Open banking set to drive Africa’s financial inclusion

The financial sector in Africa has already witnessed tremendous disruption driven by technologies such as mobile banking, which has played a major role in expanding financial inclusion.

The industry is even set for more changes as new innovations come into being. The next phase of transformation looks set to emanate from open banking, an innovation that allows access and control of consumer banking and financial accounts through third-party applications.

Open banking, experts say, commands the potential to reshape the competitive landscape and consumer experience of the banking industry in Africa.

While consumers will be the biggest gainers, banks too will reap significant benefits as they will be able to acquire a set of skills and tools required to build their own ecosystems.

“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,” says Polys Hadjikyriacos, the chief business development officer of digital banking platform at NETInfo.


“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 to offer enhanced products and services to the market.”

African banks, he notes, are well positioned to embrace the opportunities created by the technology through transforming their solutions with innovative, agile and efficient ways that strengthen customer relationships and increase revenue for the banks.

Sila Obegi, the chief executive of Nairobi-based Meta Capital says open banking has helped a great deal to build a close working relationship between fintech startups and banks.

“There are so many things you can do today through open banking, which were not possible five years ago. Most banks nowadays freely avail their application programming interface (API) documentation which makes it possible for fintechs to build solutions that interact with a wide range of account transaction information,” he told Digital Business.

Such platforms, he adds, eliminate the restriction that limit access to customer financial data, with the bank with which they have an account. The account holder will have the ownership of the data and allow them to share with other third parties at their discretion.

Through the use of open APIs, business-to-business collaboration are enabled, leading to creation of new ecosystems and business models, for the benefit of financial institutions and their customers alike.

“Examples of new business models can include provision of end to end customer journeys, for example, buying a car, offering a loan, selling insurance or e-commerce,” says Mr Hadjikyriacos.

Open banking principles also provide an alternative payment instrument, to cash and cards, and can facilitate instant settlement for a purchase.

Bank customers can therefore utilise account aggregation and handle their total net wealth from one application, irrespective of where these accounts are held.

Africa, whose population remains unbanked or underbanked, Mr Obegi asserts, can utilise open banking’s affordability and accessibility, to facilitate financial inclusion for millions of citizens.

“It will help boost 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 it, they will further strengthen and broaden African financial markets.”

The continent is seen as a market of opportunities by the West and the East, where digital transformation could have the highest impact, by solving day to day problems that affect people’s live directly.

Kenya, for instance, has been a world pioneer in utilising technology to enable its people to carry out transactions quickly, securely and cost effectively.

Experts point out that African banks can benefit from improved customer experience and greater transparency in the region’s banking.

Because 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.

“By embracing open banking principles, African financial institutions will be able to reduce the cost of transactions by enabling payments directly between bank accounts. This will also mean that payments and transfers will have the ability to be settled instantaneously.

“Through embracing open banking principles banks will quickly remove their dependency on third parties such as credit card companies and mobile money service providers and reduce their costs drastically,” Mr Hadjikyriacos explains.

In his company, Mr Obegi says there are real estate and petty-cash management solutions that are compatible with M-Pesa and other banking integrations. Both products, he adds, are able to use open banking for reconciliation of debit, credit, and balance transaction information with web-based systems.

“Open banking has removed the barriers that existed for innovation around banking integration in the past. Notably, Kenya, Nigeria, and South Africa are the leading economies in Africa for open banking due to their establishment in the technology and banking sectors,” he exemplifies.