Banking on Open Finance for Customer Engagement Wins

Story by: Rajesh Saxena

The Middle East is witnessing a transformative era in its banking landscape, driven by a highly banked population and the penetrating waves of fintech innovation and digital banking. With a banking penetration rate often exceeding 80% in Gulf Cooperation Council (GCC) countries, the region boasts one of the world’s most banked populations. The situation lays a prosperous foundation for financial institutions yet simultaneously presents an exigent competitive scene as fintech and digital banks proliferate.

Recent data suggests an upward trajectory in the number of fintech startups in the region, with the UAE alone hosting over 2600 fintechs. This surge, coupled with an increasing number of digital banks, is heating up the competitive landscape. Indeed, the financial sector is now at a critical juncture, where traditional banks are compelled to rethink their growth strategies and revenue streams.

The Revenue Growth Conundrum

Banks are grappling with the complexities of revenue enhancement. Traditional banking products, fraught with regulatory saturation and market competition, offer limited growth avenues. Equally challenging is the upsurge in customer expectations, propelled by digital adopters that demand seamless, intuitive financial services.

One strategic approach for banks to expand their horizons involves entering new markets and unearthing novel revenue opportunities through innovative offerings. However, developing new products and services in-house often necessitates hefty investment and bears the risk of prolonged time-to-market in a rapidly evolving financial sector.

The Strategic Shift to Open Finance

To circumvent the development conundrum, banks are increasingly embracing open finance. Through collaboration with third-party providers – including fintech companies, ecommerce platforms, and telecom entities – facilitated by Application Programming Interfaces (APIs), banks are able to access innovative solutions without the burden of extensive internal transformations.

Open finance effectively opens the door for banks to create new customer touchpoints, diversify offerings, and integrate with external services, all while maintaining control over data and operations. It presents a prime opportunity not only for growth but also for circumventing the need to invest in the creation of new services from scratch.

Ecosystems Create New Opportunities

      Marketplace Ecosystems

A practical embodiment of open finance is the Marketplace Ecosystem, where banks can host third-party financial products alongside their own, thereby enriching the customer experience with a more diverse selection. For customers, it means access to a slew of financial services at a one-stop hub, which can range from insurance to investment solutions. For banks, it translates to increased customer choice & engagement, customer loyalty, and cross-selling opportunities.

      Referral Ecosystems

Referral Ecosystems offer another lucrative leverage. Banks benefit here by referring customers to partner firms for non-banking services. While the bank earns referral fees, customers enjoy a more integrated service bundle directly from their trusted banking provider.

      Third-Party Ecosystems

Lastly, third-party ecosystems foster an alliance where banks incorporate external services into their platforms. Such integrations grant customers allied benefits, akin to telecom bundles with banking services, enhancing the value proposition and opening new revenue streams via subscription models or shared revenue schemes.

Governmental Backing and the Drive for Digitalisation

The progression towards open finance is not merely a market-driven phenomenon; it garners substantial governmental support as well. Nations across the region are advocating digitalisation in the banking sector, underlined by initiatives like Saudi Vision 2030 or the Dubai Blockchain Strategy. These endorsements not only bolster confidence in open finance but also signal to banks the importance of adopting forward-looking strategies in the digital age.

With the regulatory framework adjusting to favour open banking models, the stage is set for banks to make strategic partnerships and utilise open finance to their advantage.

Accelerating Adoption through Digital Engagement Platforms

In today’s highly digitised environment, engagement platforms come open finance-ready, bringing with them marketplaces that catalyse the adoption of the open finance model. These digital platforms serve as vital connectors between banks, fintech, and clients, offering state-of-the-art analytics, customer relationship management, and communication tools. Banks can offer complete embedded banking services ranging from telecom to government bills, utilities, insurance and more, covering the entire lifestyle of the customer.

However, banks must take into consideration partnership models, establish clear KPIs and performance management systems, and address cybersecurity concerns and threat vectors while leveraging open finance. Working with technology providers with experience implementing open finance powered digital engagement can accelerate the implementation process while assuring security.

Conclusion

As banks confront the twin challenges of fintech competition and revenue growth, the adoption of open finance enabled engagement platforms emerges as a strategic imperative. Capitalising on collaborative ecosystems and government encouragement towards financial digitalisation, banks can effectively monetise their APIs, introduce novel offerings, and penetrate untapped market segments.

In embracing open finance, these institutions are not merely accepting change — they are creating avenues for sustained growth and competitive differentiation in an era of relentless digital transformation.

About the Author

CEO of iGCB Intellect