What can we expect from financial services across MENA in 2023?

The Middle East is different – it’s one of the few regions where affordable growth capital is readily available.

It’s also on a mission to transition to more sustainable industries, including financial services.

So what can we expect from financial services in MENA in 2023? We’re not going to try to look into a crystal ball – real innovation is impossible to predict – but we can talk about some trends and about one certainty: there will be a lot of interest in fintech.

Financial services is one of the last business segments to be disrupted by technology.

Today’s music industry bears little resemblance to the structure that existed before 1999, when Napster opened the floodgates to digital audio file sharing. Financial intermediation, on the other hand, has yet to be radically changed.

That’s partly a function of regulation designed to protect the consumer. But regulation can cut both ways. Regulators want consumer protection, but they also want more choice, cheaper services and lots of innovation. That means the benefits of technology are coming to finance.

Open Banking is coming 
One development that looks set to start making waves in MENA in 2023 is open banking.

It’s still in its early days – Bahrain is the only country in the region that has mandated open banking – but the UAE and Saudi Arabia are expected to publish legislation soon, with Egypt, Jordan and Kuwait to follow quickly after that.

Open banking allows consumers to share their current account data with third-party fintechs (including banks) that offer innovative services. For example, consumers could get access to account to account payments, or to an automated tax and accounting tool.

The idea is that they will be able to pick and choose from an ecosystem of financial services that make those services cheaper and better.

The UK was one of the first regions to launch open banking, but uptake has been disappointing. One of the reasons why is that it’s quite clunky to use. Another is that consumers are responsible for checking that the entity with which they share their data is authorised by the regulator.

So, apart from some particularly compelling use cases, like tax and accounting tools, it’s easier for most people just to continue using the payment cards they are used to. UK authorities are due to issue an update on the future of open banking in Q1 this year.

Arguably, the MENA region can learn from the experiences of the UK. As account data is shared via application programming interfaces (APIs), regulators will need to ensure that banks don’t drag their heels on putting good APIs in place.

Next, they will need to make sure that the system is easy, secure and intuitive for consumers to use.

The first open banking platform in the region – Tarabut Gateway – already connects a regional network of banks and fintech through a universal API. That should make it easy for those firms to set up compliant open banking services.

What sort of innovation could open banking bring to the region? Meem, which is a digital Shariah-compliant bank that began operations in Bahrain in 2018, already offers open banking.

New, Shariah-compliant financial services promise to be popular right across the region.

Embedded finance
Open banking will also help with so-called ‘embedded services’. Banks can opt to provide ‘white label’ banking services to non-banks, which then embed those services in their own proposition. It’s not a new idea.

Companies such as retailers and car dealerships have been offering banking services like financing for many years, with the underlying banking done by a regulated financial entity. What is new with open banking is seamless data sharing.

As a recent white paper on embedded finance co-authored by The London Institute of Banking & Finance pointed out, it can make launching new and innovative financial services up to 10 times faster
than would have been possible for a traditional bank alone.

Testing and building prototypes and trying out new designs are all easier and cheaper when a nimble fintech has access to the account data.

Open finance
But could some regulators in the region decide to leapfrog open banking – and avoid some of the problems seen in Europe – by going straight to open finance?

Like open banking, open finance enables consumers to share financial data with third-parties via APIs. But open finance covers all financial data – not just bank current account data. That could lead to an explosion of innovative financial services that bring together all of the financial data on a consumer or an SME to provide something truly new.

In particular, it could help firms build more sustainable financial services.

So, as 2023 starts, it’s all to play for in a region that has the luxury of both a financial services industry that is set to innovate and capital to fund that innovation.

Kareem Refaay is the managing director of The London Institute of Banking & Finance