At the end of November, The Central Bank of Jordan (CBJ) issued instructions governing Open Finance services by all banks operating in the Kingdom, as well as online payment and money transfer companies subject to the bank's supervision and control, marking the new era of enhanced, seamless, and enjoyable financial experiences.

The last couple of years brought important Open Banking and Open Finance regulatory developments in Arab countries, and with this move, Jordan is keeping pace with all the regions to ensure a prolific adoption and implementation of necessary standards and legislations. The MENA Open Banking market is expected to grow by 25% annually during the next 5 years, driven by the impact of the COVID-19 pandemic and the young age and digital literacy of the population. The Open Finance market, as the cornerstone for accelerating financial inclusion in the MENA region, is projected to nearly double by 2027.

Jordan has a sound regulatory environment and is working on numerous ongoing initiatives toward the digitization of the banking sector. The progressive vision of The Central Bank of Jordan (CBJ), has issued instructions governing Open Finance services, aimed to foster innovation and competition and support opportunities for transformation towards an inclusive and advanced digital economy.

After thoroughly studying the Instructions on the Regulation of Open Finance Services Operations Procedures No. 12/22 issued by the Central Bank of Jordan; we would like to share some interesting findings with you.

What is clearly defined:

1. “Company”, in Jordan’s Open Finance regulation, implies “any bank licensed to practice the banking activities in the Kingdom according to the provisions of the Banking Law and any other payment and electronic funds transfer. Company licensed to operate in the Kingdom according to the provisions of the Payment and Electronic Transfer of Funds Regulations No. (111) of 2017”.

2. Any bank licensed to practice the banking activities in the Kingdom, branches of foreign banks/Payment and electronic transfer of funds companies operating in the Kingdom and any other payment and electronic funds transfer Companies licensed to operate in the Kingdom are subjected to comply with the Regulation of Open Finance Services Operations Procedures.

3. The deadline for implementing the provisions is within one year of their entry into force – which is the end of November, and the Central Bank may extend this period.

4. From our understanding, The Regulation of Open Finance Services Operations Procedures is based on the UK Open Banking Standard with consideration of local laws and provisions.

5. The Regulation includes two types of services: AIS (Account Information Service) and PIS (Payment Initiation Service).

. AISP - implies the party that has the technical ability and is authorized by the customer (under the express consent of the customer) to access the data/information of their account with the Company and use it to build and provide added-value services by processing the data and providing an alternative access point to multiple sources of data other than those points owned by the Company.

. PISP – implies the party that has the power and is authorized by the customer (subject to the customer's express consent) to either enable them to solely pass a payment transaction request and/or make the payment through them on behalf of the customer.

6. The relationships between TPPs and banks are organized according to clear and explicit written contractual agreements that define the roles, tasks, responsibilities, and rights of both parties, as well as the confidentiality, privacy, and security of information and non-disclosure thereof, and define the provisions for terminating the contract between them.

7. Open Banking usage has a commercial aspect, meaning that TPPs will be charged for using bank APIs.

8. Banks should ensure transparency and access to information for customers, including commissions and actual costs related to accessing data and/or information and executing financial transactions.

9. Banks should create and regularly update a registry of TPPs, including general information and the services they provide.

10. Banks should provide the payment initiation service providers information on whether the amount necessary to carry out the payment transaction is available in the payer's account, meaning that payment cannot be processed in case of a negative account balance.

What still needs some clarification

Any new regulation brings clarity and a certain dose of confusion altogether. CBJ’s Regulation of Open Finance Services Operations Procedures No. 12/22 would benefit from some enlightenment on the following:

1. According to the Regulation, TPPs should commit to the policies and procedures for identification and authentication of the customer’s identity if they are not less than the level of procedures followed by the Bank. Without a unified list of security measures, this could lead to additional expenses for TPPs.

2. Article 7 (a) point 5, stipulates that the Company (the Bank or Financial Institution) must ensure the ability to determine the minimum and maximum commissions charged by the TPP in accordance with the orders issued by the Central Bank. The mechanism for such monitoring doesn’t exist yet and could represent a potential future burden for TPPs.

3. Another factor of risk is that there is no unified formula for calculating fees for API usage, meaning that each bank can establish its own procedure charging per user, per month, per usage, per API call, etc. Moreover, the Central Bank can decide the fee for general usage of Open Finance services and adjust the fees established by banks. One big concern is that the standard system doesn’t exist yet. Having predictable and consistent pricing would help TPPs and banks to boost predictability, forecast expenses, lower risks, and ensure transparency for all participants.

Considering that this is the first issue of instructions – we can say one thing: plenty of aspects are covered and we salute the huge step forward taken by CBJ. Meanwhile, we look forward to seeing additional provisions and regulatory technical standards to address the above concerns. The main attributes behind Open Banking and Open Finance are openness, a platform-based approach acting as a dotted line connecting institutions with customers to create value, systematic regulation of these services, and the use of APIs connecting parties in the system.

The biggest innovation of Jordan's regulation is that services are not limited by account types, meaning that Open Finance gear can start working in full motion to extend the existing use cases and to include a myriad of new ones, including insurance, mortgage, utility providers services, and many other non-banking services.

Open Finance present a potentially massive growth opportunity to drive new revenue streams. Middle East countries are moving forward to develop open infrastructures, facilitate Financial Institutions’ collaboration with TPPs and encourage data sharing between them. More and more banks in the Middle East are acknowledging the importance of new technology disruption and the value of collaboration with FinTechs to extend the sector’s capacity to innovate and enable greater financial inclusion.