From open banking today to open finance tomorrow
"Mirna Sleiman, CEO of Fintech Galaxy, explains how sectors such as education, manufacturing and healthcare can benefit from an API-based financial layer"
Over the course of the past several years, the eyes of the regional – and indeed, global – financial sector have been firmly fixed on the concept of ‘open banking’. It’s no mystery why: Open banking is, simply put, a banking practice that provides third-party financial service providers standardized access to consumer banking, transaction and other financial data through application programming interfaces (APIs).
Without a doubt, open banking has been a major source of innovation that has, in many ways, reshaped the industry. Fintech Galaxy’s own Open Banking API sandbox has interacted with more than 1,000 cutting-edge fintechs from around the world, many of whom have successfully designed apps and delivered proof of concepts (PoCs) that eliminate customer pain points for financial institutions across the industry.
In my opinion, however, it’s time to get over our fascination with open banking and look towards the future of financial services as a whole. Without a doubt, that future is open finance.
Building on the successful foundations set forth by open banking, open finance broadens the idea out to include insurance, investments, exchanges and pensions.
While open banking has also shown the benefits for partners in terms of lower costs, increased efficiencies and customer insights, better retention and new markets, open finance creates a whole new world of exciting possibilities. Customers will be able to go far beyond the simple sharing of data among financial institutions to an open economy where sectors such as healthcare, manufacturing and education benefit from an API-based financial layer.
Customers will be able to easily complete a wide variety of tasks – ranging from the swift transfer of funds to insurance policy renewal services, get faster, cheaper finance/premiums or tailor-made debt advice. From the perspective of SMEs, open finance innovations – such as enhanced data integrations and payment initiations – can help improve the rate at which they are paid for goods and services. In a region such as the GCC and Middle East, where this is a chronic issue, open finance will pave the way for a multitude of solutions.
The time to act on this trend is now. The future of open finance is full of promise. According to Allied Market Research, the open banking market alone will be worth $43.15 billion by 2026, growing up at a compound annual growth rate (CAGR) of 24.4 percent.
And while it remains too early to tell exactly how big the market for the broader term of open finance will be, at Fintech Galaxy we’ve already laid the foundations through the recently launched FinX22, the region’s first cross-border cloud-based innovation platform aimed at driving collaboration, fuelling innovation and creating integration between financial institutions and fintech firms. Over 2,000 fintechs from more than 70 countries are currently using FinX22’s open innovation marketplace, connecting to the API sandbox and delivering innovation that will transform the future of our region’s economy.
These numbers are only bound to grow as the Middle East’s broader fintech industry comes of age. To date, Middle Eastern fintech start-ups are still receiving only a small fraction of all venture capital fintech investment across the globe, although this is projected to change rapidly. Regulators from Bahrain to the UAE, Saudi Arabia and Egypt are putting the polices and frameworks in place for a more innovative and collaborative financial sector.
As the region sees a shift from open banking towards open finance, it is not beyond the realm of possibility that universal adoption will take place in just a few years’ time. With that in mind, make no mistake: it is the early movers that will reap the most rewards. The time to act is now.