As digital transformation continues impacting lives in Africa, the fintech sector is undergoing rapid changes that are moulding the future of banking, where all payment modes will be integrated in various online services in the Internet of Things.
Open banking, which is the system of allowing access and control of consumer banking and financial accounts through third-party applications, holds the potential to reshape the competitive landscape and consumer experience of the banking industry in Africa.
Experts say it will enable financiers acquire the 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.
“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,” says Polys Hadjikyriacos, chief business development officer of digital banking platform NETInfo.
African banks, he notes, are well positioned to embrace opportunities created by the innovation through transforming their solutions with innovative, agile and efficient ways that strengthen customer relationships and increase revenue for them.
Chief executive of Nairobi-based Meta Capital, Mr Sila Obegi, 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 was not possible five years ago. Most banks nowadays freely provide 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 the Nation.
Such platforms, says Obegi, eliminate restrictions 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 the creation of new eco-systems 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.
The experts point out that African banks can benefit from improved customer experience and greater transparency in banking for the region.
By embracing open banking principles, African financial institutions will be able to reduce the cost of transactions. 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 3rd parties such as credit card companies and mobile money service providers and reduce their costs drastically,” Mr Hadjikyriacos explains.