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Bahrain

Open Banking

Bahrain is an island country in Western Asia. It is situated on the Persian Gulf. It comprises a small archipelago made up of 50 natural islands and an additional 33 artificial islands.

According to WorldBank, 99% of Bahrainis have access to the internet. Bahrain has achieved full national 5G network coverage with an average speed of 600 Mbps, and most Bahrainis access the internet using mobile devices.

The Bahrain OBF goes beyond data sharing to outline requirements for financial institutions to allow third-party payment initiation. TPPs are allowed access upon request. TPPs in Bahrain are permitted to charge consumers. 

Regulators in the Middle East have taken several approaches to encourage the adoption of Open Banking, including enabling market-driven initiatives or imposing a higher degree of standardisation and enforcing compliance. For example,¬†some Fintechs¬†are building universal API platforms to link banks with third-party providers in¬†Bahrain,¬†Saudi Arabia and the¬†United Arab Emirates¬†(UAE). However, the standards in the Middle East¬†differ significantly; for example, Bahrain has adopted a¬†European-style regulation-driven approach while UAE has a more US-style market-driven approach (p. 5).¬†Bahrain’s Open Banking Framework is principally based on global ISO standards, specifications and guidelines as published by the Open Banking Implementation Entity (OBIE) in the U.K, the Open Banking Standards in Australia, and the Payment Services Directive (PSD2). These global standards, specifications and guidelines have been customised for implementation in Bahrain based on existing practices and terminology used by the Bahrain ecosystem.

According to the Global Findex Database, 83% of Bahrainis had bank accounts in 2021. 

Customers must consent to initiate payment transactions. 

Some banks in Bahrain now allow customers to view all their bank accounts, including those from other banks, on their mobile apps (p. 15). Banks generally profit from improved customer experiences, but that can also mean offering services provided by competitors, as in the provision of a marketplace to compare investment opportunities.

Bahrain gave banks¬†half a year to comply¬†and mandated that all banks open up their APIs (p. 16).¬†Extensions were not granted. When Bahrain further developed its earlier rules into the Bahrain Open Banking Framework (OBF)‚ÄĒ a set of guidelines and standards launched in October 2020 to ensure consistency in implementation and to boost adoption ‚Äď banks were given half a year to comply.

A collaborative approach between technology platforms, banks, Fintechs and regulators has accelerated the journey towards generating new revenue streams and driving better customer experiences through product innovation. In practice, this has created a challenge for current and legacy systems of financial institutions, requiring the adoption of new agile approaches and more robust, advanced and secure technologies. 

Traditionally know-your-customer verifications are still conducted face-to-face in physical bank branches that store their own sets of documents, which means that also third parties are entirely reliant on the banks. The association of KYC with government-sponsored developments of electronic identification (eID), such as Bahrain’s eKYC platform, which highlights the importance of Open Finance for sectors outside of banking.

Bahrain has identified a skills shortage and launched the ‚ÄėClosing the Skills Gap Accelerator‚Äô¬†to close the gap.¬†Bahrain FinTech Bay¬†(BFB) was established in 2018. It is the¬†largest Fintech incubator¬†in the region, formed in association with more than 30 corporate partners, including banks, insurers, payment processors, telecoms and technology companies. It also hosts¬†the National Fintech Talent Program. In addition, Bahrain has also invested in¬†education.

Bahrain ranked 34th out of 134 countries in¬†Wiley’s Digital Skills Global Index 2021.¬†

The introduced regulation is directed towards Open Banking operators that are providers of account information (AISPs) and/or providers of payment initiation (PISPs). Following the launch of the draft regulations, the¬†Central Bank of Bahrain (CBB) has improved the Fintech ecosystem through a number of initiatives, such as¬†the¬†regulatory sandbox. Open Banking is used by over 11 local banks and should,¬†in the future should, enable TPPs to integrate and innovate more seamlessly with financial institutions.¬†Technology architecture that uses the ‚Äúscreen scraping‚ÄĚ method¬†must not be used.¬†

Bahrain has developed its own technical standard, Bahrain Open Banking Framework (Bahrain OBF); however, the APIs are not standardised, and Bahrain allows the industry to determine data sharing standards (p. 20).