Open banking has the potential to shape and improve financial systems all around the world. Some regions, in particular, face barriers and challenges that make it difficult to access traditional banking methods. For instance, 50% of Africans don’t have any form of bank account.
Across Africa, digital financial services are making banking more inclusive for individuals and informal SMEs. What role does open banking play in all this? And what is the open banking landscape in Africa?
From NMB Bank Tanzania to CIH Bank, read on to discover who the leaders in the field are, and how open banking can open up new opportunities for financial institutions.
What benefits can open banking bring to banks in Africa ?
Open banking uses application programming interfaces (APIs) to allow third-party service providers to access consumer data in a secure way. With a strong API strategy in place, open banking can help banks reach new customers, and provide better digital services.
It has the potential to accelerate financial inclusion, allowing those usually excluded (e.g. those who live rurally or can’t access credit) to open bank accounts using Fintech. Digital banking also tends to be less expensive than traditional banking — meaning financial savings for banks as well as consumers.
What is the open banking landscape in Africa?
With large and diverse markets across 55 countries, Africa is the ideal area to benefit from open finance. Although open banking is a fairly recent innovation in the financial services universe, it’s certainly gaining popularity with banks across Africa — and with good reason.
While there are regulatory challenges to face, integrating open banking APIs brings vast opportunities to connect with Fintech companies such as Tala, in Kenya, and PiggyVest, a Nigerian saving and investment platform. These are just a couple of the growing Fintechs in Africa — over 60% of all venture capital invested in Africa in Q3 of 2021 went towards Fintech, highlighting just how much of a future investors see in open banking.
It’s important to note that Fintech companies need partnerships with banks to function — non-bank entities are not allowed to take deposits from customers.
How are African banks making the most of Open Banking?
The COVID-19 pandemic has caused devastation across the globe. However, it has also sped up open banking innovation — two of the biggest banks in South Africa integrated open banking at the height of the pandemic. Since then, four other banks in the country have followed suit.
In other areas, open banking has also taken off.
NMB Bank Tanzania
One of the most notable pioneers of open banking in Tanzania is NMB Bank, which launched the first fintech sandbox in Tanzania. The sandbox allows Fintechs in Tanzania to access APIs and tools, improving development and speed to market.
Co-operative Bank of Kenya
Kenya has typically been seen as the trailblazer of open banking in Africa. One of Kenya’s commercial banks, Co-operative Bank of Kenya, (licensed by the Central Bank of Kenya) has integrated with 12 APIs.
Central Bank of Nigeria
Pivotal to banks and Fintechs across the country, the Central Bank of Nigeria is setting up a regulatory framework for open banking. Currently, African countries don’t have regulations like the European PSD2, making open banking processes more challenging to integrate.
Creating a framework in Nigeria will be a leap in the right direction, allowing more banks and Fintechs to collaborate in a secure and efficient way.
Guaranty Trust Bank
Guaranty Trust Bank in Nigeria is exposing API Products through its developer portal. But partnering with Fintechs isn’t the only way to benefit from open banking.
Guaranty Trust Bank has recently changed its structure to become a holding company. The bank has launched its own mobile platform, HabariPay, to compete with Nigerian Fintechs.
Moroccan-based bank, CIH Bank, has a partnership with Finastra, a leading Fintech company. The partnership has enabled CIH to digitise its services so customers can access them online rather than in-branch only.
This open banking partnership has also meant that CIH has more streamlined and efficient automated processes, providing a better customer experience and generating new streams of revenue.
Open banking leaders around the world
What about elsewhere? Open banking is providing banks of all sizes around the world with innovation.
- Bank of America – in 2020, Bank of America invested $8.7 billion in technology, including APIs to improve its commercial banking app.
- OCBC Bank – the Singapore-based bank now has several open banking APIs in place, covering consent, FX rates, and statement balances.
- ICICI Bank – ICICI, one of the Big Four banks of India, has also integrated with open banking. In 2020, the bank launched an API Portal, providing partners with access to 250 APIs to help build innovative financial solutions.
Why integrate open banking?
Many countries in Africa don’t currently have open banking regulations in place. This can make the idea of integrating APIs daunting. However, with banks across the continent recognising the benefits of open banking, now is the perfect time to start exploring options and create a strong API strategy.
Financial inclusion is vital for growth. Currently, a vast percentage of Africa’s population is unbanked or underbanked. Not only can open banking make financial services accessible to those who may live rurally, struggle with credit checks, or otherwise be excluded, but there’s evidence to show that financial inclusion can improve GDP by up to 30% — particularly in markets such as Kenya.
Open banking offers countless opportunities to service the underbanked, increase revenue, and improve the customer experience. If you’re looking to get started with open banking, we can help you develop an excellent open finance strategy. Learn more about our services, or feel free to get in touch if you have any questions.