Nowadays, digitalization continues to revolutionise financial services and sectors. With the emergence of digital channels such as the internet branch and mobile branch, banking has undergone a change from physical to digital. There’s a new term called “open banking”. The concept of open banking began with the United Kingdom government’s need to reform the financial and banking sector in the UK. A number of other countries launched open banking initiatives based on the European and UK models. These were either through industry collaboration or through legislative changes.
The motivation behind the goal of moving was because the finance and banking sector wanted to better the position and increase competition. This was all based on the inclusion of financial service providers in the market that would offer customers more options by designing new financial products and services. It represents a secure banking model where third party institutions can access customers’ financial information with their permission. Having access to such data allows third-party developers to create more financial products and services for consumers and also, open banking is set to increase competition and reduce barriers to entry for financial technology (fintech) start-ups and encourages greater efficiency in the banking system.
Evolving the world of finance to be more open…
One could say that the most important change in favour of the customer that comes with open banking is the “democratisation of data”. The customer will be able to make the smartest choice by seeing the expenses or costs received by banks on a single platform. With this transparency, it is not difficult to predict that the competition between banks will increase and there will be an evident preference for customers. There are so many benefits for users of open banking as this technology opens many digital innovations, such as facilitating online shopping, speeding up credit, and personalized wealth advice. All this comes down to an ultra-simplified process that can be carried out in a few seconds on a mobile phone.
The Saudi Arabian Monetary Authority (SAMA) is introducing an open banking policy to advance digital innovation in the financial services sector. Saudi Arabia’s central bank said the plan is for open banking to go live in the first half of 2022. Through the initiatives in the policy, the goal is to foster the advancement of digital technologies and create new financial services and products. Open banking, which is used across numerous countries, facilitates the connections and permissions between users’ banking data and third-party financial platforms. It enables the secure sharing of financial and other data to enable seamless digital payments and money transfers.
Aside from providing banking customers in the Kingdom of Saudi Arabia with a way to securely manage and share financial data, open banking will also give people access to custom products and services. The policy is also intended to improve trust among all stakeholders in a financial relationship. Open banking is anticipated to increase competition in the country by lowering the barriers to entry for new participants.
Through the development of new financial products customised to specific customer segments, the initiative is also intended to bring about financial inclusion in Saudi Arabia, according to a report. The central bank’s move “is set to revolutionise how customers, merchants and financial institutions augment the value they reap from accessing financial data,” Tala Al Jabri, Saudi venture capital investor based between Abu Dhabi and Riyadh, told CNBC.
Open banking will enhance trust both in customers and market participants, namely banks, financial technology, other financial players, and their stakeholders, all of which have a pivotal role to play in this journey towards innovation and financial inclusion. Open banking results in greater efficiency in the banking system. Customers can instantly share their bank data with a third party.
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