Last year, the Central Bank of the UAE (CBUAE) issued open finance regulations for the country, with the rules setting up a framework to license and supervise Open Finance operations in the UAE’s financial sector. Last week saw the first fintech — Pay10 — go live under the framework, allowing it to launch payment initiation services.

Enterprise had a chat with Executive Vice President and Head of Digital for Mashreq’s Retail Banking Group Corey Thompson to explain what open finance is, what the regulations mean, and how ready major institutions in the UAE are for the framework rollout.

Open finance is essentially the sharing of financial data and services by financial institutions with third-party providers (also known as TPPs). These third parties can be other banks, fintech companies, or even non-financial entities.

While the concept of open finance is broad, in the UAE, it’s being implemented through a specific regulatory framework. This framework enables financial institutions to share data and services with other financial or non-financial institutions that have been licensed under the new Open Finance regulations.

Many people are familiar with “open banking,” which has been present in Europe for some time. Open finance is an extension of this concept. Open banking was limited to the sharing of ‘banking’ data and services, while open finance encompasses a wider range of financial institutions, including insurers, wealth managers, and exchange houses.

In practice, what does that mean? Open finance involves two main activities — data sharing and service initiation. Data sharing includes sharing transaction histories, which can be used for various purposes like aggregating accounts across banking relationships, generating insights on spending patterns to help customers save, supporting credit decisions, or identifying financial needs for customers. On the service initiation side, this is primarily focused on payments and allows third-party providers to initiate payments on behalf of a customer, either as a one-off transaction or on a recurring basis.

What are the benefits of open finance? The Central Bank is introducing open finance to drive innovation. By enabling the sharing of financial data and services, it aims to facilitate the creation of new financial products and services by banks, non-banks, fintech companies, and other institutions.

Customers can benefit through greater financial transparency, simplicity and reduced friction. Customers can view their accounts across multiple banks in a single app, eliminating the need to log in to each bank separately. Businesses can also use open finance to receive payments from customers without requiring them to use a credit card. For example, a subscription service could directly debit a customer’s account. This could also be used to streamline payments to merchants.

Open finance is expected to foster a broader range of innovative financial services and products, and increase competition in the market, as money becomes more mobile.

While data privacy is often a concern when the question of data sharing comes into play, open finance is tightly regulated to address data privacy risks. A common misconception is that open finance allows fintech companies or aggregators to freely access customer data, which is not the case, Thompson says. “A fundamental principle of open finance is customer consent. Customers must explicitly authorize a third-party provider (TPP) to access their data or initiate services on their behalf.” This consent is provided to the customers’ bank and must be specific, time-bound, and scenario-specific. “For instance, a customer would need to grant specific permission for a TPP to access their data from a particular bank for a defined purpose

and duration,” he explains.

In the UAE, TPPs must be licensed under the Central Bank’s open finance regulations. This is a key difference from open banking in Europe, where such licensing is not always required. This licensing regime ensures that TPPs adhere to strict data privacy and security standards. They must demonstrate this adherence to obtain a license and will be supervised by the Central Bank, to ensure ongoing compliance.

Some players in the ecosystem are better-positioned than others to adapt to the new regulations. “In the case of Mashreq, we’re already well progressed with the modernization of our tech stack and some aspects of open finance converge well with our existing digital roadmap. There is extra work for us to do — it’s not trivial. But we’re also looking at this as an opportunity to improve the overall customer experience, and performance for the bank holistically,” Thompson says.

“As a bank, Mashreq is regulated to be a ‘supplier’ to open finance — making data sharing and payment services available for Open Finance — but we also could participate as a TPP, on the other side of open finance,” he said. “So, a question that we’re looking at is: If we were a TPP, how can we leverage open finance to complement Mashreq’s existing digital capabilities, like advanced analytics and AI, to deliver a superior experience for our customers.”

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