Open banking can boost
SA fintech

The benefits of open banking have been spoken about within the global banking sector for some years now. While some local banks have already made concerted efforts to embrace the innovation opportunities that come with open banking, global payments as a service (PaaS) specialist Network International argues that there is room for a more collaborative mindset – for the benefit of all. 

Open banking remains fairly nascent globally, with some regions like the UK and EU adopting a regulatory-led approach, where banks have been mandated to share their APIs so anyone can test and use them to develop new products. 

This regulatory-led approach of the UK government is showing signs of success. Research conducted by the Coalition for a Digital Economy (Coadec) shows open banking in the UK has created 4,800 jobs and is valued at £4.1-billion. What’s more, the open banking sector in the UK raised over £886m and the median value of a UK open banking firm in the period was £16m.

Three of the big four African players in open banking, Nigeria, Egypt and Kenya, have also opted to take the regulatory-led approach. South Africa, however, has opted for a market-led approach. 

“Local banks are capitalising on their already established customer bases and partnering with smaller fintechs to deliver products for their customers that give them a competitive advantage,” says Richard Kadiaka, Network International regional managing director of Southern Africa and Portuguese-speaking African countries. 

“South Africa had the opportunity to see how things have played out in other markets without the regulator taking a top-down approach and dictating how things should be done. This has meant that local banks got to partner with fintechs that would have already had global experience, creating a lower-risk environment, and this is always advantageous when trying something new.”

Kadiaka says while South Africa is making progress under its market-led approach, there is a mindset shift that still needs to permeate throughout the sector. 

“If you can see open banking as a way to accelerate valuable partnerships, once you have addressed the commercials and legal requirements, the upside is a real chance to bring valuable new services to your customers. Going in with an attitude that you will give up the bare minimum is not the best way to enter any partnership. Some local banks have really cracked the formula and they’re the ones delivering the exciting new offerings. Any way you look at it, you have a chance to be a bank 1.0 or a bank 3.0, it’s all down to your attitude.”

It’s not just the UK that offers some good examples of how open banking can accelerate innovation, Africa has shown great progress as a result of lowering the digital drawbridges. 

Dr Reda Helal, Network International group MD of processing business for Africa, points out that, after publishing guidelines, Nigeria became the first African country to embrace open banking, paving the way for more customer-focused products and services.

“Kenya’s Central Bank, meanwhile, has chosen a stepped approach with a five-year domestic payments digitalisation strategy that includes a commitment to embrace Open Banking and APIs backed by the country’s data protection regulations. Ghana has also opted for a phased approach with a four-year plan and has already opened a regulatory sandbox to test new innovation.”

Helal says the government-led approach is also bearing fruit in the Kingdom of Saudi Arabia where its progressive approach has resulted in lucrative VC funding for local fintechs. Similarly, the market-led approach of the UAE is yielding early results with the first open banking licence issued to Tarabut Gateway In February 2023.  

“South Africa has some excellent examples of how best to draft future regulations, customising them to suit the country’s unique needs,” says Helal. “We also see strong merit in deploying regulatory sandboxes. These offer a controlled environment where institutions can test their platforms on a real audience without having to immediately comply with all the regulatory obligations. 

“We are also excited by the opportunity to extend use cases beyond just the banking sector to include a wide range of financial sector stakeholders. The entire sector stands to benefit from a more collaborative approach, and it makes sense to go through the process once and allow more players to benefit from the efforts.”