solid foundation in place, Bahrain is heading towards open finance, a new report by German open banking startup Tesobe says.
2022 was a significant year for open banking development in Bahrain, which saw the Central Bank of Bahrain (CBB) focus on transitioning towards the broader open finance movement, the report notes.
The ambition here was to allow third party providers to gain access to customers’ financial data beyond banking, including pensions, insurance and investments, ultimately helping customers make better informed decisions, giving them access to innovative products and providing them with opportunities for customized financial services.
In November, the regulator granted an operating license to Fintech Galaxy, making it the first company in the country to receive a formal approval for an open finance platform.
The license allowed it to integrate FINX, its open finance platform, into multiple bank APIs through a unified interface, allowing Fintech Galaxy’s clients to get a 360-degree view of their own customers’ financial footprint and provide them with financial planning, budgeting and savings goals tailored to their needs and behaviors.
2022 also saw the hosting of the Bahrain Open Banking Supernova 2022, a fintech innovation challenge series aimed at furthering the development of the fintech sector. The challenge focused on solving real market challenges with innovative open banking use cases. Participants had access to an API sandbox with 330+ APIs and simulated data sets from local and regional banks to enable rapid and seamless proof of concepts (PoCs).
Bahrain’s open banking journey
Bahrain’s open banking journey began back in 2018 when Tarabut Gateway entered the CBB’s regulatory sandbox. The move allowed the central bank to observe the company’s open banking solution, identify the important aspects to take into consideration when dealing with these products, and draft relevant rules.
A final open banking regulation was issued in December 2018, mandating retail banks in the country to open access to their data for a number of different types of accounts including savings and current accounts, as well as foreign currency and restricted investment accounts, by June 30, 2019. The regulation made Bahrain the first country in MENA to implement formal open banking rules.
Bahrain’s commitment to open banking was further showcased in July 2019 when the CBB established the Open Banking Committee to spearhead the regulator’s vision. The committee proceeded on launching in October 2020 the Bahrain Open Banking Framework version 1.0.0.
The framework sought to complement the existing open banking rules to ensure more consistency in their implementation. It also provided a common set of technical application programming interface (API) specifications, and included security and customer experience guidelines.
In parallel, that same month, the CBB unveiled FinHub 973, a new digital lab where financial institutions can connect with fintech companies from all over the world through open APIs, test innovative solutions and deploy them in a safe and regulated environment.
The beginning of 2021 saw the CBB take a step back and observe the progress that’s been made so far. Low compliance rate eventually led the central bank to extend the compliance deadline to April 2021.
In September 2021, the second phase of the Bahrain Open Banking Framework kicked off, mandating retail banks and financial institutions to open access to more data and comply with new requirements and guidelines by June 30, 2022.
Two months after, the CBB announced a new revised regulatory sandbox framework focusing on allowing fintech companies to test and experiment their ideas and solutions in a more efficient and effective environment by enhancing the eligibility criteria and streamlining the sandbox process.
Open banking in MENA
Following on the lead of Bahrain, a number of jurisdictions in MENA have woken up to the open banking imperative and introduced their own initiatives.
In Saudi Arabia, the central bank issued the Open Banking Policy in 2021, articulating the main objectives of implementing open banking in the country. The formal Open Banking Framework was subsequently released in November 2022 and included a comprehensive set of legislation, regulatory guidelines and technical standards. The Saudi Central Bank plans to launch open banking services in the first quarter of 2023.
In the Dubai International Financial Centre (DIFC), Tarabut Gateway was granted in April 2022 the special economic zone’s first open banking license. DIFC’s financial regulation, the Dubai Financial Services Authority (DFSA), operates on a licensing framework enabling account information services and payment initiation services activities.
In Abu Dhabi, financial center the Abu Dhabi Global Market (ADGM) introduced in 2021 a new regulatory framework for third party fintech providers. The framework goes beyond the scope of open banking and into the realm of open finance, providing guidelines relating to data for all types of financial information. Open banking platform Lean Technologies was granted the first license in November 2022.
According to Fintech Galaxy, the open banking market in MENA is set to grow at a compound annual growth rate of 25% between 2022 and 2027, soaring from an estimated US$400 million last year to US$1.17 billion within the next five years.