The Evolution of Open Banking in the Gulf Cooperation Council Countries

Since its introduction to the British retail banking market in 2016, following an investigation by the UK Competition and Markets Authority, Open Banking, a regulatory and technical framework mandating or facilitating the secure, standardized sharing of customer-permissioned payment account data held by banks with authorized Third-Party Providers (TPPs) through Application Programming Interfaces (APIs), has expanded to various regions of the world, including the Gulf Cooperation Council (GCC) countries. As a part of their national economic visions aimed at reducing dependence on revenue generated by the exploitation of natural resources, attracting foreign direct investment, and diversifying their economies, the GCC states have embraced the digital disruption affecting the banking sector worldwide. They view Open Banking, alongside the Fintech industry, as an opportunity to transform the Arabian Gulf into a hub for banking and financial services across the Middle East and North Africa (MENA) region and beyond. The Kingdom of Bahrain has emerged as a pioneer in this field, having been the first GCC state to establish an Open Banking regulatory framework. In December 2018, the Central Bank of Bahrain (CBB) issued Open Banking norms as a section of the CBB Rulebook. Following Bahrain, Saudi Arabia took significant steps towards Open Banking. In January 2021, the Saudi Arabian Monetary Authority (SAMA) launched an Open Banking initiative to drive economic growth and maintain financial and monetary stability. This initiative consists of a three-phase approach, that is, a design phase which involved devising the ecosystem and defining the Open Banking governance; an implementation phase, characterized by the development of the defined frameworks, technology building blocks, and rollout activities, including testing with financial market participants and enhancing customer awareness; and the go-live phase, with the official launch of Open Banking. Other GCC countries, such as the United Arab Emirates, have initiated strategies to promote the use of Open Banking services later, but have rapidly evolved to remain competitive in the GCC financial landscape and have recently adopted Open Finance regulations. In addition to implementing regulatory frameworks, the Arabian Gulf states have encouraged market-driven initiatives, like the one from Tarabut, the first regulated Open Banking platform in the MENA region, which, at the time of its launch, developed an innovative software protocol known as an Application Programming Interface (API) to connect banks and Fintech companies in Bahrain, Saudi Arabia, and the United Arab Emirates. Open Banking is gaining momentum in the GCC countries largely because it is perceived as a means to enhance transparency, efficiency, and competitiveness in the banking market, thereby generating new revenue streams. Although no harmonized framework exists at the regional level, which has led each country to implement its own approaches through regulation or market-led practices, all the stakeholders in the ecosystem recognize that Open Banking is crucial for enhancing financial growth and implementing economic diversification strategies. Additionally, Open Banking, alongside the provision of Fintech services, is seen as a tool for leveling the playing field between banking and non-banking institutions and promoting financial inclusion. In this context, the chapter describes the evolution of Open Banking within the GCC, focusing on the various initiatives undertaken by the different governments and the roles and responses of key economic operators in the Open Banking market, also in the light of the connection between Open Banking and the Fintech industry in the region, analyzes the relationship between Open Banking services and enhanced financial inclusion, and discusses the future policy and enforcement developments needed to create ecosystems conducive to the development of cutting-edge banking and financial services in the Arabian Gulf states. The overarching goal of the chapter is to promote an understanding of the current status of the art of Open Banking in the GCC while resonating on the possible trajectory of Open Banking services in this strategically important region of the world.