UAE, Is It Time for Open Banking?
Updated: Dec 7, 2018
In this Article, I want to discuss with you the Open Banking Regulation and how it helped to develop Fintech in UK. Also I want to bring to your attention the benefits of this technology to the UAE booming fintech.
The United Arab Emirates’ (UAE) leadership has always believed innovation to be the future of human investment. It is a one-stop destination to experience the the sci-fi-esque city comprising of iconic skyscrapers, the beauty of its palm-shaped islands, the city-sized malls, the indoor ski slopes and of course the palatial beach resorts. The UAE’s Dubai is most commonly known for its transportation as well as a commerce center. And this is the country which never slumbers, sleeps and lags in any sector.
Now when it comes to the country’s involvement in innovation and development in its technological area, it continues to position itself as a base for the business which is indulged in cutting-edge technology. Its technologies range from artificial intelligence and robotics to blockchain integration and driverless vehicles. The reason behind this involvement is, the UAE is among the pioneers who use its technologies in the public sector. Moreover, it creates accommodating structures and regulations for new up-and-coming industries. Coming to the UAE's finance sector, this has particularly seen a notable enhancement with the use of technology over the past decade. Especially the fintech sector has persistently drawn a lot of attention from various regional and institutional investors along with the traditional financial players.
In this particular article, let us take a tour towards how the open API will help in the development of fintech sector in UAE, and take a view at how important this is by comparing it with the UK’s open API banking. But first, a quick glance toward what is this open API banking all about.
What is Open API Banking?
The open banking is a system through which the providers can access your financial information. It helps the customers as well the small to medium-sized business - getting a better deal by providing a new path for accessing the latest products and services.
With the usage of Open banking, you get a better and a detailed understanding of your accounts and this also helps you discover new ways by which you can make the most of your money.
Now merging the API with open banking gives you a summary of all your transactions and provide you predictions on future spending. This in return gives the fintech startups customer an insight without having to build up their own teams.
Let’s take a peek at some of its perks:
1. A clearer view of your finances:
The open API banking allows you to check all your finances in one place. Which in result helps you fix your budget, gets you the best deal and assist you in shopping the products and services which is ideal for you. You can opt for a regulated app or a secured website which will access your current account information.
2. Quick, easy and direct payments:
The API open banking system allows you to make payments directly from your bank or the building society.
3. Shop around:
Open API banking is an alternative for the ways you use to compare prices on the website. With this type of banking, you can get results based on what you actually spend providing if you select to give a regulated price comparison website access to your account information.
4. Safest innovation:
Most of the apps and websites use the technology called screen-scraping, which requires you to provide them with your login details and password. And this screen -scraping gives them access to your account and help them analyze your financial information as well as make payments on your behalf. But with the open API banking, you are in safe and secure hands. The open API banking never asks from you to share any of your login details or password, other than your own bank and building society.
5. Freedom of choice:
With the Open API banking, you are in control of everything. You can pick the services which you want to use as well as select the providers whom you want to access your information. Plus you can set your time limit and decide how long your providers can access your data.
6. Government-led change:
Nothing can assure you more than this, as the sole purpose of the government is for the betterment of the country along with its people, thus the Open API banking has been set and approved by the government.
For instance, in the UK each of the providers who opt for the Open API Banking must be regulated by the FCA or European equivalent before they could offer their products and services.
UAE VS the UK
According to 2018 Global Payments Insight Survey: Retail Banking, nearly 90 percent (87) of the banks globally plan to move forward with the idea of open APIs. This benchmark includes the responses which were collected from executives all across the financial institutions, merchants and billing organizations like the consumer finance and insurance. And this research also throws light on the emphasis on real-time payments, which has doubled from 31 percent to 62 percent within the span of 12-months.
Now the study also included some other findings, a couple of them are:
In the open banking sector, the European banks are at the led by 92 percent which is followed by 86 percent in Asia, and 82 percent in the Americas. And this has clearly stated that the development of the APIs have increased by 47 percent within one year and more than 70 percent (73) of the banks were willing to open up their APIs to a third party developer.It is claimed that the European banks had the most proactive mindset when it came to the Open API banking with a percent of 79, which is followed by Asia at 74 percent.
The above statistics is enough to prove the growth of API. It is clearly visible that the UK is leading the trend of following the API and the fintech.
Now one of the reasons for this rapid growth in UK's API banking system is that it has been made compulsory for them to follow the API. As the new regulations have come into force all across Europe in 2018 with the Second Payment Services Directive (PSD2) and open banking in the UK - all the financial services companies, may it be big or small, and all the multinational banks along with the nimble startups, have gotten busy into getting the grips with the opportunities that these new regulations create.
At present, the major banks in the UK are scrambling fast not only to comply with the regulation by opening up their APIs, but they are also looking to the leverages supplied by it.
For instance, the HSBC bank in the UK, which follows the PSD2 has launched a Connected Money app which allows their customers to see all of their accounts on one screen, regardless of them being with a rival bank.
When it comes to the Asia-Pacific market, according to the Finastra inaugural Open Banking Readiness Index survey, Singapore has currently topped the race in the open banking readiness. The survey was performed across 14 markets in the region which showed that Singapore (8.1/10) has the highest adoption of APIs, bank third-party partnerships, and advanced data-based transformation and innovation. And this was followed by Australia (7.1/10) and Hong Kong (6.6/10) as the second and third leading markets in Open Banking readiness in the Asia Pacific.
Now let’s focus a bit on this open API banking and fintech specifically in UAE.
Referring to the Fintech innovation, the executive vice-president of the Fintech Hive at DIFC stated that - the future of finance is headed towards digitization.
Open banking is not yet a mandatory in the UAE . However, the rapid growth of Fintech shows that the in the near future we will see significant regulatory shift toward open banking.
In 2017, the financial technology (Fintech) sector of Dubai had made a real progress and to build more on this, all the financial institutions of UAE have said that they are all set to increase their investments in the internal innovation along with the disruptive technologies.
Now what differentiates our UAE from the other countries in the region is the fact that it is always one step ahead. You can find a lot of initiatives which have been supporting this trend across the whole MENA. But the UAE stands out with its own innovative strategies and has its own innovative agendas, which as a result has helped them in the adoption of the technologies that will improve the services which are provided to the consumers. And this is the type of ecosystem has supported the rise of the Fintech industry in the entire country.
In the present scenario, we can see that the technologies like the Blockchain have been contributing towards the visions which are set by the country's leaders. Thus it is quite visible that the developments in UAE around the areas such as mobile payment technology and the introduction of blockchain technology have ignited the public interest in fintech.
Now although the Global centers such as Singapore, London, and New York are stated for being superior in holding the hubs of the financial technology (Fintech) start-ups along with the global banks which are investing in the blockchain-led business models, the region of Mena over this period of time was considered to lay its foundation towards building the momentum. And this turned out to be springing with innovation across the GCC in a particular area which fostered the innovative agenda and made use of the blockchain across various industries, in particular with the governments.
Although the rate of fintech innovation when it comes to the GCC sector has experienced a rapid increase in the past few years but still there is a necessity of some extra work on the ground which can truly help in revolutionizing of the banking industry. There are various ways through which the fintech innovations can be adopted by the banking sectors, and this adoption has seen a high inflation along with the banks collaborating so as to build shared-cost fintech solutions in the future.
If we consider the value of this Fintech investments worldwide, in 2014 it rounded up to approximately $10 billion and some of the experts have suggested that this number will reach up to $46 billion by 2020. According to a report by the Magnitt's annual State of the Middle East and North Africa Funding, it has been stated that 2017 is proved to be a record year for the Mena startup ecosystem. The report also highlighted that the investment worth $560 million was made in over 260 Mena startups, thus in 2017, the total number of fintech startups in the Mena region was valued at $66.6 million.
With 70 percent of all the investment amounts along with 37 percent of transactions, the UAE continues to be the dominant market in the region. The E-commerce, as well as the Fintech, has maintained its position at the top of the investment deal flow, and both accounts for 11.9 percent of the total deal.
In the UAE, the number of Fintech startups continues to grow as more businesses realize the potential and opportunities that exist in the market. And proving the superiority, Dubai is positioning itself as a FinTech hub for the Mena region. As it has been recently established of a $100 million – Fintech focused fund by the DIFC, so as to increase the development of the financial technology.
Thus it is evident that the UAE’s Fintech industry is quite dynamic, the reason being that there is less regulatory tape as compared to other locations such as the US and Europe.
Role of API in Fintech
The above-mentioned growth of UAE in its fintech startups is all because of the adoption of APIs in its system. Although currently, the UAE might not possess a top ranking when it comes to opting the Open APIs, but still when you see the innovation and the growth with its Fintech, it is simply unbeatable. The UAE has not just limited itself with the API banking, but it has also used the fintech with regards to Blockchain and Cryptocurrency and has observed a significant change in its financial services sector which will need to evolve so as to keep up with the rapid changes in the present time.
With the use of APIs in the fintech, entities have transformed products and services to integrate a new technology. And this has opened the path for the new fintech start-ups and they are encouraged by the use of incubators, which is best known for providing a suitable ecosystem to try out new ideas in a shortened sale's cycles which range from three to six months.
The UAE’s fintech industry has seen a great benefit from the use of incubators which is also known as accelerators or sandboxes.
These sandboxes are the platforms that consist of over 200 APIs and 900 endpoints that covers the retail, corporate and SME. This has been launched by the Dubai bank Emirates NBD so as to enable open banking collaboration with fintech firms.
The UAE’s fintech industry has set itself on the map due to the availability of the accelerator programs - which has provided the startups with a chance so that they can suggest their fintech projects as well as implement their offerings through mentorship opportunities with partners and with large financial institutions.
With the help of the accelerator API programs, the fintech authorities have the scope to discover the hidden talents within the emerging financial technology industry and help in addressing the requirements of the region's evolving financial services scene.
Now as the UAE’s fintech industry continues to grow, the regulators, accelerators, and businesses should work together so as to encourage innovation, and it should enhance the necessary areas of regulatory oversight. The requirement of this fast-paced nature of fintech is a greater cooperation between all relevant stakeholders.
Thus the APIs are a necessity in the fintech revolution for the transformation of financial service sectors in UAE. And with access to more open APIs, the UAE can become a leading light in the accelerating fintech sector.
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