FinTechs and Open banking are entangled, for open banking to thrive there is a need for the banking sector to absolve fintech solutions into its system. Just as Fintechs in Africa is seeing an increase in investment which is leading to its expansion across the African continent.
Various businesses are feeling the impact of the Covid-19 pandemic and the financial sector (banks) are not immune to it. For so many banks, the economic impact has been notably glaring.
As a result, moving to online financial services is increasing at a drastic pace as a plethora of Fintechs. Also, neobanks and non-traditional financial services are continuously expanding their activities.
As these payment methods became global during the pandemic, Africa has emerged as the new Fintech hub for all.
Due to the expansion across the continent, its potentials are enormous, especially in the sub-Saharan Africa region. This region has traditionally lagged behind from limited access to financial services.
Nigeria is Africa’s largest economy with a population of almost 210 million got over 60% of Africa’s inbound Fintech investment in 2021. Even though more than 50% of Nigerians still do not have a bank account.
In 2021, 4 African Fintech companies achieved outstanding status with over $1 billion valuations. The companies are Opay, Wave, Chipper Cash, and flutterwave.
Opay: a mobile payment company that raised funds from investors including SoftBank
Wave: Senegal based mobile money network
Chipper Cash: the operator of a peer-to-peer payment that has the backing of Jeff Bezos
Flutterwave: offers payment services to businesses
Fintechs and Open banking
If the future of the Africa banking sector looks promising, then open banking seems set to play a vital role in the continent.
The provision of third-party financial service providers gives access to transaction, consumer banking, and other financial data through API.
Being an open-source tech, it gives room for third-party developers like fintech to access data withheld by banks. Also, to develop applications or services using the withheld data.
With this stress-free data connection, open banking allows customers access to products that suites their needs. It will lower costs and also encourage innovations and inclusion.
Africa’s demand for open banking needs the banking sector to absolve fintech solutions into its system. Some of which are already in progress by some countries.
In December 2020, the Kenya Central Bank announced its 4-year strategy which includes an open infrastructure as one of its main strategic objectives.
In 2019 at the height of the pandemic, two large South African banks embraced open banking. Hence, leading to an increase of South African Banks that offers open banking services to about 6.
Meanwhile, TrueID and Okra- a South African and Nigerian startup respectively also announced receiving funding to develop open banking infrastructure.
The EU and UK have addressed the legislative challenge. The concern of the Competition & Markets Authority (CMA) Order and the Second Payment Services Directive (PSD2) is the customer’s consent.
In Sub-Saharan Africa, the required regulatory framework that is integral to the smooth operations of open banking in the future is yet to materialize. Regulations such as data protection laws.
Meanwhile, a large population remains underbanked or even unbanked across lots of Africa regions using South Africa as a case study. The opportunity is there for banks across the continent to be involved in open banking solutions, seeing to the needs of consumers and bringing to the limelight a new concept of African banking.
Therefore, legislators across Africa need to see the huge benefit that open banking will facilitate such as financial inclusion as well as its beneficial impact on access and affordability.