Opening Up the World of Banking

Paris Valakelis
Paris Valakelis

Africa’s major potential as a hub for the open banking African market is evident. Paris Valakelis, co-founder at TruID, discusses the unique challenges ahead for the continent.

The world of banking is one ruled by powerhouses, whether they be families, corporates or cooperatives. First National Bank & Standard Bank, two of South Africa’s oldest banks, are names that all bring illusions of staunch traditionalism and secrecy, yet the digitisation of the banking sector is opening up their doors. 

Africa isn’t often included in any lists of tech ‘hubs’. According to Business Insider’s 50 most high-tech cities in the world, Africa doesn’t feature. Yet the continent is setting the stage for a financial revolution, thanks to digitally native start-ups.

There’s no denying that open banking has already shifted the agenda of banks and institutions globally, but most open banking companies have focused on creating unilateral products to serve those already banked in areas such as Europe, which have universal frameworks for financial regulations, consistent across all territories. However, Africa as a continent is comprised of differing levels of local governance and regional nuances, meaning it’s become a test bed for flexible open banking products suitable for all, far exceeding the possibilities of those in other territories.

Because of this unique set of challenges the market is facing, Africa has major potential as a hub for the open banking market and thanks to the regional divides and local governance, brands like truID are in a position to increase accessibility and transform the world of open banking straight out of the starting gate. In tandem with managing local regulations, Africa poses a second major challenge: the unbanked. Africa has one of the highest levels of unbanked individuals, meaning open banking will be more complex than anywhere else in the world and will rely on multiple systems and data sources that have been traditionally designed to serve the unbanked. For example, in Kenya, with M-Pesa being the leading banking and transaction platform, it will become the primary data source for open banking, ahead of banking data. Differing platforms like these will cause challenges across Africa.

The accumulation of challenges and hurdles means homegrown start-ups rather than external competitors are leading the way and driving further local and global investment in the sector. But how will a platform for banking transform the continent?

The COVID-19 pandemic accelerated digital ambition, not only for businesses but consumers. Thanks to working from home orders across the world, people are now learning more about technology and how they can use it to better their financial situation. This has resulted in a technological shift within Africa, championing innovation, accessibility, and inclusivity on multiple levels leading to explosive growth in adoption of digital open banking products. In fact, traditionally slow markets like the credit and lending sector have been able to utilise open banking to slash approval times from days, to just minutes, showing the effectiveness open banking can bring.

Regardless of this shift, however, across Africa, financial accessibility is a growing issue as more and more banks move towards digital offerings with money management and transactions being managed through digital, app-based systems. That’s why banks such as the old traditionalists are looking at new ways to engage customers through new products, better services and a more open network.

Open banking in its simplest of forms puts the power of customer data directly into the customer’s hands, meaning they can manage their finances more effectively. It will allow consumers to keep tabs on how and why banks and partners are sharing their data which ultimately puts them in more control of their finances and their data. On a macro level, open finance will open up the financial world enabling consumers to get better access to financial tools creating a more democratised financial system allowing everyone to be in control of their money. On an individual, micro level, open banking will grant consumers more freedom and greater access, increasing financial inclusion, the primary goal of every developing market government. 

Whilst progression is underway, as a market Africa has only just started conversations around regulations. South Africa is in discussion with regulators through the Intergovernmental Fintech Working Group (IFWG), conversations that we’re also a part of. These conversations, however, are still in their infancy and in terms of global precedence and creating an implementable framework, we’re two to three years away. Across the borders, Nigeria has made greater progress with driving adoption through market lead interactions, and in recent months we’ve seen the Central Bank of Nigeria (CBN) issue a guiding framework for the sector. Kenya on the other hand has pledged its commitment to an established framework through its ‘Kenya National Payments System Vision and Strategy 2021 – 2025’.

These regulatory conversations will very much guide how the industry moves forward, as a copy and paste approach from other regulatory frameworks like Europe’s PSD2 won’t work due to Africa’s challenging regional divides. However, the level of investment in the sector is already proving it’s one that can revolutionise financial accessibility and equality on the continent.

Looking towards the future, data aggregation and sharing is just the foundation of what open banking infrastructure enables. The next multi-million-dollar funding rounds will originate from the use-cases the data will enable. The entire ecosystem is going through both a technical and regulatory shift, unlike anything it’s been through before, and it’s just the start.

Ultimately, open banking is moving towards a global framework that will utilise the digitisation of banking to improve the level at which consumers across Africa can access financial products. In reality, home grown open banking is progressing at such a rate because those big banks, new and old, are opening their doors to the concept and the products being developed are leading their class in inclusivity and functionality due to the rare landscape Africa offers. That landscape is enabling companies like ours to lead the transformation with new systems and frameworks and with the right support, we’re bringing better financial tools to consumers across Africa.

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Paris Valakelis is a co-founder at TruID.