The Middle East is one of the fastest growing cryptocurrency markets, making up 7 per cent of global trading volumes according to ChainAnalysis. It is estimated that the UAE transacts approximately $25 billion each year.
Following the announcement from Dubai and Abu Dhabi’s regulatory authorities governing virtual assets and cryptocurrencies, global players subsequently launched in the market. A survey found that 33 per cent of UAE residents say they have invested in cryptocurrencies, while YouGov data found that 67 per cent of UAE consumers are interested in investing in crypto within five years. However, there are several challenges that the ecosystem will need to overcome to build upon the interest shown by consumers.
When consumers want to start on their crypto journey, the experience can be complicated and clunky. Most exchanges still operate on traditional bank payment rails, like accepting cards or manual bank transfers.
Funds often take days to settle, there are higher fees associated in these transactions, and lengthy processing times can affect currency price changes. More importantly, they are prone to fraud and error. This friction for the consumer experience leads to decreased trust and sense of security in crypto.
Here are four ways ‘Open Banking’ can reduce friction and increase adoption of cryptocurrencies.
By deploying open banking protocols with the use of industry-standard APIs, consumers would need to provide consent and authentication only once at the start of their journey. This delivers a more secure experience for the customer as they are already used to their bank’s native app.
Reducing the authentication steps of entering bank details each time or being re-directed to a third-party site increases trust and speeds up the process. This also allows consumers to connect multiple bank accounts to safely authorize payments or withdrawals of funds.
Faster processing, lower fees
Open banking removes the need for traditional payment rails such as manual bank transfers or card payments. Typically, a user would need to provide their bank details upfront, then initiate a transaction and wait for the crypto company to reconcile and credit the user’s wallet with the value accordingly.
This takes time and customers must bear high transaction fees. The lengthy process can also affect the purchase value of the digital asset due to market volatility and currency change from the time of purchase to the value reflected in the user’s account.
Open banking speeds up the process to near real-time with the use of payment initiation services (PIS) for instant purchase of cryptocurrencies. This reduces the chance of missing investment opportunities while also benefiting from lower fees due to an open banking enabled transfer directly from your bank to the recipient.
Enhanced compliance on KYC
The ability to verify a customer through open banking APIs helps to speed up the activation process and comply with regulatory requirements. Crypto exchanges can use the transactional data to verify the source of funds going in and out of the platform to regulators.
Account information services (AIS) enabled through open banking can be beneficial for all stakeholders. Linked customer accounts can provide platforms with a better view of a customer’s networth, debt obligations and spending behaviour. The data can be used to make personalized recommendations for purchase of assets, options trading, and crypto lending.
Variable recurring payments (VRP) can also be set up whereby customers can consent to depositing a specified amount at regular intervals to automate investments into their crypto portfolio.
Possibly, the most important part of the future roadmap for crypto adoption is the ease of payouts. Crypto operators face operational delays as they must get approval from banks manually every time a customer wants to cash out their digital currency or asset.
Simple actions such as withdrawals or transfers into their fiat bank accounts can become cumbersome. AIS can seamlessly verify, and cross-validate customer accounts enabling smoother operations for the exchange and quicker settlements into a user’s bank account.