Governments should do more than any other sector to ‘open up’ to banks and fintechs in order to capitalise on the trend towards open data, according to a survey of Arab central banks and monetary authorities.

‘A Vision of Open Banking in the Arab World’, published this week by the Arab Monetary Fund (AMF), outlines the different approaches taken to open banking across the diverse region, as well as exploring where authorities share and diverge in their views.

Open banking refers to the use of open Application Programming Interfaces (API) to enable third-party developers – fintech companies – to build applications and services. It is a global trend with countries taking different approaches and speeds to encourage its implementation.

The 18 Arab central banks that participated in the research were asked ‘What other industries should also open up to partner and create new services with banks and fintechs in an open data ecosystem?’, with ‘Government’ emerging as ranked top of seven possible answers. E-commerce, telecoms, health, mobility, energy and – finally – agriculture were the other answers, ranked from most to least popular.

Open banking is less developed in the Arab region than in, for example the UK, which – with more than two million users – is widely seen as a leading country when it comes to implementation. Seventeen of the respondents to the AMF survey considered their open banking markets to ‘still be in initial stages’ of development.

Differing views over API standards

While regulation and market dynamics are the main growth drivers in Europe and the US, respectively, open banking in the Arab region is primarily driven by market diversity, the 22-page report states. For instance, whereas some countries focus on the financial inclusion of their underbanked population, other commodity-dependent countries have sought to diversify their economies by establishing fintech hubs, the report notes.

Despite fundamental commonalities, there are now as many versions of open banking as there are countries or single markets using it, it says.

In terms of specific Arab countries, the report refers to as ‘European-style regulation-driven approach’ in Bahrain and a ‘US-style market-driven approach’ in the United Arab Emirates (UAE) overseen by the Abu Dhabi Global Market and Dubai International Financial Centre. Saudi Arabia’s market-driven initiatives have shifted towards a more formal regulatory framework although Saudi regulations do not follow Bahrain in requiring the opening up of APIs or mandating security standards.

The survey revealed differing views over how API standards should be developed. Answers were split between 10 respondents wanting to define a common national standard (56%) and eight wanting to follow an international standard (44%).

Of 18 central banks and monetary authorities surveyed, eight ranked fostering innovation and attracting fintechs as their top priority for open banking. Another eight ranked financial inclusion first. Just two prioritised increased competition.

Reflecting on the findings, the report’s authors say that the lower prioritisation of competition is unsurprising in a region where many countries have been termed ‘overbanked’ on account of their many banks. ‘That’s not to say competition isn’t important; the region just has higher priorities. After all, those overbanked countries are also often home to many underbanked and unbanked populations,’ the report says.

Five-point vision for open banking

The report concludes with a five-point vision for open banking: ‘principles over prescriptions’, ‘phased implementation’, ‘consumer data right’, ‘technical standardisation and interoperability’ as well as ‘level-playing field’.

In respect of the third pillar the report makes specific reference to Australia’s high-profile Consumer Data Right legislation, which kicked off the country’s open banking era this summer. ‘Countries exploring new privacy regulations might consider automatically embedding open-banking regulations in a manner similar to Australia’s Consumer Data Right,’ the report says.

Overall the report says that achieving the five-point vision will require effective and active collaboration between regulators, banks, fintech companies and other stakeholders.

The 18 Arab central banks and monetary authorities surveyed were: Banque d’Algérie, Central Bank of Bahrain, Central Bank of Egypt, Central Bank of Iraq, Central Bank of Jordan, Central Bank of Kuwait, Banque du Liban (Lebanon’s central bank), Central Bank of Libya, Banque Al-Maghrib, Central Bank of Mauritania, Central Bank of Oman, Palestine Monetary Authority, Qatar Central Bank, Saudi Arabian Monetary Authority, Central Bank of Sudan, Central Bank of Tunisia, Central Bank of the United Arab Emirates and the Central Bank of Yemen.

Compilation of the report was overseen by the Arab Regional Fintech Working Group, which includes the Abu Dhabi-headquartered AMF, as well as the MENA (Middle East/North Africa) Fintech Association (MFTA), Abu Dhabi Global Market and Dubai International Financial Centre. Inputs were also made by individual companies.

Global Government Fintech reported last week on open banking in the Netherlands, where the open banking landscape was summarised as having made a ‘reticent start to a promising future’ by the consultancy Accenture three months ago. Don Ginsel, founder of Holland FinTech – a membership organisation – said: “It’s just early [for open banking]. APIs are still shaky and so new solutions built on it [them] are still not adding much value. Hence the hesitation with consumers. It takes time, just like we saw in the UK.”