Banking is poised to change

After the path-breaking launch of the regulatory sandbox and the introduction of cryptocurrency regulations, Bahrain has added yet another first to its cap of success- this time in the form of the revolutionary ‘open banking’ standards that is poised to change banking forever. Mandated last year and forced into action on 30 June 2019, the regulation made Bahrain the first country in the middle east to adopt ‘open banking’.

The new system debuted in the Kingdom with the National Bank of Bahrain adopting the open banking infrastructure of Tarabut Gateway - the first company to graduate from the CBB’s regulatory sandbox last year. Ithmaar Bank, Khaleeji Commercial Bank (KHCB) are also leading the trend among GCC banks by announcing their readiness. The move also comes at a time when the country is fast adopting the 5G networks that guarantee faster speeds thereby allowing for a smarter and more connected world. To understand better, let us look into the saving habits of a person.

A person may well begin this with a savings account during his school/college days, which eventually gets turned into a salary account. Eyeing higher education means a new account in another bank for education loan. As life moves on, then comes the turn for a home loan, car loan and even a personal loan account. Probably, many of us by now know how hard it’s to keep track of all these credit/debit accounts.

What if all these accounts are integrated into an open Application Programming Interfaces or API that let a third party app read them and export it into a mobile app. If granted permission, the app can also transfer your funds to other accounts. Much better, isn’t it? Forex conversion is another scenario. With the physical boundaries are shrinking, individuals now communicate, explore, shop and work globally.

Meeting requirements for quick money in various currencies are still a tedious job. Open API could be a saviour in such situations too. API could help in providing current and historical foreign exchange rates, based on users permission, it could even get the best conversion rates. Open banking could also help lenders get a more accurate picture of a consumer’s financial situation and risk level to offer more appropriate loan terms. It could also help consumers get a more accurate picture of their finances before taking on debt.

Limitless possibilities

Yes, the possibilities are limitless. As EDB says, “Open Banking will make access to financial information easier, faster and tailored to the needs of customers.” In short, open banking is an umbrella term for a range of changes that will allow trusted third parties to access your bank account information, including balances and transactions. Sounds dangerous? It’s not as it is done in much the same way as permission is granted to apps and websites to access a Facebook profile.

Important thing is that you are in control of whether to give permission or not. Once access is given to your bank account, you will be able to see this permission from a banking app or website and remove it at any time. Open banking is thus paving the way for a new banking environment - one where customers have more power and can immediately switch between service providers. 

Addressing fear factor

Addressing the fear factor is the key here. As Rasheed Al Maraj, Governor, Central Bank of Bahrain said, “When we first started looking at fintech, the biggest hurdle was the fear factor. For any regulator to think about change in the landscape can bring anxiety because naturally, we target certainty, so we avoid the risk that can prevent financial instability.

But what we decided at the CBB is that this coming technology is of immense benefits to the economy of Bahrain, that’s why we took the dive and made the necessary regulations and pushed the industry to start looking at this and introduce changes we think will help the economy at large.” According to Accenture, nearly 20 per cent of Banks globally have already invested in open banking-related initiatives-77pc will do so by 2019.

This is exactly where the CBB has laid the groundwork for with its open banking module. (http://cbb.complinet. com/net_file_store/new_rulebooks/v/o/Vol_5_Ancillary_OB_Dec_2018.pdf) Presently, two types of regulations are available on open banking: Account Information Service Provider (AISP) for accessing and aggregating account information, and Payment Initiation Service Provider (PISP) for online payment services.

The developments also mean that banks now need to operate in the same space as new-age digital companies and need to always give customer experience the top priority. This will give customers more power to switch between providers and pick new products at their wish.