Imagine accessing all your bank accounts and financial history at a glance. Then, imagine being able to give other banks or fintech companies access to this data.

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That might sound futuristic, but the possibility of this happening in African countries with the adoption of open banking isn't far off.

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In this blog post, we'll talk about open banking in Africa. Across Egypt, South Africa, Kenya and Nigeria, we'll share how different African countries are approaching its adoption. Most importantly, we'll explore how business owners, founders, and operators can position themselves to take advantage of it.

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What is open banking, and how does it work?

Open banking is simply how customers share their banking or financial data with regulated third-party service providers through APIs. 

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Open banking is not a specific technology. It's the standardisation of APIs. It’s about everybody speaking the same API language, which now gives customers the ability to provide informed consent, not just consent, for a third party to access customer data. Adedeji Olowe, CEO Lendsqr. 

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Systems need APIs to speak to each other. Think of APIs as translators. 

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So, if a customer wants to share their data, the bank and the third party must find a translator to help them understand each other. That means creating new APIs for every new platform that requests the customer's data. It's like hiring a new translator for every conversation—not very sustainable.

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That's the problem open banking solves. 

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Open banking helps to standardise API communication, i.e., a universal language for all banks and third-party service providers to communicate and share customer data. They adopt one common language instead of having multiple translators (or APIs) for sharing data.

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This standardisation makes it easy for any traditional bank or financial institution to share data with any third-party service provider that adopts open banking.

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What data can a customer share with third-party providers through open banking?

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Open Data

This allows third parties to access customer data. Data like customer name, account type, address, transaction info, BVN, NIN, etc

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Open Process/Payment Initiation 

This authorises third-party systems to initiate payments on the customer's behalf. Instead of logging in to their bank apps, open banking can help authorise payments from a third party platform.

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Open Products

This makes it easier for customers to access products and services from their bank and third-party platforms.

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Open banking in Nigeria

Nigeria is arguably the most advanced in the implementation of open banking in Africa.

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In Nigeria, the Central Bank of Nigeria the regulatory body of open banking, published operational guidelines for its implementation on March 7, 2023. While this is a giant leap forward, open banking is not operational yet among banks, fintechs and financial institutions.  

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Why? 

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Deji Olowe, the CEO of Lendsqr and one of the major pioneers of open banking in Nigeria, explains;

There's still a significant amount of work to be done. There are two pieces of important technology that have to be built: a registry and a consent management system. A registry will act as a database of entities that can access open banking. A consent management system is an independent way for customers to grant permission to access their financial data. Finally, the Central Bank of Nigeria has to give the go ahead and lead the charge and push adoption across all  banks, fintechs and OFIs to adopt open banking.

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To read more about the history and current status of open banking in Nigeria, check out the open banking Nigeria website.

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Open banking in Egypt

According to a white paper by Mastercard, open banking is in its early stages in Egypt, with the country taking a regulation-led approach to implementation. 

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The Egyptian Banks Company, jointly owned by the Central Bank of Egypt, the Ministry of Finance, and several national banks, is looking for formal regulations to incorporate open banking into the central bank's regulatory sandbox. 

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In 2020, Egypt passed a data protection law focusing on customer consent, laying necessary groundwork for open banking initiatives. Additionally, two venture-capital-supported fintech initiatives, Fintech Egypt and EFG EV Fintech, complement the CBE's efforts. 

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While open banking is not yet implemented, Egypt is actively working towards a regulatory framework that balances innovation with consumer protection.

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Open banking in South Africa

In South Africa, open banking is called open finance because it extends beyond banking. It covers home loan providers, consumer credit providers, investment and pension funds, as well as general insurers and intermediaries.

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At the moment, open finance is in the early stages of regulatory development. One of the major regulatory bodies, the Financial Sector Conduct Authority (FSCA), is leading efforts to create this framework. Despite ongoing data sharing in the financial sector, no tailored regulatory structure specifically addresses open finance. 

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The framework document released by the FSCA in March 2024 proposes a phased approach, starting with voluntary adoption before making it mandatory for all industry players. 

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Their key recommendations include; 

• Regulating participants for safe and ethical data sharing,
• Implementing proportionate oversight,
• Establishing explicit informed consent requirements,
• Developing risk management and disclosure frameworks,
• Creating data protection and sharing standards,
• And enhancing consumer awareness and recourse mechanisms. 

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In addition, the FSCA plans to engage extensively with stakeholders to refine these proposals, with various components expected to be delivered between 2024 and 2026. 

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Furthermore, they plan to establish an Open Finance Advisory Group to provide expertise and guide the development process. This measured approach balances innovation with consumer protection, ultimately pushing for an encompassing and secure open finance ecosystem in South Africa.

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Open banking in Kenya

According to the Kenya National Payments System Vision and Strategy document by the Central Bank of Kenya, here’s a summary of their plans for open banking in the country.

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The Central Bank of Kenya (CBK) plans to facilitate the development of industry-wide standards for open and secure APIs, emphasising interoperability, data protection, and innovation. 

Key initiatives include; 

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• Adopting standardised and secure APIs, 
• Enhancing interoperability across various payment systems, 
• And potentially expanding the scope of players who can participate in the National Payment System ecosystem. 

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The CBK aims to balance innovation with risk management, focusing on developing clear frameworks for data sharing and consumer protection. 

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Kenya is laying the groundwork for its development, focusing on standardisation, security, and innovation to support its vision of becoming a leader in digital payments and financial inclusion. 

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Use cases of open banking for African businesses

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Lenders will worry less, and debt collection will be more efficient

With open banking, lenders can easily access customers' financial data across their banks and establish their lending history, improving debt recovery rate.

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At the moment, lending is like rolling dice in Nigeria and many other African countries. This is because there's no sure way to confirm if the person or business you want to lend to has a good credit history, can repay the loan, or even has the capital to run a business.

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Different startups have developed models to confirm creditworthiness, but they're usually complex, involve unsustainable processes, and use alternative forms of data that aren’t always accurate.

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In 2022, the Central Bank of Kenya listed over 14 million Kenyans as loan defaulters in 2022. Debt collection is even worse as there are no guarantees for debt recovery.

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Open banking can change this, as lenders can access all the financial data and confirm the borrower's identity and creditworthiness. It’ll make lending safer and also shorten the process for both borrowers and lenders.

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More specialised personal and business services

Open banking allows customers to access their financial information and take that data anywhere. This will help banks, fintechs, and OFIs provide more specialised finance services beyond traditional banking.

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Picture a scenario where a customer puts all their financial information in one app, and they can budget, project their cash flow, and even automate payments. 

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Increase in insurance penetration 

With open banking, insurance companies can access customer data, offer tailored insurance packages and reduce insurance fraud.

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Insurance is struggling in Africa. Data as of 2022 show that South Africa had the highest penetration, with 11.3%, and Nigeria had only 0.4%. But open banking can boost these numbers.

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Embedded insurance gives people access to insurance products on third-party financial and non-financial apps. With access to more data through open banking, insurance companies can provide tailored services based on the financial data the customer shares with them. 

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Here’s a picture of what it could look like. A customer shares their financial history with an insurance company. Then, based on their purchasing power, they get a recommended insurance package. 

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Also, with open banking, insurance companies can verify customer identity during onboarding or a claim and also help improve fraud detection.  

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When a customer makes a claim, confirmation of monthly premium payments and payment of claims is tedious. With open banking, the entire process can be automated, from deducting monthly payments to confirmation of monthly contributions and even payment of claims.

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Ecommerce/BNPL

BNPL platforms need to confirm a customer’s creditworthiness before giving them access to their services. This process is not seamless for many platforms, and getting accurate customer information is difficult. However, with open banking, customers can share their financial data and easily establish their creditworthiness. 

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At the moment, BNPL platforms reduce consumer credit risk and protect themselves in different ways. Some only target working-class customers who are sure to pay back, while others mandate that you add a bank statement or a debit card. Other platforms plug into credit bureaus and try to determine a customer’s worthiness based on their purchasing power. These processes are not surefire ways to confirm if a customer is creditworthy. 

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With open banking, BNPL platforms can access a customer’s financial history across all financial platforms, making it easy to establish a customer’s creditworthiness. 

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Also, if a customer consents through open banking, BNPL platforms can initiate repayments from the customer’s account, which helps boost repayment. In addition, open banking gives them access to spending habits and behaviour, and this data makes it easy to provide the customer with secondary services.

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Benefits of open banking for fintechs, banks and African businesses

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Better offerings from banks and other financial institutions

Open banking gives power to the customers as they are now custodians of their data. 

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They can easily switch to any financial institution or bank with the best service and experience. 

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Traditionally, it's almost impossible to move your financial history data when you want to switch banks or a financial service as a consumer. But with open banking, it’ll be easier than ever. 

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This will spark competition among all the players, pushing them to think beyond traditional and digital banking services.  

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Building and launching financial services become easier

The barrier to entry is quite high if you want to build a bank, fintech or any financial product.

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You’ll deal with many regulators, pay for licences, deposit requirements, and security, and, importantly, you’ll onboard customers with no or limited insights into their financial history.

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Open banking makes it easy for new market players to access the financial history of the customers they’re onboarding. This allows them to innovate better and provide custom offers to their customers. It also makes customer onboarding and profiling easier for them.

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All these combined will lower the barrier to entry and make launching new products faster for new players.

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It’ll boost collaboration between banks and fintechs 

Banks have first mover advantage, years worth of customer financial data and a huge capital base, while fintechs build and execute faster.

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With the adoption of open banking and data sharing, they will have to work closely together. 

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While the lines between banks and fintech are already blurry, open banking will make them even blurrier. It will make both entities rely on and play to each other’s strengths. 

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All your financial data is in one place 

Open banking will allow people and businesses to store all their financial data in one place, making it easier to make accurate financial decisions. 

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With a centralised view of all your bank accounts, wallets, and finance platforms, it becomes easier to make financial projections, manage your cash flow, and even initiate payments from one central platform across all your bank accounts.

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One database to rule them all

With open banking, banks, fintechs and OFIs can create one central database which will make a customer’s profile uniform across all financial platforms.

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This will make spotting fraudsters and bad actors easy. Pairing this with existing databases like the BVN and NIN databases in Nigeria will also improve the accuracy of a customer’s financial data. 

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Is open banking safe for consumers, fintechs and banks?

Open banking is built on existing infrastructure across banks, fintechs and OFIs.

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So, it’s as safe as any financial product currently in existence. It uses similar security protocols safeguarding money movement in traditional banks, fintechs and standard APIs.

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In Nigeria, one of the things that makes the open banking framework very secure is that it’s an open standard that all players in the banking and fintech industry can access. So, in addition to API security standards like encryption, rate limiting, authentication and others, there’ll be community security. 

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Adedeji further explains: 

It's pretty secure. It's not a proprietary standard. If there's a weakness, everybody will see it. That's why open standards and open-source protocols are always very secure. People will speak up and fix something quickly if something is wrong.

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In addition, no entity can access to access a customer’s data without their consent, and there are also layers of approvers who guarantee security. This might be different for each African country as banking, fintech and regulatory standards are different.

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Conclusion

The implementation and adoption of open banking promises to make financial services more accessible. It could even help boost financial inclusion. While most African countries are still in the early stages, it’s exciting to see what’s possible when it fully kicks in. Fingers crossed.

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