The Middle East is one of the fastest growing cryptocurrency markets, accounting for 7% of global trading volumes according to ChainAnalysis. It is estimated that the UAE transacts around $25 billion every year.
Following the announcement of regulators in Dubai and Abu Dhabi governing virtual assets and cryptocurrencies, global players then entered the market. A survey revealed that 33% of UAE residents say they have invested in cryptocurrencies, while data from YouGov revealed that 67% of UAE consumers are interested in investing in crypto within five years. However, there are several challenges the ecosystem will need to overcome to capitalize on the interest shown by consumers.
When consumers want to start their crypto journey, the experience can be messy and clunky. Most exchanges still operate on traditional bank payment rails, such as accepting cards or manual bank transfers.
Funds often take days to clear, higher fees are associated with these transactions, and long processing times can affect currency price fluctuations. More importantly, they are prone to fraud and error. This friction for the consumer experience leads to a decrease in trust and a sense of security in crypto.
Here are four ways “Open Banking” can reduce friction and increase cryptocurrency adoption.
By deploying open banking protocols with the use of standard APIs, consumers would only need to provide consent and authentication once at the start of their journey. This provides a more secure experience for the customer as they are already used to their bank’s native application.
Reducing the authentication steps of entering bank details every time or being redirected to a third-party site increases trust and speeds up the process. It also allows consumers to connect multiple bank accounts to securely authorize payments or fund withdrawals.
Faster processing, lower costs
Open banking eliminates the need for traditional means of payment such as manual bank transfers or card payments. Typically, a user must provide their bank details in advance, then initiate a transaction and wait for the crypto company to reconcile and credit the user’s wallet with the value accordingly.
It takes time and customers have to bear high transaction fees. The lengthy process may also affect the purchase value of the digital asset due to market volatility and currency change between the time of purchase and the value reflected in the user’s account.
Open banking speeds up the process in near real-time through the use of payment initiation services (PIS) for the instant purchase of cryptocurrencies. This reduces the risk of missing out on investment opportunities while benefiting from lower fees through open banking enabled transfer directly from your bank to the recipient.
Increased compliance on KYC
The ability to verify a customer through open banking APIs helps speed up the activation process and comply with regulatory requirements. Crypto exchanges can use transactional data to verify the source of funds entering and leaving the platform to regulators.
The account information services (AIS) enabled by open banking can benefit all stakeholders. Linked client accounts can provide platforms with a better view of a client’s net worth, debts, and spending behavior. The data can be used to make personalized recommendations for buying assets, trading options, and lending crypto.
Variable Recurring Payments (VRP) can also be set up through which clients can consent to deposit a specified amount at regular intervals to automate investments in their crypto wallet.
Perhaps the most important part of the future roadmap for crypto adoption is the ease of payments. Crypto traders face operational delays as they have to manually get approval from banks every time a customer wants to withdraw their currency or digital asset.
Simple actions such as withdrawals or transfers to their trust bank accounts can become tedious. AIS can seamlessly verify and validate customer accounts, allowing for smoother operations for the exchange and faster settlements to a user’s bank account.