Open Banking is transforming the financial services space across the globe, and East Africa is not left out of the fun as Open Banking seeks to create prospects for change and financial inclusion in the region.
What is Open Banking?
Open Banking is a system through which banks share specific data using secure application programming interfaces (APIs). It engenders the creation of a variety of digital financial services that makes it easier for customers to transact, take control of their finances, and get full access to all of their data.
It leads to enhanced customer experience and improved transparency in banking. And with financial services providers having the authorisation to use the shared data without the need to develop their own data stores, adapting to new trends and offering innovative and unique services to customers is much easier.
However, according to the international mobile technology professionals at Myriad Connect, the East African region should learn from the mistakes of other markets and jump straight to the next stage of Open Banking.
Willie Kanyeki, the Business Development Director for Africa at Myriad Connect, says “In developed nations, fintech is helping transform the existing financial services landscape, where in Africa it is about bringing financial services to large sectors of the population who have never had access to financial services before. Open Banking can play a unique role in this.”
He went further; “Open Banking will drive transformation in digital financial services by simultaneously empowering consumers to own and share their data and enabling financial service providers to leverage this data to deliver enhanced capabilities to the marketplace.”
Mr. Kanyeki believes that a lot of banks and fintechs in East Africa already have a cosy working relationship compared to those in Europe, which puts them in a better position to transition swiftly and effortlessly to Open Banking across East Africa’s financial services environment.
He stated that “East Africa now has an opportunity to build on the experience of other markets that are already embracing Open Banking, and move directly to a more effective model in the region.”
He went on to stress the importance of regulation within the financial services landscape; “If the market is left to its own devices with no regulation, the region could find itself in a position where there is a dominant player and regulators or the financial services ecosystem are, as a result, limited in how they can introduce regulation or control Open Banking initiatives in that market.”
Juxtaposing this with the situation in the European Union, where the Payment Services Directive 2 (PSD2) regulation was introduced in 2018. The legislation makes it mandatory for banks to grant Payment Initiation Service Providers and third-party Account Information Service Providers access to the accounts of customers via open APIs to foster the growth of financial services. Thereby ending the long-held monopoly of banks over financial services, while encouraging competition, the drive to innovate, and the likelihood of extra costs. Customers have the freedom to take control of their finances by using their preferred app or service provider. However, the PSD2 lacks a defined standard for secure authentication, which is a major drawback.
Michael Muturi, a Solutions Consultant at Myriad Connect says: “East Africa can manage its own Open Banking initiative to avoid the pitfalls already experienced in other markets. Choice and a level playing field are desirable outcomes of Open Banking, but the emergence of a monopoly, or the erosion of banks, may not be.”
He went on; “As East Africa prepares to embrace Open Banking, this is an opportune time for banks and financial services providers to work together to approach regulators to put in place mutually beneficial regulations across the ecosystem. It is also important to consider uniform standards for APIs, security and authentication ahead of mainstream adoption of Open Banking.”
Willie Kanyeki agrees, stating that “With significant potential for innovation and development in financial services through the advent of Open Banking, East African stakeholders need to move quickly to pave the way for an environment that is properly governed, beneficial for all, and secure and convenient for consumers.”
Myriad Connect affirms that security and authentication are vital components of Open Banking, firstly to ensure proper authentication of every digital transaction to detect and prevent fraud, and secondly to grant express consent to the sharing of customers’ data within the ecosystem. These, along with ensuring that standards exist for API formats, are critical to ensuring that Open banking can fulfil its potential of providing simple integration and development.