In Arab countries, open banking is rapidly evolving into the more comprehensible model of open finance, expanding from payment accounts and related services, to a larger variety of financial services, including investments, pensions, insurance and consumer credit.

With so many Arab nations actively progressing towards the movement and as awareness and demand for digital financial services continue to grow across these countries, the regional open finance market is poised to increase by an average compound annual growth rate (CAGR) rate of 45% between 2022 and 2027, rising from US$1.65 billion last year to a forecasted US$11.74 billion through 2027, a new report by the Arab Monetary Fund, a regional organization that aims to promote monetary cooperation and economic integration among Arab countries, says.

The report, titled “Guidelines for Effective Open Banking/Finance Adoption”, provides an analysis of the open banking and open finance landscape in the Arab region, diving into the regulatory frameworks surrounding the trend, the requirements and prerequisites for adoption, and the challenges in deployment.

Supportive regulatory frameworks

Examining the landscape, the report highlights key developments that support the growth of open banking and open finance in the region, outlining supportive regulatory initiatives, technological advancements and increased market collaboration.

Notable developments outlined include the Central Bank of Bahrain’s (CBB) Open Banking Framework, the first in the region introduced in 2020; the Saudi Central Bank (SAMA)’s Open Banking guidelines, launched in November 2022 to set a clear roadmap for implementation; as well as the issuance of the Open Finance Services Operations Procedures regulation by the Central Bank of Jordan (CBJ) that govern service arrangements between banks and regulated third party providers under contractual agreements and which was issued in late-2022.

The report also provides an overview of the trend in several Arab countries including Jordan, the United Arab Emirates (UAE), Bahrain, Saudi Arabia, Iraq, Oman, Kuwait, Egypt and Morocco with the objective of shedding light on the initiatives, regulatory frameworks, and advancements in each country, offering a comprehensive understanding of the regional landscape.

Bahrain is highlighted as one of the pioneers in open banking policies, alongside Saudi Arabia and the United Arab Emirates (UAE).

In October 2019, the Abu Dhabi Global Market (ADGM) freezone regulator, the Financial Services Regulatory Authority (FSRA), issued guidance on the development and use of application programming interfaces (APIs). This was followed by the launch of Account Information Services (AIS) and Payment Initiation Services (PIS) licenses by the Dubai Financial Services Authority (DFSA), the financial regulatory agency of the Dubai International Financial Centre (DIFC), as well as the granting of a license to Tarabut Gateway to operate as an open banking platform in the DIFC in April 2022.

Jordan, Oman and Egypt make advancements in open banking

Other nations including Jordan, Oman and Egypt are also making advancements in open banking. Jordan is reportedly working on initiatives to digitalize the banking sector, launching in August 2023 a roadmap for guiding the financial sector and technology partners towards harnessing advanced technologies, enhancing the ecosystem for startups, and ensuring the provision of innovative financial services that cater to the evolving needs of the Jordanian society and driving sustainable development.

The central bank has also issued instructions governing open finance services that apply to banks and electronic payment and transfer of funds companies in the country, covering AIS and PIS, the Arab Monetary Fund report notes.

Oman, meanwhile, released in September the draft of a comprehensive fintech strategy designed to support the growth of the sector through conducive regulations, industry collaborations and the development of a “national cadre of skilled and innovation-driven individuals”. The move builds on ongoing efforts on fields such as electronic know-your-customer, cloud computing rules, and the development of the so-called Open Banking API Strategy.

Finally, Egypt is said to be discussing open banking implementation and recent regulatory initiatives including the launch of the National Instant Payment Network (NIP), the InstaPay mobile app and the Regulatory Sandbox are expected to boost the digital banking sector and pave the way for full open banking adoption.

Challenges and recommendations

The report concludes that despite advancements and efforts from Arab nations to fuel the growth of open banking and open finance, some challenges remain and need to be addressed. For example, open banking involves sharing customer data between financial institutions and third-party providers, raising concerns about data privacy and security and requiring robust policies and standards to protect customer data.

Open banking also requires the development and implementation of standardized APIs that enable seamless communication and data exchange between providers, calling for the need of common standards and protocols that allow for interoperability and security.

Finally, the development and adoption of open finance require clear and sound regulatory guidelines that balance innovation, competition and consumer protection. These laws should not only address data risks and ensure consumer safeguards, but should also define open banking, specify shared data scope, identify participants and consent mechanisms and include third-party providers regulation, licensing and technical requirements.

To embrace open finance effectively, the report also advises policymakers to establish a cross-institutional task force to oversee the implementation of open banking, conduct thorough market research to understand the specific needs and challenges of the country, develop an API ecosystem that facilitates data sharing, and encourage adoption through awareness campaigns and educational programs.

Open banking is a fast-growing concept that’s been picking up steam around the world. In 2023, the value of open banking transactions worldwide reached US$57 billion, data from German statistical portal Statista show. Through 2027, open banking transactions are projected to grow by more than 500% to US$330 billion, fueled by a combination of technological, regulatory and market dynamics that aim to create a more dynamic, competitive and consumer-centric financial ecosystem.

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