Open banking promises new era of financial innovation

It was not long ago when we all used to think about the safety of our checkbooks and that our signature should match exactly with the authorized version submitted to the bank when opening an account.

However, such concerns have become a thing of the past due to new technology, with most, if not all, banking operations now taking place with just the click of a mouse or tap of a smartphone.

As if we old-timers were not already perturbed by the complexities of our smartphones and banking apps, the coronavirus pandemic further added to our woes by expediting the shift of the global financial system from whatever was left of the traditional banking style to an entirely digital system.

Saudi Arabia is fortunate to have 60 percent of its population comprising youth below the age of 30, making it easier for the country to ensure a swift digital transformation.

The Kingdom has witnessed a boom in the financial technology industry that has changed the dynamics of the sector for good.

The Saudi Central Bank, or SAMA as it is known, also announced an open banking policy, which will take effect next year. The framework aims to further modernize the payments system in the country.

“Through these initiatives, SAMA is nurturing the rise of digital technologies and their impact on the new financial services enabled by them, as well as building the regulatory framework needed to adopt these initiatives,” the central bank said in a report.

It described open banking as a technological innovation that enabled customers to securely share their data with third parties.

“In recent years, several fintech companies have emerged, presenting new business models that would benefit from access to customers’ data. This opens the door to create and offer new financial services. Therefore, SAMA sees open banking as a pivotal role in the further development of the Kingdom’s financial sector,” the Saudi regulator added.

According to the third Fintech Saudi Annual Report, the number of fintech companies operating in the Kingdom this year increased by 37 percent and more than SR1.3 billion ($346 million) in venture capital was invested in the sector.

SAMA’s support of the open banking framework is in line with the Kingdom’s Vision 2030 and the national Financial Sector Development Program.

The new policy will result in greater efficiency through the use of customers’ banking records at other banks to develop financial solutions.

It will also encourage third parties to develop innovative financial solutions based on available customer data. However, the ultimate goal is to improve customer experience by developing new products and introducing new services. In addition, it will boost competition in the banking sector and increase the availability of various banking or financial products at competitive prices.

SAMA is currently working closely with key stakeholders to build an ecosystem to support the development of an optimal open banking framework that addresses the ecosystem stakeholders’ needs.

• The launch of open banking in Saudi Arabia will also accelerate the next wave of fintech activities.

@TalatHafiz