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Editor's PickOpen Banking Lab boosts Saudi fintech firms

Open Banking Lab boosts Saudi fintech firms

Fintech firms in Saudi Arabia are set to get a boost in new business opportunities as the Saudi Central Bank (SAMA) announced the launch of a new open banking services lab to allow businesses to test out their products against an established framework.

SAMA has on the 4th January 2022 announced the launch of the Open Banking Lab following the Open Banking Framework issued by SAMA in November 2022, serving as one of the most important technical enablers of the open banking ecosystem in the Kingdom.

With the introduction of the lab, SAMA is facilitating the development of banks and fintech firms to ensure their readiness to launch open banking services within the first quarter of 2023.

“The lab will provide banks and fintech (firms) with a technical testing environment to enable them to develop, test and certify their open banking services to ensure compatibility with the Open Banking Framework,” SAMA said in statement.

The Open Banking Framework includes a comprehensive set of legislation, regulatory guidelines and technical standards based on international best practices to enable banks and fintech companies to provide open banking services in the Kingdom. According to SAMA, the first version of the open banking services is focused on the Account Information Service, while the second version will focus on the Payment Initiation Service.

Open banking, which is touted to become a major source of innovation poised to reshape the banking industry, refers to the banking practice that allows the secured sharing of financial data to third-party financial service providers through the use of application programming interfaces, which in turn provide new and innovative financial services and products for consumers.

“Open banking services will create a positive impact in the industry by strengthening the partnership between banks and fintech (firms) and improving the financial infrastructure to guarantee better use of consumers’ financial data,” SAMA added.

There are currently 12 local banks licensed by SAMA, four of which are fully-fledged Islamic — Al Rajhi Bank, Aljazira Bank, Alinma Bank and Bank Albilad — while the rest operate Islamic banking units.

On the other hand, industry body Fintech Saudi, which was launched in 2018 by SAMA to act as a catalyst for the development of fintech in Saudi Arabia, reported that the number of fintech firms in the Kingdom stood at 147 as of November 2022, up from 82 in 2021. In fact, Fintech Saudi pointed out that fintech companies grew nearly 15 times from 10 companies in 2018.

Further, the Ministry of Finance previously announced plans to increase the number of fintech companies in the Kingdom by threefold under a new national strategy, which would bring the number to 230 by 2025.

It is worth mentioning that countries in the GCC are proactively engaging in initiatives to accelerate their positioning as global financial hubs, with a focus on enabling sustainable and innovative digital banking and fintech ecosystems, wider financial inclusion and cutting-edge technologies such as big data, artificial intelligence and cybersecurity.

Besides Saudi Arabia, Bahrain is seen as pioneering the open banking initiative in the region, with key regulation and technical standards already in place, even exporting success stories such as Tarabut Gateway, a platform that emerged from its sandbox and is gaining market share also in the UAE and Saudi Arabia.

In the UAE, open banking has been more of a market-led initiative, supported by the Central Bank of the UAE and its regulators with fintech-related initiatives, innovation hubs and funding. In fact, the Dubai Financial Services Authority has in April 2022 granted its first open banking license.

Similar open banking initiatives by the regulators, although less defined and not yet live, have also been undertaken in Oman and Kuwait.

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