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Saudi Arabia is set to further open up its domestic banking and financial sector for global competition, with the country’s central bank expected to announce new guidelines for online payment initiation for entities in the sector early next year.
Under an open banking-enabled payment initiation service, customers give consent for a third-party Payment Initiation Service Provider (PISP) to connect to their bank account to initiate payments on their behalf.
The proposed policy initiative is expected to create major business opportunities for international banking, card issuers and fintech companies in the Saudi market.
“While there is likely to be an interim or patch release soon, the second major release is due in early 2023 and is expected to include payment initiation,” Chris Michael, co-founder and chief executive officer of Ozone API who worked with the Saudi Central Bank (SAMA) to lead the development of its open banking standards, said in a report.
“Beyond this, the open banking framework will keep evolving to enable more innovation and increase value to banks, fintechs and end customers,” Michael said.
“This will require SAMA to align further with organisations such as the Capital Markets Authority, which is responsible for savings and investments,” Michael said.
Michael said he would also like to see Saudi Arabia working towards a framework of global interoperability, starting with other markets across the region.
The CEO of Ozone API, which also led the development of the UK open banking standard, said it would be interesting to see these regulators cooperate and collaborate more on their open banking initiatives.
“There is a big opportunity for firms that provide services that can be portable across different markets in the region,” he said.
Michael said there are also some challenges around the availability of cloud hosting services in the region, which is limited at the moment.
“For example, if Amazon, Google and Microsoft introduced cloud services into the kingdom, this would be a boost for financial services as well as digital services in general,” he said.
“This evolution may well require updates to the policy,” Michael said.
The seasoned banking reform expert, however, said though Saudi Arabia was serious in opening up the domestic financial sector in line with the best global standards as it is keen to emerge as a regional and global financial sector hub, the process takes time as each phase of the reform process needs to be tested and perfected.
“Working with SAMA has been very positive and invigorating. It is a single regulator, with a clear vision and focus, so has the power to make bold decisions. This means things can be done more quickly than, say, in the UK where, for instance, it took several years to introduce variable recurring payments (VRPs),” Michael said.
He pointed out that open banking has only just started in the kingdom, with the initial release of the framework published last month and focused on account information and letter of guarantee use cases.
“This first phase still needs to be completed,” he said.
SAMA is still to finalise and publish the licensing framework for third parties.
Banks and fintechs also need to go live with their implementations, Michael pointed out.
Michael said open banking in Saudi Arabia is aligned with its Vision 2030 goals, which include its ambition to become a significant regional and global financial hub.
He also said the Saudi open banking framework contains innovations which other regulators and markets will look to copy and build upon.
“However, there are some challenges, such as data probability. It is currently difficult for third parties to provide applications that aggregate customers’ data if they have accounts in Saudi Arabia and others in Bahrain, Dubai or another country, market or region,” Michael said.
“Open banking in Saudi Arabia is a major step in the right direction, but there is still a long journey ahead,” he added.
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