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Africa is showing increasing rates of adoption of open banking, expanding across the continent from Nigeria to South Africa. Some say that open banking is the most significant “game-changer” since the mobile money revolution took the continent by storm. With high rates of unbanked individuals and SMEs, open banking has the potential to transform the lives of everyday Africans.
The current informal economy in Africa is a prime space for fintech innovation, offering fintechs a significant pool of unbanked and underbanked consumers hungry for safe, secure, and innovative financial services. Moreover, due to its sheer size and diversity, the African market is an almost perfect marketplace to benefit from open banking and open finance.
While Africa is yet to develop a comprehensive open banking framework, several countries have created roadmaps for digital transformation and open banking. Recently, a handful of African nations have emerged as leaders in open banking regulatory frameworks.
Kenya
In December 2020, the Central Bank of Kenya (CBK) released a draft five-year digitalization plan to overhaul the country’s payment industry. The document strongly supports open banking and stresses the importance of regulation, stating that CBK will work to define standards for API development, including risk-management frameworks. Meanwhile, the National Treasury and Planning department is drafting a policy for digital finance that will address four strategic objectives:
- Developing open banking infrastructure
- Ensuring consumer protection
- Creating financial system regulation
- Nurturing the development of the sector
Nigeria
In 2017, the Open Technology Foundation (OTF), a not-for-profit organization, established the Open Banking Nigeria initiative. Its aim was to promote the adoption of common API standards in the country. Subsequently, in early 2021, the Central Bank of Nigeria (CBN) introduced the Regulatory Framework for Open Banking in Nigeria.
This framework outlined guidelines for data sharing and accessing data and APIs within open banking. With the release of these regulations, Nigeria entered a new phase of open banking development. Consequently, the comprehensive rules injected greater energy and competition into the sector.
Ghana
As a stable and fast-growing economy, Ghana is a favorable environment for the growth of digital financial services. In March 2021, the Bank of Ghana launched a regulatory sandbox pilot to help promote the development of the fintech sector, including open banking. As a result, Ghana is a country to watch as open banking grows in popularity and the global economy speeds up.
South Africa
In 2020, the South Africa Reserve Bank collaborated with several government agencies and the Intergovernmental Fintech Working Group (IFWG) to establish The Innovation Hub, which aims to advance experimentation and innovation in fintech. Meanwhile, South African start-up TrueID received significant funding to assist it in developing open banking infrastructure. These developments follow the 2019 embrace of open banking by two prominent South African banks, Nedbank and Investec.
Future Outlook
Tech start-ups in Africa have been in the midst of a venture capital boom in recent years; in 2018, for instance, African tech start-ups raised more than $1 billion in equity. In addition, Chinese investors have shown interest in supporting fintech firms, and an increasing portion of this funding is flowing to advance the open banking sector. With new fintechs such as OnePipe, Stitch, and Okra growing in the continent, the African open banking and open finance space show increasing momentum.
Creating innovation hubs and pushing forward the open banking narrative can be a significant step forward for African countries, developing as innovation sites and benefiting from home-grown intellectual property and creative talent.
Tagged:
- africa, fintech, Open Banking, services
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Paul Nilson, Commercial Director
Strategic business leader who has scaled local and international platforms managing teams and creating sustainable recurring revenue streams.
