‘Open banking’ is coming to SA

Good for business, good for consumers

The future looks bright for the creation of new business opportunities, fuelling competition and driving the economy. From a banking perspective, however, it means that banks are going to have to up the ante to remain relevant and competitive.

Banks, up to now the major  custodians of financial data, have the ability to create a new revenue stream from this data. Banks have access to a huge amount of data on their customers, and monetising this data will lead to significant revenue streams –They are going to have to lead with their APIs, adopting platforms that allow them to structure their data in the right way, so that they, too, can offer competitive solutions. Banks also have the opportunity to play a huge role in the standardisation of APIs across the board.

For consumers, there are scores of benefits.

They will be able to access multiple payment providers, choosing whomever offers the best rate, promotion or deal at any given time.   Cost of making payments is likely to reduce as the payment process will be more direct with fewer intermediaries and greater efficiencies.  PISPs will create more competition in the payments industry by collaborating with various retail chains who may be able to offer on-the-spot promotions to consumers, based on where they are shopping and what they are buying. Consumers will have a tailor made world of offers at their fingertips.

Consumers will retain the ability to grant sharing permissions, equipping them with control of their own data and ensuring they aren’t targeted by unwanted campaigns. However, the sharing of their data opens up a world of possibilities.

It also gives an opportunity for the unbanked to do away with carrying cash and access credit. Leveraging a payment solution that is either inexpensive or free, if supported by advertising revenue, the unbanked will be able to build a payment record and credit history which opens the door to credit opportunities.

The challenges

Despite the sweep of open banking, different banks across various countries are all at different stages of PSD2 adoption. Banks are going to need to stay close to the process to retain their relevance and ensure they aren’t excluded from the payments system altogether.

With regards to data protection and security, the regulation has been careful to state that consumers must grant permissions for data sharing. However, this is a process that will need to be cleverly and closely monitored to avoid a mass dissemination of data.

Once a consumer has granted permission, there will need to be a process that allows the consumer to revoke this, should they wish to. The consumer needs to retain the ability to know where their data is at any given time, especially with the imposed requirements of GDPR and the looming PoPI Act.

PoPI is a South African regulation, which will naturally apply to South African businesses and individuals. GDPR is, however, a European regulation, despite this, South African businesses should not assume that the GDPR will not affect them. Any local business who has operations in Europe, who deals with European suppliers or who has so much as a single a European customer, needs to comply with GDPR. Financial institutions will need to keep mindful of these regulations when embarking on any new initiative.

There is no doubt that the banking world will see a tremendous and exciting shift, and there is much to be gained from open banking. Banks, emerging AISPs and PISPs will need to ensure they engage with partners who are at the forefront of banking technology in order to forge ahead and retain their momentum once there.

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