Bahrain’s early adoption of open banking has positioned it as a leader in the Middle East. This is transforming the financial landscape in the Kingdom by fostering competition, innovation, and access to financial services.
Open banking is exactly what it sounds like. While banks have traditionally held financial data in closed systems, inaccessible to anyone except the customer for security, open banking allows it to be accessed by third-party financial service providers through secure application programming interfaces (APIs).
The significance of open banking to the global financial industry is huge. Its growth is such that there are a projected 130 million worldwide users of open banking in 2024, more than five times the number in 2020. As a market, it was valued at around $25bn in 2023 and in the next decade is forecasted to grow by nearly ten times that number to $227bn.
The open banking revolution
Through open banking, FinTech (financial technology) companies and accounting software that have been given consent by the customer can access their financial information to continuously update their accounts, rather than relying on manual input. This development is transforming the banking and financial industry by encouraging competition and enabling the creation of innovative, customized financial products and services.
Regulated data sharing allows individuals and businesses to gain insights into their spending patterns and expenses, tailored advice for investing, budgeting and other tools and services that give them greater control over their financial data management.
The Central Bank of Bahrain (CBB)’s Regulatory Sandbox, the region’s first of its kind, enables FinTech companies to test their technology-based solutions for up to a year under supervision. Once they have demonstrated technical proficiency, customer benefit and the intention to be deployed in Bahrain, they graduate. In this way the Sandbox fosters and supports innovation and the infrastructure around it. This has attracted a number of start-ups to the region to test their open banking solutions in a controlled environment. Bahrain is now home to open banking platform providers Tarabut (formerly Tarabut Gateway), Spire and Fintech Galaxy.
Early adoption of open banking in Bahrain
Bahrain’s success in this area has been due to early adoption and a structured roadmap for implementation. Bahrain was the first in the region to establish and adopt opening banking regulations and, with the CBB having launched the Regulatory Sandbox in 2017, it followed this up with the Bahrain Open Banking Framework in 2020. The framework has established specifications, guidelines and standards for open banking, with the aim to ensure greater consistency in the implementation of open banking rules in the region. In 2018, open banking pioneer Tarabut was the first FinTech company to graduate from CBB’s Regulatory Sandbox. This served as a launchpad for Tarabut into the wider region as it subsequently launched its open banking platform in the UAE followed by the Kingdom of Saudi Arabia.. More recently, Tarabut has partnered with BENEFIT, an electronic network for financial transactions that acts as the country’s payment infrastructure, to help simplify the user’s customer journey through peer-to-peer payments between individuals or from individuals to businesses in almost real-time. The new Tarabut consent authorization method allows users to consent to open banking services directly within the BENEFIT company’s BenefitPay app and other similar ones.
A tool for financial inclusion
BenefitPay is also an easy-to-use customer payment method for underserved enterprises in the Kingdom. It offers a more convenient alternative to taking cash payments, which predominated due to challenges with accessing card payment channels. With almost instantaneous transactions through the app, and a greatly reduced reliance on cash, small entrepreneurs can grow their businesses faster. This instant payment solution has been a game-changer for the payments sector, and has seen a surge in transaction volume by 73% compound annual growth rate (CAGR) over the last three years.
This is an excellent illustration of how digital payments can facilitate financial inclusion. Open banking can help expand access to financial services for underserved populations by enabling alternative credit scoring models and tailored financial products based on a customer’s comprehensive financial data. At its core, open banking promotes accessibility, paving the way for a more integrated and transparent financial ecosystem. The adoption of open banking services in Bahrain creates significant customer trust, a more inclusive financial ecosystem, which enables future opportunities, innovation and expansion
Beyond banking
Although open banking in the Middle East is still in the relatively early stages of implementation, the early adoption in Bahrain and the current rate of progress means it has the potential to transform the region’s financial landscape and economy. That has led to cross-sector partnerships. For example, Tarabut has partnered with Tamkeen to develop a service that facilitates transactions for individual and enterprise beneficiaries of Tamkeen. The International Bank Account Number (IBAN) verification service eliminates the need to attach certificates to transactions. This allows customers to easily validate their IBANs and helps minimize transaction issues.
Along with open banking regulations, CBB has introduced new regulations that cover other emerging FinTech verticals, such as cryptocurrency assets and crowdfunding to ensure a sustainable financial future. The aim is to foster innovation, promote competition and safeguard customers in a changing financial landscape. Open banking solutions can also support improving efficiencies in other financial services, such as lending. In one example, Tarabut has partnered with Bahraini FinTech FLOOSS, a digital lending platform. Using open banking technology, they have streamlined the loan approval process, reducing wait times from weeks to just minutes. This partnership aims to make it easier and faster for people in the Kingdom to access credit.
According to Yasmeen Al-Sharaf, Director of FinTech and Innovation at CBB, “regulatory frameworks for open banking will need to continually evolve to keep pace with technological advancements and changing customer needs.” This is an essential part of fostering innovation and inclusion, such as the personalization of financial products that will help customers access financial solutions better suited to them and will incentivize banks to become more customer-centric. Indeed, as more technology feeds into the market, this will encourage wider collaboration among FinTechs and regulatory bodies. However, some challenges still remain. For innovators, the product development costs remain high. There is also still a lack of user awareness and friction in user experience. This is understandable given that open banking is still maturing and these challenges can open the door to new opportunities and greater uptake.
Open banking Innovation and implementation in Bahrain is growing and, with enhanced innovation, customer experiences, and collaboration, the future of open banking in the Middle East looks promising.
