Open banking drives financial innovation in the Middle East

The financial landscape in the Middle East is transforming through open banking and new regulatory frameworks that enhance competition, promote financial inclusion, and empower consumers to seek greater control and transparency.

This financial technology allows third-party providers to access consumer banking data with consent. This concept began in Europe with the European Union’s  Payment Services Directive (PSD2) in 2015 and the United Kingdom’s  Open Banking Standard in 2017. These frameworks aimed to encourage secure data sharing, boost competition, and foster innovation, ultimately delivering more personalised financial services to customers.

The open banking market is expected to grow significantly, with an annual rate of 27.4% from 2024 to 2030, according to Grand View Research. By 2030, the market is expected to reach $135.17 billion. In the Middle East,  an IBS report forecasts the open banking market could reach $1.17 billion in 2024. Open banking has had a substantial impact on the financial industry. Secure application programming interfaces (APIs) now enable third-party providers to access financial data, moving away from banks keeping data exclusively within their systems.

The adoption of open banking in the Middle East is gaining momentum, driven by regulatory support and a growing fintech ecosystem.  

Bahrain pioneers open banking

Bahrain is a leading player in the open banking movement in the Middle East. The Bahrain Economic Development Board (EDB) predicts there will be 130 million users worldwide by 2024. The market, valued at $25 billion in 2023, is expected to grow nearly tenfold to $227 billion over the next decade, underscoring the region's potential in open banking.

In 2017, Bahrain took a significant step with the Central Bank of Bahrain (CBB) launching the region’s first regulatory sandbox, providing fintechs a controlled space to test their innovations. This was followed by the 2018 issuance of the CBB’s Open Banking Framework (OBF), developed with Deloitte and in consultation with local banks. The framework requires banks to allow data-sharing with third-party providers, provided consumers give explicit consent. The initiative has attracted fintechs to Bahrain, including Tarabut Gateway, which leverages the framework to connect traditional banks with fintechs, promoting seamless data-sharing and enhancing service delivery.

Tarabut Gateway, one of the largest open banking platforms in the Middle East and North Africa (MENA), recently partnered with BENEFIT, Bahrain’s leading fintech firm and national payment infrastructure operator. Through Tarabut's Identity Verification and a regulator-approved API, BENEFIT app users can now access open banking services without switching apps, providing a cohesive and streamlined user experience. This partnership reflects the benefits of open banking for user convenience and product access.

“This partnership leverages Tarabut's extensive experience and BENEFIT's capabilities, pushing the ecosystem forward,” noted Tarabut founder and CEO Abdulla Almoayed. This collaboration aims to boost user conversions and ensure consistent access to a wide range of financial products.

 Industry reception and growth potential

The success of BENEFIT is evident; its electronic fund transfer transactions reached BHD 16.4 billion ($43.5 billion) in the first half of 2024, reflecting a 14.5% increase from the same period in 2023. This progress demonstrates the positive impact of open banking protocols in fostering innovation and offering consumers personalised financial services. Additionally, the BenefitPay app has revolutionised peer-to-peer and business payments. This instant payment solution has transformed the payments sector, with a 73% compound annual growth rate (CAGR) surge in transaction volume over the last three years.

Abdulwahed AlJanahi, chief executive at BENEFIT said, "We are showcasing our contributions to Bahrain’s growing fintech ecosystem, reinforcing our commitment to enhancing digital payment experiences and staying at the forefront of the fintech revolution in support of Bahrain’s vision for a digitally empowered future."

BENEFIT has partnered with Zphin, the tech arm of PB Fintech Limited, and Atyaf eSolutions to launch Bahrain’s first Consumer Lending and Insurance Marketplace. Integrated within the BenefitPay app, the platform leverages open banking to broaden financial access across the Kingdom.

Yousif Alnefaie, deputy chief executive at BENEFIT said, “By integrating lending and insurance services into the BenefitPay app, we are not only offering greater convenience but also empowering individuals to make smarter, more informed financial decisions.” The marketplace enhances consumer access to credit and insurance through modern underwriting, promising transparency and competitive options in financial services.

Khalid Humaidan, governor of the Central Bank of Bahrain (CBB), emphasised the vital role of fintech in Bahrain's economic diversification strategy. He said, "The fintech sector is a critical component of our priorities, and by investing in it, we are investing in the future of Bahrain’s economy."

Humaidan highlighted the Kingdom's commitment to creating a supportive regulatory ecosystem, essential for enabling entrepreneurs, fintechs, and traditional banks to compete globally. This approach positions Bahrain as a leading fintech hub, driving sustainable economic growth. With the financial sector as the largest non-oil gross domestic product (GDP) contributor in 2023, Bahrain's regulatory support has established it as a launchpad for open banking providers like Tarabut, Spire, and Fintech Galaxy.

Tarabut’s recent acquisition of UK-based Vyne underscores this momentum. Vyne’s real-time account-to-account (A2A) payment capabilities align with the upcoming Payment Initiation Services in Saudi Arabia and the evolving Open Finance regulations in the UAE, enhancing merchant-consumer transactions across sectors. Almoayed remarked, “This acquisition is key to our growth strategy, addressing regional payment challenges for merchants and consumers alike.”

Vyne CEO Karl MacGregor said, “Open banking solutions deliver the speed and convenience consumers demand.”

As open banking frameworks evolve in the Middle East, banks' support for fintech partnerships and consumer adoption is increasingly evident. Bahrain's proactive approach suggests a positive outlook, as demonstrated by Tarabut’s collaborations with Visa CEMEA and Alinma Bank in Saudi Arabia, which underscore open banking's transformative potential.

"By partnering with Tarabut and integrating our global payments network with their open banking platform, we are poised to deliver innovative financial services that cater to the unique needs of the MENA region," said Otto Williams, SVP and head of product, partnerships and digital solutions, Visa CEMEA.

Abdulmajeed Alessa, open banking lead at Alinma Bank acknowledged Tarabut’s role in achieving KSA Open Banking Framework certification. "Tarabut has played a vital role in helping Alinma Bank successfully complete the KSA Open Banking Framework certification for account information services. Their in-depth knowledge and dedication have been paramount in navigating the intricate requirements of this certification. The  seamless collaboration between our teams reflects Tarabut's commitment to fostering innovation and advancing the banking industry in the Kingdom," Alessa said.

Saudi Arabia enhances financial ecosystem

Saudi Arabia is also advancing in open banking, led by the Saudi Central Bank (SAMA). SAMA released the second phase of its Open Banking Framework (OBF) in September, focusing on Payment Initiation Services (PIS).  This phase aims to boost the fintech ecosystem, improve consumer experience, and expand product offerings.

SAMA noted, "This trend underscores our commitment to promoting financial inclusion and innovation."

The Open Banking Lab, a technical testing environment, enables banks and fintechs to develop and certify their open banking services, fostering a culture of innovation. SAMA's Open Banking Programme, part of the National Fintech Strategy under Saudi Vision 2030, aims to establish the Kingdom as a global fintech hub. Approved in 2022, the strategy seeks to economically empower individuals and society.

SAMA approved three fintech startups—XSquare, NeotTek, and MoneyMoon—to operate in its regulatory sandbox, now totaling 19. This sandbox allows companies to innovate and test solutions in a controlled environment, supported by the Open Banking Lab with resources like API simulations and certification suites. Through this collaborative ecosystem, SAMA aims to enhance consumer choice, introduce new financial products, and improve market transparency via open data sharing.

As Saudi Arabia continues its push for digital transformation, the focus will remain on building a robust regulatory environment to mitigate risks while driving financial innovation.

UAE advances open banking efforts

UAE is positioning itself as a leader in the fintech landscape with the introduction of the Open Finance Regulation by the Central Bank of the UAE (CBUAE). This regulation mandates the participation of all licensed financial institutions (LFIs) in the open finance framework, allowing them to access customer data and initiate transactions with user consent. This initiative was officially announced on 27 June 2024.

Khaled Mohamed Balama, governor of  CBUAE said the introduction of Open Finance Regulation establishes global standards for open finance and accelerates the adoption of digital financial services. This initiative enables LFIs to harness consumer financial data, empowering consumers to obtain the best financial solutions, which will drive competition and innovation. This framework aims to enhance service delivery and drive innovation across the sector, aligning with the UAE’s broader goals of economic diversification and digital transformation.

CBUAE has launched significant initiatives to advance open finance in the UAE, including Project Aperta, and the introduction of open finance through Al Etihad Payments (AEP), a CBUAE subsidiary. These steps are designed to improve the transparency and accessibility of digital finance services while strengthening data-sharing standards across the UAE’s financial sector.

Project Aperta, developed with the Bank for International Settlements Innovation Hub, promotes cross-border interoperability in trade finance for small and medium-sized enterprises (SMEs).   

Several banks have begun to implement open banking strategies, enabling third-party developers to create applications that enhance customer engagement and streamline financial transactions. In 2018, Emirates NBD, a leading regional bank, launched its API Sandbox, becoming the first bank in the UAE to enable open banking collaboration.

These initiatives are expected to strengthen the UAE’s position as a digital finance leader in the MENA region, promoting transparency, innovation, and competitiveness across the sector.

Key challenges in open banking adoption

Adoption of open banking in the Middle East faces significant challenges, particularly around data security and privacy. Sharing sensitive financial information requires robust safeguards, as even a single breach could severely impact consumer trust. Regulatory standards on know-your-customer (KYC) and anti-money laundering (AML) must be strengthened to build confidence across the financial ecosystem. Harmonising these standards across Bahrain, Saudi Arabia, and the UAE is essential but challenging, demanding coordinated efforts among regulatory bodies to secure data and protect users.

Cultural resistance poses a barrier to open banking, as many consumers and traditional banks are cautious about data control and security. Without clear public awareness initiatives, these concerns may hinder adoption. Educating consumers on the benefits of open banking—like increased financial choice, transparency, and convenience—is crucial to shifting perceptions and driving engagement in the region.

Future prospects

Despite challenges, the Middle East is poised for transformative growth in open banking. Bahrain, Saudi Arabia, and the UAE are implementing frameworks that enhance fintech access to financial data, fostering collaboration with traditional banks. This synergy spurs innovation, reduces costs, and provides consumers with more tailored financial products.

Bahrain’s regulatory sandbox attracts fintechs, Saudi Arabia’s phased rollout ensures a secure transition, and the UAE’s open finance model expands service offerings beyond traditional banking. Together, these strategies are reshaping the financial sector into a more inclusive, tech-driven ecosystem.

As open banking matures, stakeholders must prioritise collaboration, consumer education, and security for successful integration of innovative financial solutions. With the right strategies and partnerships, the Middle East can emerge as a global fintech hub, unlocking new opportunities for consumers and businesses.