The Future of Open Banking and Open Finance in the MENA Region

you know sometimes they'll meet someone who doesn't who had never heard of lean who downloaded and start using it in front of me and just tell me this is a godsend I can finally invest more easily I can finally send money uh you know more cheaply I can finally learn more about my finances without having to build an Excel sheet and consolidate it myself so the amount of convenience that's embedded into their daily lives is a step size shift they need to see that you know they're not just giving away information and data of the customers who back with them but they're equally in a position to to consume data which might be coming the other direction which in turn basically the argument is that the pie should grow bigger as we progress over the next 10 years you will see more quality you'll see more Financial Freedom more financial Independence driven by I'd say a Level Playing Field being being provided so I think we all have a responsibility towards I guess a a more equal uh Financial Services absolutely for everybody in the market I want to welcome you to the second season of gautenomics with Arjun join us this season as we go beyond fintech and payments and embark on the journey into the future of financial services future which will be shaped by existing in new developments in technology and Innovation including and not limited to the likes of embedded Finance open banking ESG various versions of metaverse decentralized Finance digital currencies and other trends on the couch we're going to have the most influential and Progressive minded Founders Executives investors Regulators innovators and Industry commentators from across the Mina region and Beyond join us as we unravel a multitude of layers of the financial services industry and try to learn how technology will continue to impact the world that we live in calcinomics with Arjun is proud to collaborate with some of the most respected and Innovative names in the world of payments fintech and Technology Adian is a reliable end-to-end payment solution that provides Innovation and flexibility to help businesses achieve their ambition Faster by turning payments into a strategic growth driver get everything you need with to you a salvi based super app for delivery Mobility on-demand services and a lot more to you connects you to everything you need to enrich your daily lives by building an ecosystem across its end consumers merchants and Reps Visa is a world leader in digital payments with a mission to connect the world through the most Innovative convenient reliable and secure payments Network to enable individuals businesses and economies to thrive GDA is a leading fintech and pavement solution provider founded in Saudi Arabia expanding rapidly across the region with established operations in UAE and Egypt GDs vision is to empower Merchants with the tools to start and manage and grow their business MTP Pioneers next-gen fintech through Innovative offerings across payments lending and banking Landscapes the comprehensive Tech stack Powers end-to-end banking services pnpl customized credit cards prepaid cards and more [Music] thank you hello all and welcome back to cautionomics with Arjun I'm your host Arjun and today we're going to try and unpack um as I was saying open everything whether it's open banking open finance open economy uh joining me on the couch is a gentleman from uh well I don't know he spends his time between the UK uh Saudi Arabia and the UAE his name is Hisham al-fale right who's also the co-founder and CEO of uh lean Technologies now I met his sham uh virtually I remember a couple of years ago uh while we were in the middle of a pandemic where I hosted a webinar on uh on open Banking and I've been fortunate enough to actually get to know him through a few interactions and his wider team and have been watching the success they've had as an organization over the last couple of years while I've been on the sidelines looking in so hasham welcome to the couches they say thank you so much Arjun it's a pleasure to see you again definitely left a very positive impression that first panel that we spoke on together thank you for hosting me back then and thank you for hosting me today great so ishan open banking is a trending topic right and and I think in the last month uh especially in the Kingdom um you know with the announcement of the framework um I think there's an open Innovation lab which just recently got announced um um there's been uh all all types of positive noises coming out of the UAE uh it's topic which so people in sort of are part of the world if I may say financial services are sort of falling very very closely but I thought might be a good place for us to start uh uh where for the audience in your words um in simple tongue or simple parlay as they say would you be able to deconstruct the difference between or not deconstruct would you be able to tell us the difference between open banking open finance and open economy Absolutely I'll try my best please and um I think in order to do that we need a little bit of context uh growing up as a little boy I never really dreamed of playing in the infrastructure space specifically for financial services it was really more of a a problem that I stumbled upon that really badly needed solving so maybe to go back a few years I as you rightly said I grew up in Saudi Arabia I spent my entire uh childhood there that's where I graduated high school and I was fortunate enough to go to Silicon Valley straight from straight from high school and that's where I got introduced to fintech as an industry I remember initially downloading applications like venmo and mint Robin Hood when it came out as well and just being absolutely Amazed by how I could manage my financial life through apps and through websites rather than having to go to a bank and fill out a form as you used to do in in branches uh back in the day and as I spent more and more time in the valley I also uh you know I'd say developed an interest as an investor and I noticed how promising this industry was both in terms of its growth but also its promise and and its adoption across massive geographies around the world and that really sparked my interest in in fintech as a whole and so after a few years of obviously studying and working in the valley I returned to the region and I was a bit shocked by the lack of fintech penetration this was end of 2018 early 2019. one thing that really grasped my attention was you had one of the youngest highest digital penetration regions in the world you also had some of the most Avid consumers of digital media gig economy social media per capita in the world however when you look when you looked at fintech penetration it was one of the least penetrated fintech regions in the world and to me that Delta was really alarming and I really wanted to understand why that was the case and so what I did was I went through a theoretical Expedition where I started to learn more about the businesses that I had took for granted a decade before and I started to learn more about what the onboarding journey looked like how they gained access to my data how did they provided me with those services so seamlessly and I remember reflecting on well how did they get access to my bank account I remember one of the first things that I downloaded was venmo because I think I had to pay back a friend for uh for a coffee or something and the first thing that venmo asked me venmo for those of you that aren't aware is that peer-to-peer transfer service which is one of the most successful in the world by PayPal it was acquired by PayPal correct what's the fire by paper yeah it was acquired by PayPal um and uh you know it was wildly successful still is very successful but I remember having to connect my bank account and and I did it kind of seamlessly natively within the application I just entered my Bank of America credentials and all of a sudden I could transfer money from my Bank of America account to venmo and I took that for granted I did the same thing with with mint.com an application that allowed me to view all of my finances in one application across all of my bank accounts back then I didn't have much in my checking checking accounts anyway so it was really more of a vanity exercise than anything but it was still an amazing utility especially for those that were managing finances and had families and really needed to financially plan so for those applications which I like to call the low was hanging fruit of fintech to not be available in the Middle East was really shocking and that's what really annoyed me so as I started to learn more and more I understood the concept of open banking in its simplest sense open banking enables third-party applications like venmo like mint and others to access their customers financial data in all of the major bank accounts and and what that enables them to do is it puts the customer in the driver's seat the customer can then decide I want to share let's say my identity information or my transaction history with this third-party application that I trust and so that as a concept is called open banking it became widely popular in the last few years predominantly due to the European Union and the UK regulating open Banking and so what I mean by that is they mandated that all of the banks release apis or application program interfaces that enable these third-party applications to access customer data with the consent of a customer if the customer doesn't give them that consent and third the third party application can't can't access it and so it really put the customer back in the center and back in the driver's seat now open banking as great as it was had its limitations and one of those limitations was the type of data that I covered and and in its original sense it really only granted access to payment accounts and so third-party applications would be able to access things like the balance the transaction history of any account they use to pay with so you're checking accounts your saving accounts Etc what open finance does is it extends that same freedom and that same uh Authority for the customer to share that data to other types of accounts and so with open finance the vision is that you would be able to share access to your loans to your investment accounts and to your insurance products and and to various other Financial products that previously were were not covered by open banking we still haven't seen the full um you know fruition of open finance come to light but there is a lot of excitement around the use cases that can be built around it and then obviously we think about open data as the absolute extension of that concept where you can get access to all types of data whether it's Medical Data educational data and uh kyc data electricity exactly electricity bills utility bills Etc so that's I'd say the you know distinction between open banking open finance and open data or the open economies you call it so so it's in simple terms I guess it is the it's the width and the breadth and the depth of data that can be available can actually move around correct right in my humble opinion right uh I think what open banking did was tell customers the first time and I think I really think it was the first time the customers really understood that the data that was held by several financial institutions older new was actually dead data yeah right um and and it it still comes as a surprise when I speak to a lot of people who are not familiar with the concept of open Banking and about sharing data when I actually tell them that by the way do you know that the data that resides with your bank account or your credit card company is actually your data right you actually have that sort of look on their face saying You must be lying right I think that's great so so players like lean right and and I do want to come into I do want to ask this question around the Genesis of lean I understood the frustration that that existed in you and you wanted to solve it so try and answer this question in two parts for me one is is the Genesis of lean to how did Lean come about and then what is the role that you guys as open banking infrastructure providers and maybe that's not the right term but that's what I'm actually referring to you as play in making open banking happen I love it so the Genesis of leaners um I guess continuing the story that I was saying earlier um that frustration was something that continued to build up and and it continued to pile up for me uh personally I I noticed that there was this massive barrier to entry that a lot of these third-party apps were facing in their journey of building their businesses in the Middle East and that infrastructure or that access to customer data was available in in most other developed markets in the world but was not available in the Middle East and many other emerging markets and so we took that on as uh you know a challenge as an opportunity for us to Champion the third party applications the Innovative fintechs and the Innovative lenders and the non-financialists the non-bank financial institutions to essentially pave the paths for them to be able to access customer data there was a problem we just didn't know what the solution was and so we kind of put our heads together back in in late 2019 there was a little bit of work that went into building the company I think the first thing that we did was we wanted to validate that this was a problem and so I spent a few months really speaking to as many fintech Founders or more aspiring fintech Founders in the region I started speaking to a lot of existing Banks I started speaking to many regulators and ex-regulators and what was really kind of eye-opening to me was that the the reaction from fintech Founders and aspiring fintech Founders was I'm not sure if you know that Futurama meme shut up and take my money so it really was like you know wow we absolutely need this but the immediate reaction from incumbents I'll call them in the industry was this would never work right right and and that to me was an eyebrow razor because as soon as you get told you're crazy enough times you think there might actually be an opportunity somewhere that people are overlooking and so that was kind of a real validation the second was I'm not technical personally I started mechanical engineering so I really wanted to kind of find a co-founder that I could really trust and that I had a good working relationship with and that's where my co-founder Aditya came in we studied at Stanford together he studied computer science and we also managed to recruit our amazing CTO and co-founder Ashu Gupta who brings in a wealth of experience in his background as well and they both relocated from Silicon Valley to London we established an office in rehab and office in London and we just kind of took on the challenge we had a very first principles uh based thinking and mentality back then of saying okay we know the problem we don't want to just copy and paste a solution from from somewhere else we want to actually identify what are the um limiting factors what are the enablers what is the competitive advantage that we have as a business and as Founders and how can we tackle this opportunity and solve this problem in a way that's unique for the region and so we didn't want to just adopt this mentality of you know move fast and break things and uh screen scraping already around at that time yes in in some Pockets it was and it was kind of um very nascent as a technology as a methodology of accessing data but it still wasn't demonstrated in terms of its security and in terms of its reliability in terms of its data privacy and that to us was one of the first things when I referred to First principles localized thinking that was one of the first things that came out in kind of screaming on us was people from the region are actually very aware of their financial data and of the sanctity of their data and they're not as comfortable sharing it with third parties as people for instance in in the west that have been more accustomed to doing it for a longer period of time and so because we were earlier in the adoption cycle we have to kind of really embed stronger security fundamentals and Foundations and data privacy fundamentals and foundations that enabled us to gain the trust of our Merchants to gain the trust of those early end users and to really grow with the ecosystem rather than trying to cut corners and so we came together end of 2019 we only went to Market in q1 2021 and so you can imagine over a year and a half of development and plan and planting the seeds and assembling an incredible team and obviously covet happened in the middle which was both uh you know a something that slowed us down but something was also accelerated the ecosystem and so we kind of just had to kind of go with the flow and when we went to Market we were so happy with the amount of adoption the amount of demand that we received for for our products in in the UAE initially and now in Saudi as well okay so let me let me let me take a step back right so we're in a level on abstraction where I'm actually Keen to understand so drivers of open banking right I I fundamentally believe that there is a fundamentally two types of Demands Maybe did as a third I'm not smart enough to actually remembered it but let's go with the two I remember right one is revealed someone is actually expressively saying this is something that I need and I think that's what the fintechs were telling you right uh for us as fintechs to to to to to to grow to become more profitable to to innovate so on and so forth we need the fuel we need the gas we need the oil uh and and so therefore with that so that's revealed to that right um the embedders um who were starting to understand that there's an opportunity for them in this whole wild world of embedded Finance I think slowly steadily we're kind of waking up to the fact that if you're able to embed a financial Financial Services predominantly payments uh was the initial conversation There's an opportunity for us to either increase our sales make retentions better but was there any demand coming out of consumers were you picking any of that up hmm um I was and I wasn't so for those that actually benefited from the from leveraging the the applications the convenience of the of The Cutting Edge applications in more developed markets uh had demand for those applications in this region I don't think they connected um as clearly the lack of infrastructure to being the reason for that lack of application proliferation in this region and so they might say oh well I wish mint was hero I wish venmo was here but they couldn't actually link that the lack of those applications being in the market was primarily due to the lack of infrastructure enablers being you know predominantly available in the market one thing that was for sure was that fintech was growing like a hockey stick globally and yet it was flat in the region and I knew the region wasn't any different from the rest of the world in terms of its fintech uh adequacy and if anything it was greater it was it was greater in terms of the the underlying enabler so I knew that the lack of fintech penetration um wasn't due to a lack of demand but to a lack of Supply um and so that's where we kind of honed in on the supply and tried to unblock Supply as much as possible however if you if you look at um kind of more primitive terms uh Henry Ford is is famous for saying that if if I asked when he was when he released the the infamous Model T that if I asked if I asked people what they wanted they would have said they wanted a faster horse right so it's very difficult for consumers to know what they're missing out on but once they start trying and adopting new Solutions and new Innovations they'll realize the amount of convenience and I remember when we took our product to Market um almost two years ago now uh in the UAE for the first time there was a lot lot of skepticism and we could see that in the conversion numbers within the SDK that we embedded within our applications or than our the applications of our clients consumers were skeptical connecting their bank accounts I even have friends who came up to me and said look I saw it I like you guys whatever but I don't feel comfortable doing this we saw steadily the amount of conversion grow as more and more consumers saw our applications embedded in you know bigger brain bigger brand Merchants as they started to actually leverage it and utilize it on a daily basis and realize the amount of convenience and today you know sometimes I'll meet someone who doesn't who had never heard of lean who downloaded and start using it in front of me and just tell me this is a godsend I can finally invest more easily I can finally send money uh you know more cheaply I can finally learn more about my finances without having to build an Excel sheet and consolidate it myself so the amount of convenience that's embedded into their daily lives is a step size shift but they didn't know they were missing it beforehand or a lot of people didn't know they were missing it beforehand so the answer to your question in the shorts it was late in demand it was late exactly yeah there was so there was late in demand but they weren't necessarily aware of it and yeah okay all right so let me talk about two actors we haven't talked about in this right and and we can take we can tackle this in whichever order so so firstly let's take the regulator I guess right so so in your view in the region right what role does the regulator need to play to make open banking open finance whatever version of open we want happen yeah so I think The Regulators first and foremost have played a pretty pivotal role over the last three four years and uh enabling uh Financial Innovation to flourish um as I said back in 2019 the number of fintech companies was uh you know they're really uh few and far between uh certainly nothing compared to what our potential was nowadays we're talking about one of the fastest growing fintech ecosystems in the world mainly driven by Financial Regulators setting the groundwork and building the ecosystem in a way that would enable these companies to come to Market so I do have to give them a lot of kudos for what they've managed to do and this is you know the majority of the main regulators and and and the biggest countries in the region um the the answer to your question around what their role is for open banking is twofold one I believe that they have to be a market maker um in order for open banking to really uh flourish the banks have to be providing um apis that are accessible by Third parties that are built to a high standard that Avail access to data uh that's actually quite useful uh for the third parties that are accessing them so in order to do that the regulator has to set standards and to hold the banks accountable to them and set a a pretty aggressive timeline in terms of the bank's abiding by those apis being developed and released to the open market I think the second is that the regulator has to play the part of a police in a way and police the quality of these apis and what we've seen by studying open banking ecosystems and other markets in the world is that in some hand in some cases the regulator just set the standard and let them out Market figure it out and unfortunately what happens there is that Banks end up implementing open banking to very very different standards across the book and across the board and that leads to a pretty poor user experiences so end users suffer banks are obviously not as incentivized to release the the highest quality API to the public as they would be to their own applications into their own services and so they might cut Corners so therefore the regulator I think has to a make the market by setting the regulations and two set the set the tone of of the standard and ensure that everyone is releasing high quality apis and continue to monitor them on a regular basis I think the rest can be figured out by the ecosystem I think banks as you will see will adopt different strategies some will take you know monetization approach some from a you know premium apis perspective others will take a competition approach by leveraging the apis that other Banks provide and enriching their own Services some might say I'm gonna you know build a more targeted offering that serves a niche sector but I'm going to get a larger portion of that pie and I think that if anything is the essence of open banking is going to incentivize competition across the board and I think that's ultimately what the regulator wants to do now and then you know you you obviously have the the more traditional regulatory requirements and and duties of ensuring that there is a a certain amount of security a certain amount of data privacy that's that's embedded across Market participants and Regulators obviously need to take that role seriously from everything that I've seen The Regulators in the region have not sacrificed on that whatsoever and so I do have to applaud them for that if anything I think that they need to loosen up a bit and adjust their expectations between New Market entrants like fintechs and existing incumbents like banks that should not be a one-size-fits-all in terms of the in terms of the expectations of the of the requirements but all in all I actually think they're on the right track and they should continue to to to push open banking uh forward yeah and I agree and if I perhaps you just make a statement out here I think I just to complement what you're saying I think a couple of interesting and important factors is I think they need to take a holistic approach towards this right I think it's very easy to get uh stuck and go down a rabbit hole of open banking because there are a number of other aspects of The Wider ecosystem which need to be unlocked whether it's an around data privacy whether it's around how kvic is done so on and so forth which all have to sort of you know I guess mature or move in the same direction for that to be unlocked so I do think that there's there's that uh element the other Factor my view here is uh you know we we tend to sort of look at the world from uh if you look at the open banking world and majority of the reports is it's regulatory driven versus Market driven my view here is I think it needs to be collaborative right I think the regulator has to play a role will play a role it's very important but at the same time as you said I think the market needs to find and evolve itself right because symbiotic relationships need to be found and formed right across different forces let's come to our backs right so so let me take a step back from everything I've heard in the last 10 minutes from you so consumers when they understand what it's all about love it correct right and I can see that and I'm I'm also a user I can see advantages like you know being able to have all your financial services information in one place either making payments uh ability to top up accounts for doing wealth management so on so forth uh fintechs obviously need it and I personally think the more Bank you will have the greater Innovation we will get I think a better quality you know better quality fintech will come into the market I'm not saying we don't have good quality but I think there's still room for improv Improvement in terms of genuine true Innovative fintechs coming in um uh obviously uh infrastructure players like you love it because you know you you become the participant who if data is the new oil you're the ones who are actually making sure this oil is is is flowing through the the system in a safe secure private manner right I also think there's a massive opportunity for some of the small Banks to be able to Leverage What open banking gives them to Leap Frog in that position right and we'll come to that conversation a little bit later on in better finance and how old this fits but let's talk about the large Banks which sort of if I take the 80 20 rule which is applicable in this market too right um I think lip service currently says yes open banking is great we are here to play um but but I struggle sometimes to see how they're going to be willingly coming to the party immediately right um what's your view on it and I I'm not here to ask you to offend anybody right it's just I'm happy to have a dialogue on this yeah right so you can you can look at it multiple ways right like let's you mentioned the the open ecosystem if you look at the evolution of the American ecosystem which is the largest economy uh the one that's adopted open banking I'd say the earliest and it's true Essence not in the regulatory driven way but yeah small banking being third parties accessing customer data certain financial institutions you can even point the finger at yodely uh coming live back in the late 90s early 2000s and that's a that's an aggregator that today is still live and operating the biggest uh and most popular example for another player in the open banking space is a company called played yeah or plaid and and that's a company that's uh powered the majority of the fintech brand names that you've heard of in the last decade born in 2013 and plaid uh because of the open market ecosystem didn't have open apis to connect to that were bank provided and so they had to go through their own method of integration as you said earlier screen scraping was the predominant method for for them in the US and what happens after time is um just the same way as as it is in the US uh sorry as in the region the US does follow the 80 20 kind of power law rule where the majority of the volume was being driven uh towards the the last the top I think six or seven Banks and so those six or seven Banks resisted uh integrating with plaid for the longest period of time until plaid was literally connected to tens of millions of customer customer accounts and they were powering um thousands and thousands of fintech applications uh around around the US and so what you ended up seeing was those Banks realizing that they were left out they were no longer part of the ecosystem the fintechs were being powered by plaid which was accessing the data in the banks uh through the customer's consent and the banks were not aware of this happening so with that incentivized the banks to do is say okay I would rather at least be part of the ecosystem build Partnerships with players like plaid and figure out a monetization strategy later rather than just be left out altogether you also saw a similar thing playing out in the EU the EU introduced open Banking and actually mandated that all of the banks provide these apis to third parties in a way that uh you know actually solved the problem but what ended up happening was a lot of the banks as I said earlier cut some corners and so they introduced unnecessary measures and unnecessary steps in the entire user Journey which unfortunately hindered the amount of adoption that that was caused by the the amount of adoption that was um that was exhibited by end consumers so what the European Central Bank did was they essentially allowed uh third parties to access the data through indirect measures as they called it and that uh you know put the banks between a rock and a hard place you either provide apis that are high performing and that actually live up to the essence and the ethos of open Banking and psd2 or you uh should uh you know be okay with third parties accessing the data through back uh through other channels so those types of situations will arise it they will and and I think they already have in the region both from Regional players and Global players I think what banks have to come to a conclusion is do I want to be put in a position where I have to react out of a necessity or should I see this coming as an eventuality and move towards that with open mind open open arms and really seek to drive partner ships with the players that are driving this this new wave of of connectivity in the ecosystem and understand that disruption uh in its most genuine sense is not necessarily a bad thing but could be an opportunity for us as a bank to reinvent ourselves and to accept new opportunities that are coming to the Future so that's my invitation uh to the banks in the region especially the larger ones is to take a more collaborative partnership driven approach and to actually accept that this eventuality is not many years down the line is already here and that they should seek to drive a better collaborative approach with with players in in the ecosystem no I agree with you and so so you know I I I've got a I guess a more simplistic approach to it I think there is an element of a leap of faith as I call it right and and in fact deconstruct this from my perspective it's it's it's it's very simple for me I think the large banks have to definitely see this as an opportunity to to to uh innovate right I wouldn't go as far as saying as reinvent but definitely innovate themselves they need to see that you know they're not just giving away information and data of the customers who back with them but they're equally in a position to to consume data which might be coming the other direction which in turn basically the argument is that the pie should grow bigger I agree right and therefore if the price goes bigger and if they are Nimble enough and agile enough and Innovative enough they should get the bigger they should get a bigger slice of that pie going forward absolutely and I think and this is where I think the last six to 12 months the leap of faith becomes a little bit more easier again I speak as a non-banker is that I think a number of banks are going to realize that this Innovation Journey that they had started taking well started a few years ago a lot of that a lot of it was couched under what they were called digital transformation can actually now be achieved through acquisitive means because the valuation of a number of these fintechs which would give them those that that edge is a lot more affordable so ingesting them into business rather than building something organically right is possible now I'm oversimplifying here because you know there's this technology and so on so forth but I think I completely agree with you I think the bigger Bank you are I think the better the bigger opportunity you might actually have with open banking right and so and that leap of faith actually becomes a little bit more tangible in any case that's my humble opinion who cares what I have to say no it's okay but just just to add to it let me Switch Lanes a little bit uh you uh you as lean uh uh who knows the whole report yourself uh publisher a report um um I for one actually found it uh very informative I actually distributed it uh across my network I think a lot of people found that report very well written and so you know so I think you know it's important for people like you to inform the market or what's going on and I think the more actually informed we make the market the easier I think uh the business becomes in that market I want you to specifically focus on the standards section within your report right um I think a trying to answer this question in three ways right three parts one is please explain to the listeners what do we mean by standards right secondly I think you specifically said that the KSA standards are different from the Obie standards and and well what does that mean right and finally do you think we're actually going to be able to get standards which are similar or common across I guess the region if I may use that term uh sure so uh what what we're referring to right now is is obviously um a report that was authored by the lean team in response to or covering the highlights and uh of the Saudi Open banking framework which was released by Sam a couple of months ago this is a framework that Sam has been working on for some time and one that we're super proud to see released we started our engagement with Sama back in 2019 so to see it finally released in 2022 is a really great milestone and one that I think will will have a massive impact on the region for many years to come the report was a real um uh I'd say upgrade and Improvement on the UK standards in in many ways so what we mean by technical standards is is it essentially sets uh it provides the blueprint for banks to implement apis to a technical specification a standard that that is that is not uh ambiguous it's quite clear how the apis should perform it's quite clear what type of data it should return it's quite clear the schemas that the banks should be adopting and so on and so forth which ultimately is what I was referring to earlier when I spoke about the role that Regulators should play it shouldn't just set the essence should actually go one step further in driving the um the standardization of the performance and the technical specification of the apis to ensure that the market can implement the apis on the other end when ingesting them a little bit more easy easily and have a have a let's say a Level Playing Field of expectation with regards to the performance of these apis so the framework was was very well received to say the least not only from us but from the entire ecosystem and what we aim to do was to let's say translate it for the non-technical people out there because we've been speaking to a lot of players in the market fintechs lenders and other Financial players and they've all been very curious to understand how does the Saudi standard compare with the UK standard now what we've seen as I said is is I think it goes to um to the level where we didn't just start from scratch we understood what the UK framework achieved and we improved on it in a number of areas in Saudi Arabia for instance one of the areas was the elimination of the mandatory 90-day consent expiry period so in the UK for the for the first couple of years at least of open banking the consent would expire after 90 days so the customer would have to go back into the application and reapply their consent to that third party which in turn me meant that there was lower adoption and that a lot of customers felt that that was a unnecessary friction and so what now can happen is there a little bit more modularity and flexibility and the merchant can have longer term access if the customer provides them with their access and the customer obviously doesn't have to experience that friction every 90 days which means a benefit for the ecosystem and a benefit for the end user another way that it's changed is there's this new set of data that previously was uncovered so you can think about the the the the letters of guarantee for instance that are covered in the bank account this is something that previously was was not available in in the UK the party's information the the beneficiaries information that's that's covered in the bank account previously that was not covered in the UK open banking standard and so there's multiple ways that the Saudi standards has improved on it or approved on the UK standard and we're hoping that because this is the first iteration the Saudi Central Bank which is the regular regulatory regulatory body in the Kingdom would actually be open to improving it uh as yeah even further as as as it hears more from the ecosystem and they've been super receptive to our feedback we provided them with a lot of feedback after they sent us the draft and they actually implemented a lot of it in the new version and we believe they will continue to implement better and better improvements with time which to me is is an incredible sign and very very promising sign for the adoption of open banking now to address your question about regulatory alignment and standards being aligned between different countries um I'm a bit pessimistic I think unfortunately there is a little bit of a lack of alignment between the various Regulators in the region with regards to uh you know Financial regulations as a whole and open banking strategies in particular and so I do see um you know some uh fragmentation that exists in in the level of um a whether or not open macking is regulated and then B if it is regulated whether it becomes centralized decentralized or completely Market driven as you said and then even if it is let's say decentralized centralized what type of specification they Implement what type of data is availed uh what type of accounts are accessible Etc because ultimately different countries have different needs they have uh different priorities that they want to be solving for what that means however and this might be a little bit of a Shameless plug Arjun is that I do believe that there is a stronger need than ever in a market like the Middle East for players like lean to exist so if we think about what value proposition does lean provide in the process of accessing customer data a third party would have to go and integrate with every financial institution and integrating with every financial institution might seem easy at first even assuming uh really uh perfect implementation of the technical standards is still an effort that they have to put in just to implement those apis to get the certificates to actually test the integration and to be moved into production If You Move That Into You Know process to a dozen Banks if you're just doing it in Saudi Arabia or a few dozen Banks if you're doing it or two or three markets in the region it becomes quite difficult and then after that you have the ongoing effort of Maintenance Bank Integrations are the same as any other technical uh integration in the sense that if you don't maintain it it will Decay and it will cease to to operate both on the banking side releasing new versions and on the integrator side having to maintain that integration to keep up with their own systems and so maintaining that integration is is an additional added cost that you have to keep in mind and then on top of it you have to think okay well now I'm accessing this data well what do I do with it right and so you have all of the analytics work all of the ingestion and and um I'd say decisioning process that happens after the data is delivered to the third party that requires a lot of effort to go from zero to one and then you have to think about the cons the customer uh engagement side of things so if you're a TPP and you want to manage the customer's consent how do you do that in the most delightful way possible to maximize conversion to minimize the amount of friction to maximize uptime to minimize latency all of those if you aggregate them as a whole and then you mentioned that you want to do this in multiple countries becomes a true Herculean effort and becomes really really difficult and very very expensive for a third party or a merchant to build themselves and this is exactly how we've seen it develop in in other markets so you see the UK the EU the us there are giant aggregators similar to lean that are not only um surviving in this market but they're thriving because they are one of the most essential pieces of integration for any business to be able to uh you know maintain its services so you know I I tying it back to your question I don't see standardization happening I see infrastructure players and aggregators like lean continuing to come up and I see us providing an even more and more valuable service particularly as you extend it from open banking to open finance to open data so your plug actually opens the whole sort of new door for me go ahead uh competitive landscape yeah right so in your world right um how do you see the competitive landscape evolving homegrown players we you know we have a few of you already in the market yeah right not enough great we have uh uh a few Global players who are showing intentions uh or have slowly entered the market or are putting the footprint certain networks have made Global Acquisitions in your space and I would imagine they would bring those Acquisitions here so with the risk of me giving the answer right how do you see the competitive landscape evolving and what's going to be and I don't need to know your playbook but what I'm very keen to understand is how are the winners and the if I may use the term losers going to be determined in this space so that's a very very good question I think the competitive landscape in the Middle East right now is not as competitive as it could be or should be I believe there's more demand than we at lean are keeping up with I think there's more room for Innovation than we as a single company can can meet single-handed so when you say there isn't enough competition you mean in terms of number of players or in terms of the level of innovation or both I'd say one leads to the other right I think you're right I think I think if there was more players if there was more investment going into the infrastructure space I think we would see a faster pace of innovation um and I actually think there's far more room for for more players to come in and I would like to see that happen I believe that that would only drive us to be a better version of ourselves and to innovate faster and to innovate better I um I actually think the um biggest long-term competition comes as you said from from not only networks but also PSPs so if we look at networks for a second visa and MasterCard have both made significant Acquisitions in the last three years um Visa attempted to acquire plaid for 5 billion that fell through due to an Anti-Trust lawsuit from the Department of Justice so they ended up acquiring Tink in the EU initially the initial acquisition was for 5 billion for plaid they ended up acquiring Tink in the European Union for about 2.1 or 2.2 billion dollars it obviously is a an agenda point that is top of Mind fuzzy networks because they understand that a lot of the payments Revenue that's coming in from from card processing will eventually shift towards account transactions we've covered the data side of open banking so far origin but I'd say the biggest disruption at least in the short and medium term is happening in the payments landscape and that's where the the card networks are feeling the most heat I would like I think and then you have the PSPs and so you saw both stripe and addion in the last 12 months or less make big moves into the data aggregation space yeah and you saw a stripe partnering with MX and I believe another player in in the US and you saw Adian release its data aggregation product in the in the EU I believe those moves if anything demonstrate that we as a global ecosystem as a financial ecosystem is a fintech ecosystem are shifting rapidly from um what I like to call analog to digital what I like to call black and white to color and would like to call 2D to 3D payments and what I mean by this is previously we used to rely on you know card networks and the players in the middle the the issuer the acquirer the processor the PSP the payment Gateway everyone's taking a cut from everything and ultimately the merchant or the consumer or both are losing two three percent at least what's happening now is with the proliferation of new payment Railways you can actually see money move from one account to another in the less than you know two three minutes and on top of it because of open banking the merchant can actually view the customer's data so they can onboard them they can verify their identity they can do some AML work in the background they can learn about their transaction history of course with the consent of the customer to provide them with better products and services and so this is where I talk about colorful money previously you talked about money just settling from one account to the other and obviously all the players in the middle and it was expensive nowadays you talk about money moving from point A to point B almost instantly and it's colorful because you actually see more about the customer you learn more about the customers and Merchants so you can imagine all the Innovation that comes out of that and that's where I think the opportunity is and so all of the competition that you're seeing globally from the payment networks and the PSPs if anything is validation that this is a really huge opportunity and that what we're doing lean in embedding these payment functionalities in the apps of merchants today will be taken for granted in five or ten years as the predominant method of payment both from customers Viewpoint and from a Merchant's Viewpoint so do do you actually see collaboration I know there's a bit loaded in answers yes but I'd expect you to sort of shed some more color as you said onto it so how important the rule will be sort of collaboration between I guess people who could be seen as competitors going forward in this space I think there's always room for for collaboration um so long as it can uh you can be explicit and honest ahead of time as to what am I bringing to the table or what are you bringing to the table and how can we both enable a common vision for the long term are you collaborating with anyone like that currently is that on the cards not not immediately we obviously have some Partnerships with banks we do have some collaborations with with other types of players the players that have not been announced and formalized but um we're always open to more and more ways to collaborate with players in the ecosystem I like to think that this ecosystem is growing at such a rapid Pace um the UAE is six seven hundred million GDP Saudi Arabia is maybe going to be a trillion dollar GDP if not already if you add other markets in the region you're talking about a multi-trillion dollar GDP economy that's fragmented and the number of players that are trying to serve this economy are few and far between so back to the competition point I don't think there's enough players so the few and far between that are trying to do something I think the opportunity overwhelms us and I think we need to become more serious about what am I good at what are you good at and how can we work together to deliver a better future and a better uh ecosystem for the end users for smes and uh for for other Market participants so Partnerships are definitely welcome I just haven't seen them develop at the pace that I would like them to and um I think there's there's a lot of opportunities for us to do that in the near future okay let's talk about you know you just said a better future right and and and and use cases so so a lot of the use cases we always hear about that you know the first two everyone says payment initiation account aggregation right yeah that's great so so from hisham's view right in the region you can check one of the two countries or take the entire region it's up to you where which use cases do you think are going to be uh are going to get Maximum Traction in the near term right and then if I was to ask you to Crystal Ball it a little bit further down the line a couple of years down I'm not suggesting I'm going 10 years down the line which use cases do you really think are game changers which open banking open finance can enable and build enable so the use cases I'm most excited about right now um one of them is definitely SME focused there's a lot of data that covers this but one statistic sticks to mind which is that smes in the region only comprise seven percent of the loan books for traditional Banks right and and that's it that's that yeah maybe even less and that's that's a shocking statistic because you can constitute something like 70 of the GP oh yeah yeah 95 to of the number of employees yeah 99 of the entities it's crazy it's crazy so so all of that data if anything shows you the inequality in terms of the allocation of resources and allocation of financing in the economy and I think that is a glaring hole that needs to be filled and the reason it hasn't filled is because traditional Banks who are very very few can count them on on your fingers um they have been more driven by and rightfully so if you think about it historically more driven by higher margin lower risk loans that are targeted towards governments and and very large corporates smes just haven't provided that lending profile that risk profile that they've sought over the last uh many decades I think with the internet production of open Banking and open finance smes will finally be able to share more data more seamlessly more digitally and in a guaranteed format rather than potentially being prone to manufacturing or kind of let's say massaging if you will as they were in the past with third-party lenders that potentially are going in with more risk and they're pricing that risk in but you're removing a lot of the friction that comes in the middle and so what you're seeing potentially and this is where you're seeing or not already but hopefully you'll see in a much higher volume in the future is non-bank lender fill some of that Gap that that uh that exists today with regards to the access to financing that smes have and you can think about the same exact scenario with um end users right with retail uh consumers um the access to financing that they receive might be unfairly skewed due to you know their credit report not being high enough but that doesn't necessarily mean that they are potentially poor borrowers getting more access to their finances getting the entire families the households finances in one view which can be connected digitally which can be processed and analyzed and you know uh pre-owned sources of data and other sources of data exactly so you have a potential of data filling the financing up because that visibility would provide the the lenders with more comfort and confidence about the risk worthiness the actual risk worthiness of a retail customer and an SME uh borrower so that to me is the use cases I'm most excited about in the short term there's many others so let me ask you a question a very direct questions yes right so I speak to a number of banks uh you know I'm a I'm a Management Consultant for my sense right I focused on the financial services sector I work with a ranger Banks big and small I increasingly hear from a from a set of uh banks that they you know wanted to do want to do SME banking or SME lending they want to do it differently than they've ever done it yeah are they breaking down lean's door every day wanting to work with you not really and that's what surprises me I think the barrier is not necessarily a lack of want it's a cultural um and a bureaucratic set of barriers that exist within banks that prevent them from challenging the status quo as as much as an innovating kind of newcomer can so if you look inside you right now there's a number of fully licensed SME focused lenders and marketplaces that have accumulated you know billions and billions of dollars in in volume and loan books primarily because they have that Nimble risk for like Risk uh friendly appetite for for experimentation Innovation I think traditionally banks have struggled to move as fast as fintechs and so I'm hoping that the demonstration that the demand that the supply is there as we've seen in Saudi and other markets in the region will Propel Banks to to implement that's the strategy what I've seen Banks do and this is I have to give credit uh to some of the more let's say pragmatic Banks as they realize this and I'm not going to go and build a whole new culture and a whole new company within my company but what I know is these guys know how to underwrite well and they've managed to get their foothold in the market they have the brand recognition they go to market strategy and they have a good head on their heads and they're speaking about of course a third party or non-bank lender I'll go and I'll underwrite them exactly so I'll give them my balance sheet or part of my balance sheet and they'll just go and distribute it according to their to their methodology and wheelchair in the profit and so there you're short circuiting your Innovation cycle you're learning from this partner and you're injecting more liquidity into the ecosystem so you're win-win-win-win and and what you're doing is you're also accepting that you're not going to be able to build a disrupter overnight and so and I can't see B2B bnpl happen without this I can't I can't see most of the SME fintechs yes survive without that you need you need Bank Partnerships otherwise the balance sheet doesn't come from and and at the end of the day the smes sometimes need more than just a loan correct because at the end of the day they have banking needs absolutely right um but I I am surprised that more and more people is it because you guys don't pursue banks that proactively and you focus a lot more on fintechs um we have yeah we we definitely have a you know open dialogue and and kind of an openness towards partnering with banks I just think that the bank sales cycle Bank adoption cycle the bank implementation cycle is much longer than what we're used to uh we're focusing on playe

2023-03-07 13:09

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