Open banking could be what Africa needs to deepen financial inclusion

Open banking is considered a nascent idea in Africa but 11 countries are already tapping on its potential to deepen financial inclusion in rural areas.
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Open your world.
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Open banking, the practice of sharing third-party access to financial data through the use of application programming interfaces (APIs) within data privacy rules is gradually gaining prominence in Africa, which still grapples with several pain points in payments.

“Open banking brings the needed agility by fintechs to provide multiple services across borders. It allows you to send money from the US to Malawi as well as pay for your electricity, water, or home internet bills. These APIs enhance contactless payments, further pushing down the cost of transactions,” Willie Kanyeki, east and southern Africa regional manager at UK-based fintech Terrapay told Quartz during this year’s Seamless Africa fintech summit in Nairobi on Oct. 4.

Several startups are already investing on the frontier fintech concept and innovations around it. Last month a McKinsey study projected that Africa’s e-payments market will see revenues grow by 20% per year, hitting $40 billion by 2025. The global open banking market amassed a revenue of $13.9 billion in 2020, and is expected to hit $123.7 billion by 2031.

With 57% of Africa’s adult population still underbanked, and many lacking access to affordable credit, the sharing of APIs among banks, fintechs, and mobile money providers, according to fintech experts, presents a huge opportunity for the continent to expand financial inclusion to the rural areas.

Open banking makes transactions cheaper

Through open banking, Kanyeki says Terrapay has reduced cross-border remittance costs from 7% to 3% is some countries, and has expanded its portfolio to 4.5 billion bank accounts and over 1.5 billion mobile wallets.

Nairobi-based Solve Kenya, a subsidiary of Standard Chartered bank, which has utilized open banking in the past five months to provide over 800 small and medium sized businesses access to credit, believes the era of waiting for days for a business loan to be approved is long gone.

“Yes, we use these APIs and machine learning to make the process faster—a maximum of 50 minutes—while eliminating any loopholes for fraud. We have disbursed $1 million and the adoption is high because the APIs have reduced the cost of access to credit by up to 3%. We protect client private data and we have also have integrated zero trust cybersecurity to our platform,” CEO Sheila Omukuba tells Quartz.

Kenya’s central bank gave open banking a green light in 2020 paving the way for Cooperative Bank of Kenya to pioneer the new business landscape, integrating its systems with 12 APIs to reach more customers.

IBM’s Middle east and Africa general manager Saad Toma tells Quartz that open banking creates new revenue streams for financial institutions while creating value for customers through digital personalized financial services experiences. “This is all possible by making data available for regulated providers to access, use and share and allows customers to seamlessly interact with multiple forms of personal finance and payment service providers,” Toma explains.

IBM says it is currently working with Ethiopian bank Dashen to modernize its cloud integration architecture and enhance its open banking experiences with fintechs, neo-banks, corporates, and telecom partners to improve customer experiences. “In southern Africa, we have partnered with Bank Zero to deliver an open-source based banking platform that offers fast, easy, and continuous banking services to digital customers,” Toma says.

The open banking revolution is sweeping across Africa

South African open finance platform truID allows users to securely access consumer financial data from all major banks in the country, with its CEO Paris Valakelis telling Disrupt Africa that “open banking is a movement already in motion and one that’s picking up pace, eventually, it will become a unified open data framework, encompassing all consumer data safely and securely.”

Stitch, also South African, has developed an API that allows developers to connect apps to financial accounts within minutes. There are now six South African banks offering open banking services.

Nigerian startups OnePipe, which aggregates APIs from banks and fintechs into a unified gateway, and Mono which builds open banking infrastructure for banks, are driving the revolution in the country and believe that all financial service providers should allow for free API integrations for inclusion to work in Africa. In May, Nigeria’s central bank laid down guidelines for open banking in the country.

Morocco’s CIH Bank has been working with Finastra, an open banking fintech to digitize its services so customers can access them on a mobile app while improving customer experience and generating more revenue.

Tanzania’s most notable pioneer of open banking is NMB Bank, which launched the country’s first fintech sandbox in October 2021 to allow fintechs to access banking APIs meant to make payments faster. CEO Ruth Zaipuna says the sandbox “allows startups to experiment, test, and pre-certify integration with our banking services.”

Banks in South Africa, Kenya, Tanzania, Rwanda, and Malawi are also betting big on APIs to entrench WhatsApp banking, which is meant to make sending and receiving money as easy and fast as chatting on WhatsApp. Open banking is also active in Uganda, Egypt, and Ghana.

The future of open banking in Africa

However, the continent has the world’s lowest internet speed, many people still rely on feature phones, internet penetration is low, and some countries even censor it.

Some legacy banks are also not ready to open their APIs to fintechs or share customer data with competitors. The lack of regulation is also crippling attempts to make the concept mainstream, as only two countries in Africa—Kenya and South Africa—have a data privacy and protection law.

“One of the hardest things about open banking is that we are asked [as customers] to share more data, in an age where privacy is more valued,” says Richard Dent, founder of Finger Finance, a California-based online lending startup.

Andrew Ma, chief operating officer of South Africa’s Stitch says though Africa is ready for the revolution “most regulatory regimes continue to treat third-party open banking players as security and exposure risks, and warn consumers against use of products enabled by them.”

But Africa’s informal economy, which accounts for almost 90% of the economy, remains a prime space for open banking innovation, offering players the chance to provide safe, secure, and innovative financial services to the 370 million unbanked consumers. A reduced cost of mobile internet is expected to raise financial inclusion in Africa and improve the continent’s GDP by 30%.