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The new blueprint for Open Finance? – A look inside the new Saudi Open Banking Framework

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Chris Michael, Co-Founder & CEO, Ozone API

 

It has been a genuine privilege for all of us at Ozone API to work with the Saudi Central Bank (SAMA) to lead the development of its open banking standard over the last few months. We are also providing the enabling technology behind SAMA’s Open Banking Lab – the model bank and conformance suite – as well as working with a number of banks in the Kingdom of Saudi Arabia to help them deliver their own open banking solutions.

This is much more than a compliance exercise. We are right at the forefront of helping banks in the Kingdom to unlock new business models and deliver innovative financial services. But much of this is only possible because of the ambitious approach taken by SAMA.

Starting with a BIG vision

Open banking and open finance are now happening all around the world. Implementation looks a bit different in each market, but where it’s being driven by central banks and regulators, it is usually with a defined outcome in mind. This can be to create more competition or to drive consumer data rights. But increasingly, it is being seen as a foundation to drive economic transformation.

There aren’t many (possibly any) countries with a more ambitious vision for transformation than the Kingdom of Saudi Arabia. The Saudi 2030 vision is huge, from transforming society to the creation of uber-modern megacities. A big part of this vision is the creation of world-leading industry sectors, with financial services being a key focus. And at the heart of that agenda, you’ve guessed it: open finance, starting with open banking.

Chris Michael

The Saudi ambition is growth, fuelled by a thriving financial services sector. With this in mind, SAMA’s whole approach has been designed to drive adoption and usage by ensuring there are clear incentives for all participants: end users, third parties building on top of open finance access and the banks and financial institutions themselves.

In other markets, we’ve seen initiatives done to the banks, not with the banks or even for the banks. This may sound nuanced, but it is huge and important.

BIG Ambitions demand different approaches

With a big vision defined, SAMA’s approach to delivering its Open Banking Framework had to be different from other initiatives around the world.

The founding team at Ozone API were privileged to have led the development of the UK open banking standard during their time at OBIE. So being chosen to lead the development of the open banking standard in the Kingdom was a huge honour and a great opportunity to continue the journey and create a new blueprint.

With a big vision, SAMA has taken a very progressive approach, building on learnings from other markets and going way beyond.

The starting point was to define key use cases that would drive the greatest demand and drive value for the different participants. That’s the end users, the third parties and, yep, the often overlooked banks.

Use cases are the right starting point, since this creates clear consensus, allowing everyone to understand what they’re building and why. The intention is not to limit the implementation to a few use cases, but to enable these key use cases so that the foundations are there for many more which can be enabled now or added in future phases.

Then, and only then, did work start on defining the standard, the business rules to enable these use cases.

Whilst it sounds simple, elsewhere we’ve seen regulations, rules and standards defined ahead of such user-centric thinking, creating artificial and unnecessary limitations to the detriment of uptake and usage. And often the incentives across the ecosystem have been an afterthought, significantly impacting the motivations of banks to see it as anything more than a compliance project.

The Standard itself, what’s different?

On November 2nd 2022, SAMA published the first release of its Open Banking Framework to industry participants. This first phase includes business rules and the technical standard needed to meet a number of defined account information use cases, with future phases coming next year to include payments. But already, there are some significant improvements versus other standards.

Whilst there are many detailed enhancements and improvements, the game-changing differences can be summarised as follows:

The standard has been designed to be more efficient for banks and third parties to interpret and implement, ultimately creating a more effective ecosystem. Key to this is the inclusion of “event streaming” or webhooks. Historically, open banking APIs have been designed to replicate the behaviours seen with screen scraping, i.e. the third party goes and ‘pulls’ data from the bank at regular intervals to see what has changed. In the new KSA standard, event streaming informs third parties when things change in real time.

The standard has also been hugely simplified to ensure clear separation between business rules (i.e. detailed regulations) and the technical specifications themselves. This has led to a dramatic simplification of the documentation with a much clearer articulation of detailed implementation requirements.

Arguably the most exciting change is the creation of a new (to open banking) concept called “service requests”. This will be truly game-changing for banks and financial institutions.

The concept is simple: expose an API that allows almost any service to be initiated. In this first phase, we have enabled the creation of ‘letters of guarantee’, allowing banks to embed the setup of such products in a third party experience. This enables banks to ensure their products are in front of customers at the right time, in the right place and in the right context. Crucially, it provides the tools to have a direct impact on the metrics that matter, such as the number of customers, number of products sold, revenue per customer and so on.

What happens next?

Now that the framework and standard for phase 1 have been published, the market moves to focus on implementation.

Then, next year, Phase 2 will see the inclusion of payment initiation.

The implications of our work go much further than the Kingdom. We’ve seen a new blueprint emerge and other markets should take note and build on this approach.

We’re also excited to be working with banks around the world to help them unlock true value from open APIs, bringing a full suite of information, payment and service request capabilities to reinvent the role that open APIs will play in the new open banking business model. This means APIs that deliver real revenues, new customers and increasing product holding per customer – more to come in a future blog.

Banking

How Banks Can Boost App Innovation, Speed and Compliance

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Steve Barrett, Senior Vice President of International Operations, Delphix 

As new finance and banking applications disrupt the market each day, and customer expectations around speed, privacy and quality continue to grow, financial organization CIOs and DevOps teams have to innovate quickly to bring new apps and updates to market, while remaining strictly compliant to a myriad of regulations. DevOps innovation in financial services requires fast access to accurate, compliant test data, and as anyone who touches the industry knows, data privacy is a highly complex, critical process woven into the everyday world of finance.

Banks and financial services organizations collect vast amounts of data, but using that data for innovation can be challenging due to the vast size and complexity of test data. These challenges can inhibit the adoption of new and transformative technologies and hinder innovation if they are not addressed head on. To address these challenges, many organizations are integrating the use of highly innovative test data management (TDM) tools within their DevOps ecosystems. DevOps TDM provides access and delivery of lightweight, compliant data for DevOps initiatives including digital transformation, software upgrades, cloud migration, artificial intelligence and machine learning (AI/ML), and analytics.

Data – the last automation frontier

Historically, application teams manufactured data for development and testing in a siloed, unstructured fashion. Over time, large IT organizations began consolidating TDM functions to take advantage of innovative tools to create test data. With the rise of modern development methodologies like DevOps and CI/CD that demand fast, iterative release cycles and end-to-end API-driven automation, legacy TDM approaches are often no longer sufficient.

Reliance on a traditionally manual, ticket-driven, request-fulfill model creates time drains during test cycles and slows the pace of application delivery. Consider the payments industry, in which agile technology companies using optimized DevOps processes can release new code hundreds of times per month. In contrast, traditional banks with slow IT ticketing systems may take months to release new features. These manual, legacy TDM approaches exist in contradiction with modern DevOps practices and CI/CD processes that depend on automation and fast feedback to development teams.

TDM for the DevOps Era

DevOps teams rely on TDM to evaluate the performance, functionality and security of applications. However, while processes including storage, compute, and code have all been automated, data has eluded the reach of most DevOps toolchains.

Now, DevOps TDM can help accelerate app releases and increase compliance.by automating the delivery, provisioning, and compliance of data. These practices provide both development and testing teams with data APIs, including the ability to refresh, rewind, bookmark, group, tag, branch, and share test data, to accelerate DevOps productivity and improve application quality. DevOps TDM also includes copying production data, and the masking (anonymization) and virtualization of data through the DevOps pipeline, which helps accelerate app releases and increase compliance.

And as the pace of application development quickens, so does the pace of privacy regulations and efficiently ensuring compliance in DevOps has become a significant challenge for enterprises. Non-production data used for testing software applications, reporting, and analytics can contain up to 80% of an enterprise’s sensitive data. To solve this, DevOps TDM provides integrated data masking to de-identify personally identifiable information (PII) and other sensitive data in non-production environments, eliminating the risk of sensitive data exposure.

The World Quality Report 2022-2023[1] by Capgemini stressed the importance of an enterprise wide approach to test data provisioning (a core component of TDM). The report states, “Over the years, with stringent regulatory and security requirements around data, organizations have increased their focus on provisioning test data safely and securely.”

The report shows that secure test data provisioning remains a challenge, with only 20% of respondents having a fully-implemented enterprise test data provisioning strategy in place to address security and compliance requirements.

Data is the catalyst to innovation

Automation is fueling myriad digital transformations within the financial services sector, but without the right data, these application innovations cannot succeed. DevOps TDM can help further accelerate DevOps initiatives by automatically delivering fresh, complete, and secure test data wherever and whenever it is needed, in minutes. With DevOps TDM, banks and financial institutions can innovate faster, reduce time-to-market for updating legacy applications, and accelerate development and testing of disruptive fintech.

 

[1] Source: https://www.capgemini.com/insights/research-library/world-quality-report-wqr-2022/

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Is traditional business banking the best option for SME finance squeezes?

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Airto Vienola, CEO, AREX Markets 

The pressures facing business and personal finances alike have been well documented.

Stories are now starting to emerge about how smaller enterprises around the UK – which make up well over 90% of the companies in the country – are coping with that mounting stress. The picture starting to emerge suggests, not well.

Personal borrowing is bridging gaps in business books

One survey released recently suggested that one in five of the country’s small businesses have taken out personal loans by the business owner to try to cover gaps in their incomes and profit margins. A further 43% said they were considering doing the same. This rush to secure additional funds by any means may be understandable for businesses feeling the pinch, but it’s neither sustainable nor savvy. Many of these enterprises are already burdened with additional debt from the Covid relief scheme, and given rising interest rates, soaring energy costs and rising cost of goods, taking on additional debt is not an attractive prospect. Add to that the fact that rates from traditional business banking providers are proving steep, smaller enterprises could be forgiven for looking to personal means to shore up the balance sheet. A recent study from members of the Federation of Small Businesses found that one in five small businesses are struggling to find business lending rates under 11%. To help these companies to survive, something clearly has to give.

Not all Alt-Fi options are equal

Alternative finance services have been proliferating in recent times, and yet almost half of small business operators have concerns about pursuing this option, despite actively seeking additional funding support. Clarity over terms and conditions is an often-cited reason for this reticence, which is only natural when undertaking proper due diligence on financial lending. This is a wise choice, especially as it has become so easy for business owners to quickly and simply access new services through embedded finance services, just a few clicks away on existing digital accounting and bookkeeping services. Many of these are still not clear about any detailed fine print, lengthy contract terms or potentially high fees, and yet these too can look like accessible and viable options to business owners facing mounting financial issues.So, it can be hard to pick the right provider without a lot of research. Those wary of the long tail of taking on debt should be particularly careful when it comes to business Buy Now Pay Later or BNPL offers, which are currently entering the UK market, though that isn’t to say that other alternative financing services won’t suit their specific needs whilst mitigating fears over risk.

A fresh perspective on an established technique

So, if debt should not be an option, and embedded finance can have downsides, where should SMEs turn if they don’t want to kick the can of cashflow problems just a few months down the road? One area to reevaluate, which has seen a tremendous shift given the fresh thinking from alternative finance is invoice financing or spot factoring. No longer the imbalanced option of last resort it was traditionally perceived to be, the option has become much fairer to the SME, in addition to providing a swifter and more flexible alternative. In years gone by, invoice financing was the purview of the banks, which led to low rates of return for businesses looking to unlock the value in their organisation, and often much better value flowing back instead to the lender taking on the risk. This is no longer the case. Likewise, invoice financing earned a bad reputation among some for tying businesses into lengthy contracts – another area which current services in the market have since addressed. Our service for example allows businesses the flexibility to access cash back on just a single invoice of their choosing – which could be the difference for struggling SMEs between dipping into loss or keeping the lights on.

One answer to the late payments problem?

Perhaps the most important area which services like invoice financing assist is overdue invoices – the bane of the British SME. Barclays claimed earlier this year that over a quarter of SMEs are finding late payments to be on the increase, and this was an already notorious issue for many business owners. Estimates show that SMEs on average have £6500 in unpaid invoices at any given time. Financing these invoices ensures that the cashflow of these strapped SMEs is healthier, gets the money back into the business without the concerns of lengthy payment terms or endless chasing, and certainly in our case, has no impact on the relationship with the other organisation. Our platform acts as a marketplace between SME and likely investors, with extensive insight provided to make sure that those investing in the invoice are matched to the right businesses. We take on the intermediate risk – removing any suggestion or potential concerns around unwanted debt collection, for additional business owner peace of mind.

While the pressures may be mounting on the SMEs around the country, one thing is clear. No business should rush into making long term financial decisions simply as the cashflow is drying up. Any savvy business would be well advised to make sure they understand the implications, short and long term, of any lending solution they look to employ. However, knowing that there are options and the business’ bottom line does not simply have to rely on traditional banking services, should provide business owners with a lot more options at their disposal to help them to face the coming months with greater cash liquidity confidence.

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