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all-insights,
FINTECH

Open Banking and the basis for the Saudi FinTech revolution
Camille Beyrouthy

2022-07-14 04:48:24+00:00

Introduction
Saudi Arabia is going through a revolution in financial services accelerated by growing innovative fintechs, catalyzed by the Open Banking infrastructure. This drive is partly motivated by market dynamics and more importantly by Fintech Saudi established by the Saudi Central Bank (SAMA) in partnership with the Capital Market Authority in April 2018 as a new means to promote and support the Fintech sector in the kingdom. There were only a handful fintechs back in 1018, as of today upwards 100 fintechs are currently registered in Saudi Arabia, with more scope for innovative new comers to the field. Additionally technology widespread adoption and market penetration has reduced major impediments leading to a sizable growth in entrepreneurship in financial services. As Fintech start-ups use new technology that develops innovative financial solutions, the potential for return and success of startups becomes sizable and hence why we are seeing this wide flourishing of fintech startups.

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Open Banking

Open Banking plays a key role in developing the Fintech ecosystem. With the Saudi Central Bank (SAMA) issuing its policy back in early 2021, inline with vision 2030, their main goal was to support private sector growth, and to lead towards a new approach for capital and financial markets, as is seen in London and Asian financial markets (Singapore and Shanghai)
Fintechs flourish only if they're accepted by a multitude of players, both public and private (regulators, financial institutions, technology companies, open banking infrastructure providers etc. ). The regulatory environment is key to their success and adoption and growth.

In short, Open Banking (OB), as mandated by the Saudi government, provides banks and fintechs with the opportunity to collaborate through Open APIs (application programming interfaces). In practice, this enables a customer to securely share data and initiate payments, with their consent, between their financial institution and fintechs (third-party providers / TPPs), and benefit from innovative customized products and services. Tarabut Gateway sits at the junction of these exciting spaces, working together with fintechs and banks to enable seamless customer experiences. currently, the Fintech sector stands as the favored playground of the Saudi VC sector.

 
The Open Banking era
As outlined by "Fintech Saudi" in their 2021 Annual report, most fintechs showed positive feedback about Open Banking, and are interested in collaborating with existing financial institutions. The message from the regulators is crystal clear and the motivation within fintechs is overwhelming, OB wil, no doubt, propel the Saudi financial services ecosystem into overdrive mode Fintechs are ready and more so the consumers. The KSA is among the most highly connected countries in the world. an overwhelming majority of the population is networked, smartphones, twitter and various apps are big hits– in other words, there are more registered sim cards in the Kingdom than people. More than half of the population is under 35, indicating a young, savvy and connected demographic ready to embrace new forms of financial services.
The new Open Banking infrastructure
The Open Banking collaboration between banks and fintechs is primordial. The innovation ecosystem will guarantee the best service for consumers through the development of new products. These new services can provide additional revenue streams for currnet banks and fintechs. Open banking provides fintech a crucial infrastructure to test their products via sandboxes with real-world data while ensuring compliance with regulations. Current sandbox applications are many and , enables hese businesses to make data-driven decisions. Take the example of microfinancing, a growing and important area of personal finance. It is often a challenge for financing institutions to capture aggregate data on a customer’s income levels from disparate sources. With open banking, providers have access to greater real-time data and insights, to better understand the financial situation of a customer and ensure offers and approvals are appropriate. Furthermore, on the payment’s spectrum, it can cost-effectively optimize reconciliations, direct debits, repayments, and payouts. By collaborating through open banking APIs, fintechs have the foundation to scale and grow across Saudi Arabia. As the API infrastructure is built to global standards, Saudi fintechs also benefit from the opportunity to take their products to international markets at a much faster rate.

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