Saudi Arabia’s fintech regulations can speed up Open Banking

For years, the Middle East and North Africa’s financial sector has been abuzz with the concept of ‘Open Banking’ – a practice that provides third-party financial service providers standardized access to consumer banking, transaction and other financial data through application programming interfaces, or APIs.

Nowhere is this more true than in Saudi Arabia, where, while still in a stage of relative infancy, fintech innovations form a growing part of the Vision 2030 plans to diversify and transform the economy and lessen dependence on oil. All while at the same time creating a dynamic job market for Saudis and encouraging a high-tech, digitally focused knowledge economy.

It should come as no surprise that fintech is set for take-off in Saudi Arabia. After all, 70 per cent of the population of 34 million people is under 30 and digitally-savvy. For fintech providers and start-ups alike, it’s a hugely lucrative market.

Additionally, the Kingdom has launched initiatives to support fintech companies, such as the Fintech Regulatory Assessment Tool and FinTech Data and Research Initiative. The Saudi Central Bank (SAMA) and Capital Market Authority (CMA) continue to issue regulatory licenses and develop regulations to support fintech activities.

A welcoming environment for fintech

Even more impressive milestones are also just over the horizon in the form of the FinTech Saudi Hub in King Abdullah Financial District. A major drive of these initiatives is SAMA’s plans to go live with Open Banking in 2022 – a move that could open the market to numerous fintech services, spurring competition and increasing users’ options when it comes to managing their own finances.

It will allow Saudi Arabia’s banks and fintechs to work together in developing innovative applications that analyze financial transactions data – with customer consent – to provide niche products and services that cater to their financial needs.

At Fintech Galaxy, we obtained approvals from the Saudi Ministry of Investment (MISA) to open an office and will be applying for an AISP/PISP license for ‘FinX22’ with SAMA once the kingdom’s open banking framework requirements are ready. FinX22 is a unified open API infrastructure for seamless integration between fintechs and institutions with a vision to connect 22 Arab Markets on a single API.

The platform aims to democratize financial services by providing secure interoperability channels between industry players for account aggregation, payment initiation, and cashflow management to lending/credit scoring. And to develop the technology necessary for banks to become compliant with Open Banking requirements.

Spread financial literacy

By opening itself up to Open Banking, Saudi Arabia is also contributing to increased financial awareness among consumers. This includes helping lower-income customers to reduce excessive expenditures, improving savings behaviors, and, in general, encouraging Saudis to have better control over their financials.

The Saudi Central Bank (SAMA) is responsible for managing monetary policy and reserves and supervising the financial sector's institutions, the credit information sector, and the financial technology (fintech) sector. The Capital Market Authority (CMA) regulates the Saudi Arabian Capital Market by issuing required rules for implementing the provisions of the Capital Market Law.

Both regulators are working on increasing the level of financial inclusion in the Kingdom, which in turn is a means of enhancing financial stability, deepening and diversifying financial systems and support structures. At present, there are 155 fintechs registered with Fintech Saudi. Currently under SAMA’s umbrella, there are 29 fintechs operating, including 14 licensed fintechs, and 15 permitted fintech’s in the Regulatory Sandbox. Under CMA, there are 114 authorized capital market institutions and 16 fintechs.

Fintechs with the CMA FinTech Lab are permitted to operate in the market under an experimental environment with the Fintech Experimental Permit period, which has a term of two years to experiment before graduating to being fully licenced under CMA regulations.

Not confined to banking

Open Banking in Saudi Arabia will open up a wide variety of financial services for all industries. For example, it will allow a leasing and lending economy to exist by providing transparency to individuals and companies wishing to tailor their deals based on a customer’s financial health.

For the wider banking system, Open Banking will also lead to greater efficiency. Customers will be able to instantly share their bank data with a third-party, which fosters the adoption of efficient ways to manage financial information and execute transactions. In the longer-run, new technologies will also likely reduce the cost of innovations by providing an easy way to partner with third-party providers.

That isn’t to say that there aren’t challenges. For one, Saudi Arabia must continue to build on its human capital through skill development, beginning with the education system. While initiatives centered on creating a fintech-style curriculum, they are still in their infancy, as are fintech clubs and co-working spaces designed to encourage entrepreneurs and broaden the fintech talent pool.

These challenges aren’t something to worry about – it’s up to us as an ecosystem to make them a reality.