Open banking is a global fintech trend that is revolutionizing the financial services landscape across the world by enabling banks acquire the skills and tools required to build their own ecosystem through its unique infrastructure. African banks are well positioned to embrace the opportunities created by open banking by transforming their offerings with innovative, agile and efficient solutions that will strengthen customer relationships and increase their revenue. The platform eliminates the restriction that limits access to customer financial data with the bank with which they have an account. The account holders will own the data that can be shared with third parties at their discretion.
Through the use of open application programme interfaces (APIs), the model facilitates business-to-business collaboration and the creation of new eco-systems and business models for the benefit of financial institutions and their customers. The new business models include provision of end to end customer journeys. For example, while buying a car, one may also need a loan or insurance. Open banking principles also provide an alternative payment instrument to cash and cards and can facilitate instant settlement for a purchase. Bank customers will be able to utilise account aggregation and handle their total net wealth from one application, irrespective of where these accounts are held.
Africa as a region where a large population remains unbanked or underbanked has the potential to facilitate financial inclusion for many people. Open banking will help in boosting the region’s economy by removing barriers to innovation and facilitating access to essential financial products and services. When banks, fintechs, telcos and other third parties in Africa embrace open banking, they will further strengthen and broaden the continent’s financial markets.
Africa as a continent has always been a world leader when it comes to utilising technology to enable its people to carry out transactions quickly, securely and cost effectively. M-Pesa is a good case in point. By embracing open banking, African banks will ensure improved customer experience and greater transparency in banking for the continent. Since third parties will be pre-authorised to use customer data, negating the need to build new data stores of their own, they can quickly adapt to changing trends and offer new and unique services to customers.
“Open banking in Africa will play a pivotal role in offering financial services to large sectors of the population who have never had access to financial services before. It will drive transformation in digital financial services by permitting consumers to own and share their data and enabling banks and fintech companies to utilise this data in offering enhanced products and services to the market,” says Polys Hadjikyriacos, the chief business development officer at NETInfo.
Another positive aspect from an African perspective is that the continent can look at the experiences from other parts of the world and ensure that the open banking model it implements is the most ideal. “By embracing open banking principles, African financial institutions will be able to reduce the cost of a transaction by enabling payments directly between bank accounts. This will also mean that payments and transfers will have the ability to be settled instantaneously,” Hadjikyriacos further says. They will also quickly remove their dependency on third parties such as credit card companies and mobile money service providers hence reducing their costs drastically.