Saudi Arabia’s New Banking Framework to ‘Revolutionize’ Fintech Opportunities

The central bank of Saudi Arabia or the Saudi Arabian Monetary Authority (SAMA), launches a new framework for open banking that will dramatically improve the stability of the banking system in the kingdom, according to CNBC

“With the support of market participants, SAMA plans to go live with open banking during the first half of 2022,” is announced by the regulator earlier this week. As said by the experts in the finance sector, the goal is to present a significant opportunities for fintech companies and Saudis themselves.

SAMA’s move “is set to revolutionize how costumers, merchants and financial institutions augment the value they reap from accessing financial data,” said the Saudi national and venture capital investor based between Abu Dhabi and Riyadh, Tala Al Jabri. She also said that she expects it to “open up opportunities beyond financial inclusion by placing greater emphasis on Saudis to become more financially literate and in command of their finances.”

The Open banking system is used in many countries around the world, and it’s goal is to allow third – party developers to access customer data from their banks, with their permission of course, and also act like a bridge to financial platforms like accounting and finance apps. That’s what enables payment platforms like Venmo to operate in the U.S.

Through transparent and regulated open banking, that uses application programming interfaces (APIs) the idea is to enable data-sharing to customers and businesses, so they can have more control of their finances and access financial services. This will open the market for numerous fintech services, allowing competition, innovation and increased consumer choice.

Saudi Arabia is a lucrative market for fintech providers and start-ups, with 70% of the 34 million population under the age of 30 and highly-digitally literate.

The CEO of Lean Technologies, Riyadh and London based fintech start-up, Hisham al-Falih, says that this is essential for further digitization and modernization of the Saudi banking and finance system.

The central bank has been “slowly enabling more and more technologies and innovations to the market. However, these fintechs can only go so far without being able to access customer data, so I’m really happy to see Saudi adopt open banking,” said al-Falih. Last year Bahrain adopted open banking, and the UAE have done so, thought without an official central bank policy.

Balancing stability versus innovation

Al Falih noted that the Saudi banking system has prioritized stability, and “that has a drawback, in that it’s not the best for innovation.”

“I think there is competing interest here between enabling innovation but at the same time optimizing for customer privacy, data security, managing things like AML/CFT (anti-money laundering/combating the financing of terrorism), and maintaining the general stability of the market,” said the CEO.

Because of the sheer pace of change, the Saudi balancing act is particularly significant for competing interests.

Crown Prince Mohammad bin Salman has charged ahead with projects part of Vision 2030 in the last few years, and his ambitious plan is to wean the economy of the oil-rich kingdom off hydrocarbons. Some previously unimaginable moves like investments by the sovereign wealth fund into Western tech companies, publicly listing state oil producer Saudi Aramco and opening the country for non-religious tourism are all part of the plan to attract foreign investments and create new jobs.

A deal for cloud computing services was reached last month between Saudi Aramco and Google Cloud. The agreement is set to pave the path for the U.S giant to open the first office in Saudi Arabia. It appears that many businesses has put aside concerns of working in Riyadh, due to many human rights abuses and the murder of the journalist Jamal Khashoggi by state agents in 2018. 

Data as the new oil?

It seems that data is slowly becoming the new oil. As said by al-Falih, customer data is crucial for fintech as crude oil is crucial for the operation of a refinery. 

“I hope this is going to be the genesis of a much more data-driven, much more digital society and economy,” said al-Falih.

As many rising markets, especially in the Middle East, bureaucracy risks posing a major problem.

“We could very easily fall into the trap of placing too much red tape, which would only hinder the pace of development and innovation. So I think it’s a balancing act,” added al-Falih. “But to see SAMA take a position and establish a plan that’s quite ambitious to get this rolled out within a year, year and a half is definitely a very positive thing for the market and for the broader economy.”

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