Uday Shankar Kizhepat, Vice President and General Manager- Middle East and Africa Region at WSO2 says that country-specific nuances and maturity levels must be kept in in mind to enable regional banks to bring value to themselves.
It is clear to regional financial institutions that the open banking revolution is here. In the GCC, Bahrain was the first to mandate open banking, and the UAE and Saudi Arabia are now making moves to follow their neighbour’s example. The pandemic has acted as an accelerant, and banks across the Gulf and beyond are now looking to their digital function to explore how to become, in many respects, platform companies. But to ensure maximum benefit for themselves, consumers, and third-party providers, TPPs like fintech firms, banks will need to shrewdly evaluate the new open ecosystem and leverage their existing technology capabilities, rather than resort only to the use of new standardised APIs.
Of course, it would be unwise for banks to simply replicate what their counterparts in other countries within the GCC are doing. Nuances exist and this is evidenced by countries like the UAE having embraced Open Banking and Fintech collaboration much ahead of any regulation, while countries like Bahrain and Saudi Arabia are leading with regulation. Yet others like Qatar, Oman and Kuwait are yet to take notable action in either space.
To ensure they remain relevant, today’s banks must recognise the realities of tomorrow. Open banking is here to stay and, with it, API-based data services. Keeping country-specific nuances and maturity levels in mind, here are three ways in which banks across the region can leverage APIs to bring value to themselves and the industry at large.
New entrants
This is especially relevant to banks in countries like Oman, Qatar, and Kuwait, where Open API adoption has thus far remained in its nascent stages. Open banking is all about data sharing. A credit scoring system, for example, benefits greatly from data from other banks. This benefit would not only accrue to the banks themselves but to TPPs such as fintech companies. Any business that is building an app that offers paths to personal loans, property leasing, or other models where credit plays a role will find the scoring data extremely useful.
This is a welcome break from the arduous workflows of old, which involved hours and days of collation, correlation, and calculation, even when using a third-party creditworthiness assessment service. Any transfer of data would normally require additional regulatory adherences and the end-product would also come with a significant cost.
But open-data APIs alleviate this burden considerably. So, offering them to fintech companies would go a long way to building lasting strategic relationships with them. Banks have an opportunity here for differentiation, but also for new revenue streams. While the basic API will be free, fair usage could require certain limitations to be imposed, thereby incentivising TPPs to opt for a premium version, which can be monetised.
Moderate maturity
Further ahead along the Open Banking maturity curve, we find countries such as Bahrain and Saudi Arabia where regulation is either already in place, or firmly on the cards. In these countries, banks, again, as a differentiating and monetising strategy, have the option to go beyond their regulatory obligations and offer enriched datasets augmented by their internal data or data obtained through an external partnership.
For example, the bank could use external AI-powered business intelligence and data to enhance its own credit-check system and then share the resultant model with app developers through a premium, paid-for API. The bank could open this offering to consumers on a per-use basis to allow them to self-assess against both a standard and an AI-enriched credit score.
Leverage the cloud
Finally, top tier banks based in countries such as the UAE that are at the forefront of the revolution, have another opportunity to monetise the open-data paradigm. They can use their scale and pre-existing technology stacks to sell subscription-style cloud services that offer open-banking platforms to those that are hesitant to commit to the deployment and maintenance of their own systems.
Banks could, for example, extend their own developed capabilities such as customer authentication or consumer consent management. Third-party app developers could then tap into the aaS offering via a per-number-of-users payment model.
Meanwhile, banks that combine their authentication features with their consent management capabilities could enable businesses in other industries that require customer consent to share information to do so unimpeded.
For example, medical facilities could, via the consent management features offered as a service by a bank, share patient information, subject to consent, with insurance providers to streamline treatments and claims. The bank’s cloud service would only need to store a unique identifier for the patient record and a reference to the insurance policy, rather than keeping detailed records on all parties.
The insurance app would redirect to the bank’s consent management system every time it needs consent. This service would come built in with the same consent management workflows that allow consumers to manage their data-sharing preferences.
If open banking is the future, that means APIs are too. Embracing them early can only be beneficial. By leveraging their existing capabilities, digital and otherwise, the region’s banks can shape the API without having to adapt to some future industry standard.
They can behave as platform companies and enjoy all the advantages that entails, agility, innovation, cost shaving. They can partner with fintech companies in ways that allow each to learn and benefit from the other. And they can stand out, by being the first to go beyond mandated standards and offer the value-adding services of tomorrow, today.
Varying levels of open banking adoption and regulation across GCC present distinct opportunities for banks.
