Nigeria has formally adopted Open Banking by publishing a framework for Open Banking in 2021. Many other countries in Africa have identified Open Banking as part of their medium-to-long-term payments modernisation strategies. Yet, to a large degree many countries within Africa are moving ahead with Open Banking, even in the absence of regulatory enablement.
In significantly underbanked markets, non-banks offering financial products have thrived and expanded. The need to provide services that can reach poorer informal rural communities, and micro, small and medium enterprises, has led to innovative solutions from non-banks, including telcos and fintechs. Telcos have very large subscriber bases, even larger than the customer bases of banks, which in turn presents a risk to the traditional banking model, as these telcos begin to offer financial solutions. Banks have responded by setting up platform businesses to partner with these telcos and fintechs in delivering more comprehensive offerings to their clients. In the past few years, several telcos have expanded their offering to include financial solutions, building on the success of mobile money and wallets in many parts of Africa. For example, MTN (Mobile Telecommunications Network) has separated their fintech business into a new legal entity and announced Mastercard as a strategic investor in MTN Fintech.
Across Africa, banks are collaborating with fintechs and other partners as part of their digitisation strategies. The European Investment Bank’s 2023 report notes that in Sub-Saharan Africa two-thirds of banks are cooperating with, partnering with, or investing in fintechs. In South Africa, many banks are investing in the Open Banking landscape. To mention a few instances: Investec offers Application Programming Interface (API) access to consumers and businesses; Discovery Bank’s app gives their customers access to value-added products including non-Discovery products. Capitec, through partnerships with Ozow and Stitch, offers their customers the ability to make online payments using Capitec Pay. Nedbank’s Avo marketplace offers a wide range of non-banking products to their customers. They have also partnered with Xero, the accounting software business, to integrate banking transactions for small and midsize enterprises, thereby helping to facilitate accounting processes.
Most African markets have not yet developed Open Banking regulations or frameworks. However, over the last few years, some African nations have started considering Open Banking and drafted roadmaps to implement Open Banking. These countries include Kenya, Nigeria, Ghana, and South Africa.
The Central Bank of Kenya (CBK) released a draft five-year digitalisation plan in December 2020 titled Kenya National Payments System Vision and Strategy 2021 – 2025 to overhaul the country’s payments industry. The document highlights the CBK’s support for Open Banking and the importance of regulation, stating that the CBK will work to define standards for API development, including risk-management frameworks. The standards for API development will include identification, verification and authentication, customer account information, transaction initiation, and formats and coding languages.
The Central Bank of Nigeria was the first regulator in Africa to introduce a Regulatory Framework for Open Banking in early 2021. The Regulatory Framework provides guidelines for data and API access requirements, principles for APIs, technical design, and information security specifications.
As part of the Bank of Ghana’s National Payment System Strategy Plan (2019 – 2024), they are establishing standards for data sharing and engaging stakeholders to develop the roadmap for data sharing. One such initiative by the Bank of Ghana was to launch a regulatory sandbox pilot in March 2021 to help promote the development of the fintech sector, including Open Banking.
In South Africa, the Financial Sector Conduct Authority (FSCA) published a draft Position Paper on Open Finance in June 2023 that communicates the FSCA’s proposed policy position on Open Finance and provides recommendations in respect of appropriate risk mitigation. The FSCA believes the sharing of customers’ financial data with third-party providers – under conditions of strong control practices – has the potential to improve customer value, financial inclusion, and competition.
Across Africa, banks and telcos have opened APIs to third-party providers. Some (like the Standard Bank Group and MTN) have even set up API Developer Portals where developers can access their APIs and, by using these in a sandbox environment, can pilot new products. Some Central Banks are offering sandboxes too, for example, the South African Reserve Bank operates a regulatory sandbox for fintechs and banks to operate within and trial new products.
Cloud is rolling out rapidly across the continent, with Google Cloud, AWS, Microsoft Azure, and Alibaba Cloud all making plays for Africa and setting up data centres. Cloud-based data storage and management offers greater flexibility for Open Banking models, at lower cost, and supports Artificial Intelligence (AI) solutions which need greater computing power and data storage capacity. Many banks, insurers, and telcos are migrating their data and processes to the cloud.
Artificial Intelligence (AI) and Machine Learning (ML) models are being used to good effect in credit scoring tools – for example – to enable banks and telcos to understand the lower end of the market better through multiple data points, and subsequently to extend credit to this segment. A fintech that is delivering this service is YABX, which is working with telcos and banks on the continent. YABX ingests large amounts of customer data from telcos and, through AI and ML, delivers behaviour-based credit profiles against which banks provide loans. This has enabled telcos to offer small-value, short-term loans to their clients, who otherwise may not have been considered creditworthy. This has expanded the loan book for the banks involved for whom YABX provides an underwritten customer base. YABX operates in Tanzania, Uganda, Malawi, Cote d’Ivoire, and Nigeria.
The African Open Banking landscape is very exciting, with fintechs, telcos, banks, insurers, bigtech players, and payment solution providers actively seeking to service the market. The major players are banks, fintechs, and telcos. But bigtech companies (like Google Pay and Apple Pay) are also invested, and Visa and Mastercard are also playing a key role, expanding beyond their card offerings to partner with fintech’s to deliver merchant acquiring solutions for small merchants.
The major players are seeking to solve the critical issues on the continent, for example: given that the majority of people are still financially excluded; that more than 90% of payment transactions in Africa are still made using cash; and that access to credit and other financial services is very limited.
Mobile money is one of the most important innovations on the continent. However, mobile money offerings are expanding beyond the wallets to become multi-offering platforms. MTN is using the Momo wallet as the foundation to overlay several other products: payments (P2P and P2M), lending, insurance, remittances, and even ecommerce. Additionally, Vodacom partnered with Alipay to build a marketplace offering called Vodapay, through which multiple products can be accessed.
Africa faces similar data security and customer privacy issues as other parts of the world. As of February 2023, 36 out of 54 African countries had some form of data protection law or regulation in place. There is a growing number of data centres across the continent as countries direct their sights to store their data on the cloud locally as opposed to offshore.
Traditional African financial institutions are turning to partnerships with fintechs and telcos to remain relevant, and to offer their customers a wider range of products and services than they would on their own. The partnership is truly the ‘new oil’. We are seeing participants in all corners of this broadening financial ecosystem reaching out to one another to partner in delivering a wider range of services. This is true for banks, insurers, card schemes, fintechs, telcos, and retailers. Partnership – often through open APIs – enables players to extend their reach to new customer groupings, offer services at lower costs, and provide better customer choice. This requires the adoption of a new mindset where previous competitors cooperate with each other, and revenue models need to allow for revenue sharing as well as value-added services to deliver additional lines of revenue.
This editorial piece was first published in the Open Finance Report 2023. We encourage you to download the report and find out the latest trends and developments in the world of Open Banking and Open Finance, as the road to Open Data continues.
Paula Buchel is Deloitte’s Africa Payments Leader. She has over 20 years of experience providing business strategy solutions to financial services clients.
Albertus Nel is Deloitte’s South Africa Risk Advisory Payments leader. His focus areas include payment regulations, strategy, interchange, and remittances.
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