Open banking is a practice that provides third-party financial service providers open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of application programming interfaces (APIs).
In the west, it’s common practice. In the Middle East, it’s still in the realm of sandboxing, except perhaps in Bahrain, where it is mandated.
One company is trying to change all of that: DAPI.
The birth of DAPI
Mohammed Aziz, the co-founder of DAPI, got the idea when he was launching his first startup, Spendy, a fintech app that would allow users to view all their expenses across all their bank accounts in one single platform. That was when he realized that banks did not have any open APIs to plug into the application.
Meanwhile, Ahmed Agour, also a co-founder at DAPI, was trying to build Dinaro, an investment platform that would allow fractional investment, allowing users to invest as little as $5 into the stock market. But potential customers toping up directly from their bank accounts would run into Visa and MasterCard fees (2-3% of transaction costs) that were too high, making it unfeasible.
If these types of open APIs did not exist at a large scale in the Middle East and North Africa (MENA), why not build them? That is how DAPI, short for Data Aggregation and Payment Initiation, was born.
Regulation in most Middle Eastern countries regarding these types of FinTech applications is still uncertain but DAPI is one of the first open API providers in the sector to be accepted in the Abu Dhabi Global Market’s (ADGM) RegLab, Regulatory Laboratory which provides a controlled environment for FinTech participants to develop and test innovative FinTech solutions.
Moreover, DAPI has been accepted into both government-backed accelerators Plug and Play ADGM in Abu Dhabi as well as FinTech Hive in Dubai.
DAPI launched its own sandbox, which allows other developers to build their own apps using the APIs of DAPI; and connect with banks accordingly – aiming to solve the initial challenge that they faced.
DAPI looks to Banking-as-a-Service (BaaS) allowing third parties to open up banking services for their clients and acting as an anonymous provider of banking services.
Open letter for open banking
DAPI has written an open letter to the UAE Bank Federation Advisory Council and CEOs of UAE’s banks noting that on August 23 and 24, it took part in the Y- Combinator event (YC 20) one of the most successful tech accelerator programs.
DAPI will now be launching a new phase of collaboration between the UAE’s licensed banks and the country’s Fintech sector. DAPI’s services help with facilitating consumer-permissioned payment initiation and various account information services in pre- Open Banking regulatory environments.
DAPI notes that several UAE banks are now trying to restrict the company’s activities and services by reportedly asking the ADGM to rescind or take away the firm’s license. The company says that this would send a “chilling signal” to the tech investment community (both locally and internationally) regarding the investment climate in the country if such a “precedent was created.”
DAPI has stated in previous letters that UAE banks should be in favor of introducing Open Banking. There are a growing number of VC funded UAE Fintech firms that are working on new payment initiation processes.
“The region is super scattered,” says Aziz. While Bahrain was the first in the Middle East to adopt open banking regulations, and Saudi Arabia is moving “more aggressively” towards similar regulations within the next two years, Aziz says many other countries in the region are still a lot further off.
Bahrain introduced its first Open Banking product for the MENA region during December of last year.
During the past 7 months, several banks in Bahrain have invested in various solutions that are powered by Tarabut Gateway, which is a licensed Open Banking platform.
Dapi is in Pakistan, Saudi, the UAE, and Egypt, DAPI plans on becoming a “powerhouse for fintech across emerging markets in the MENA region”.
The start-up has roughly 50 fintech platforms in its open banking platform pipeline waiting to connect to banks.
Aziz says that a lot of banks have seen DAPI, which was founded in May 2019, as a “threat”.
“Incumbent banks are losing out because they don’t get it, but it is changing with the emergence of more remittance, P2P, digital wallet, neobanks, financial management, and new age accountancy platforms. We’re just at the beginning, the ecosystem is just setting in,” Aziz said.
Privacy constraints facing APIs
APIs give both customers and businesses the freedom to access all banking data in real-time. They would also be able to gain access to more personalized resources to make sturdier and better banking decisions.
But privacy remains a concern, despite advancement in security technologies such as encryption and biometric authentication. Can the data being shared be hacked? Today, many fear that it can but the advent of blockchain and smart contracts will create better trust that this data can be protected.
Open banking appetite in the region
A large majority of financial institutions in the UAE plan to enable open banking in the next 12 months, new research by Finastra has revealed.
The findings in Finastra’s ‘Open Banking and Collaboration: State of the nation survey 2020’ showed that 88% of banks in the UAE expect to enable open banking in the next 12 months. The main factors challenging greater industry collaboration in the region, according to those surveyed, include complex regulation, and legacy systems.
Over 90% say that the principle of collaboration has been a driver for success in their organization, and 57% said that open banking will have the greatest impact on corporate banking, followed by retail banking and payments.