The Middle East is witnessing a transformational era in the banking landscape, driven by a high bankable population and innovations in fintech and digital banking . With a banking penetration rate of over 80% in the GCC, the region boasts the most banked population in the world. While this provides a solid and thriving foundation for financial institutions, the rise of fintech and digital banking also reflects a critical competitive landscape.
Recent data indicates an upward trajectory in the number of fintech startups in the region, with over 2,600 fintech companies based in the UAE. This growth, coupled with the growing number of digital banks, is heating up the competitive landscape. In fact, the financial sector is now at a critical juncture that is forcing traditional banks to rethink their growth strategies and revenue streams.
Revenue Growth Challenge
Banks in the Middle East face various challenges when trying to boost their revenues, especially as traditional banking products, suffering from regulatory saturation and market competition, offer limited avenues for growth. Other challenges include the sudden rise in customer expectations driven by the adoption of digital services that require seamless financial services.
One strategic way for banks to expand their horizons is to enter new markets and discover new revenue opportunities through innovative offerings. However, developing new products and services often requires huge investments and carries the risk of lengthening the time to market in a rapidly evolving financial sector.
Strategic shift towards open finance
To overcome the challenge of revenue growth, banks in the Middle East are increasingly embracing open finance. By partnering with third-party service providers – including fintechs, e-commerce platforms and telecoms agencies – supported by APIs, banks can access innovative solutions and avoid internal disruption and huge costs.
Open finance opens the door for banks to create new customer touchpoints, diversify their offerings and integrate with external services without compromising control over data and operations. It also presents a major opportunity for growth while reducing the need for investment to build new services from scratch.
Three Ecosystems that can create new opportunities
- Market Ecosystem
The marketplace embodies the concept of truly open finance, where banks can host third-party financial products alongside their own, thus enriching the customer experience with a more diverse range of services. For customers, this means access to a wide range of financial services ranging from insurance to investment solutions in one place. For banks, it means increased customer choice and engagement, enhanced loyalty and transaction exchange.
- Referral Ecosystem
Referral system is another effective way to generate revenue. Banks benefit from referring customers to their approved partners for non-banking services. While the bank earns referral fees, customers enjoy a more comprehensive package of services directly from the trusted banking service provider.
- Third party Ecosystem
Finally, the third-party ecosystem is enhancing the landscape as banks integrate external services into their platforms. Customers reap a range of benefits from this, such as bundled communications with banking services, enhancing the value proposition and opening up new revenue streams through subscription or shared revenue schemes.
Government support and push towards digital transformation
The move towards open finance in the Middle East is not just a market-driven phenomenon, but a powerful shift supported by government initiatives. Countries across the region are calling for digital transformation in the banking sector, as underscored by initiatives such as Saudi Vision 2030 and the UAE Blockchain Strategy. These initiatives are boosting confidence in open finance and underscoring the importance of banks taking the initiative to adopt smart, forward-looking strategies in the digital age. With regulatory frameworks changing in favour of open banking, the stage is set for banks to form strategic partnerships and leverage open finance to their advantage.
Accelerating adoption through digital engagement platforms
In today’s highly digitized business landscape, engagement platforms are ripe for open finance, with promising markets driving the adoption of open finance. These digital platform solutions, such as iGCB, act as pivotal links between banks, fintechs and customers, offering real-time analytics, enhanced customer relationship management and communication tools, enabling banks to offer end-to-end banking services ranging from telecom to government billing, utilities, insurance and more, to meet all customer requirements.
However, when leveraging open finance, banks should consider the importance of establishing strategic partnerships, setting clear KPIs and seamless performance management systems, and addressing cybersecurity concerns. Collaborating with expert technology providers like iGCB to enable a thriving open finance-powered digital engagement landscape in the Middle East, Europe, and Africa will accelerate implementation while ensuring security.
Conclusion
Banks in the Middle East face the dual challenges of fintech competition and revenue growth. Therefore, adopting open finance-enabled sharing platforms is a strategic imperative. By leveraging this collaborative ecosystem and government initiatives to accelerate digital transformation in the financial sector, banks can leverage their APIs to monetize effectively, introduce new offerings, and penetrate untapped market segments.
Source- https://entrepreneuralarabiya.com