Jorge Camarate

By: Jorge Camarate*
How open banking can transform payments in Saudi Arabia

With open banking going into effect next year in Saudi Arabia, incumbent banks may lose their tight control of customer data and their near monopoly over payment services. In this new environment, they must rethink their business models to remain relevant and competitive. That means finding ways to improve their own offerings and partner with financial technology (FinTech) and third-party institutions to create value for customers.

What open banking does is mandate banks to expose their systems, such as for payment initiation, and data, such as account information, to third parties with the necessary customer consent. This allows those third parties to build products and services for the financial institution’s customers. These lower barriers to entry for start-ups result in increased competition and innovation. Already Bahrain, the EU, Hong Kong, and the UK are developing, or have implemented, open banking regulations. In other markets, such as Singapore and the U.S., regulators are acting as facilitators, providing non-binding guidance and coordination.

In Saudi Arabia, the central bank released an open banking policy in January 2021 as part of its bid to diversify financial services. This is a goal set in the Financial Services Development Program (FSDP), which is part of the national development plan, Saudi Vision 2030. This follows a series of initiatives since 2018 to promote financial sector innovation nationally and regionally. In particular, payment innovation has accelerated following the adoption of the FSDP. Since 2018, the number of Saudi FinTech start-ups has gone from 10 to over 60, of which about 40% operate in payments.

Several factors make the Saudi market ripe for disruption by open banking. The relatively small number of banks means that adoption and standardization could occur faster than in other markets. The country’s relatively young population has adopted payment technology enthusiastically. The budding FinTech ecosystem has strong backing from the government and the central bank. Moreover, the country already has a state-of-the-art payments infrastructure that Saudi Payments, created by the central bank, is continuously modernizing. In particular, Saudi Payment’s Electronic Bill Presentment and Payment system, known as Sadad, has facilitated precisely the account-to-account transfers that can become a launchpad for open banking.

There remain some areas for improvement. For example, processing of payment from cards, which facilitate the transfer of funds between buyers and sellers, is not yet real-time. In the best-case scenario, merchants receive their funds at the end of the day. Sometimes they wait several days.

Open banking will therefore encourage competition and provide a mixture of challenges and opportunities for incumbents. They will have to abandon the traditional “do-it-yourself” model in which the bank is the sole producer and distributor of products and services. Instead, they will move to a model in which banks continue to develop their own products and services but use FinTech and third parties as distributors, or the banks provide products and services created by FinTechs and others. To stay relevant to their customers, incumbents will need to exploit transactional data to enhance their services and offer new products, such as “buy now, pay later,” account aggregators (that collate account information), and personal financial management. 

Payment start-ups, so-called “paytechs” are in a strong position. They can gain valuable access to customer information and use it to enhance products and improve the customer experience. There are already three such start-ups in the region, Lean (Saudi Arabia), Dapi (Dubai), and Tarabut Gateway (Bahrain). Their efforts will pave the way for more innovation, better-tailored products, and increased market transparency. 

While this is encouraging for the burgeoning paytech ecosystem, competition will also affect start-ups and established players. Paytech incumbents, such as stc pay, Geidea, Sure, and Salla, will also need to adapt to the changes from open banking. In particular, small start-ups, which until now have struggled to find a sponsor bank to offer their services, will have more control over their destiny. Such companies may eventually threaten some of today’s FinTech leaders. Another force disrupting the ecosystem will be the entry of attract global, established FinTechs eyeing the fast growing GCC region.

While competition will be a major element in promoting open banking, collaboration will also be needed. Banks, the central bank, and payment service providers must cooperate to gain public trust. The year ahead will be pivotal. First movers will help set the stage and write the rules for open banking, potentially emerging as winners.




*Jorge Camarate, partner; Dr. Antoine Khadige, principal; and Bernadine Clark, senior associate, with Strategy& Middle East, part of the PwC network.

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