Taking Open Banking to Africa
“Across the globe a quiet data revolution is underway. The idea that African banking clients could, in the future, have the power to own and share their data to get the best possible deal is an idea we should start to embrace more fully.”
So said Joe Huxley, Director, Strategy and Advocacy at FSD Africa, after my recent presentation in Uganda on the benefits of Open Banking, a relatively new concept where online (and in Africa, mobile) customers, allow their bank to access their data (such as transaction history) and share it with authorised parties in a way that will benefit both the banking sector and the customer. Thus, Open Banking is centred around data sharing and portability, but significantly, only with the customer’s informed consent and only for specific uses.
Arrival in Entebbe
I had travelled from Canada, on behalf of Dgen, at the request of FSD Africa, to present the concept of Open Banking – one of the most significant step-changes in banking for a generation. My first stop was Entebbe, where FSDA country directors were already gathered for a two-day meeting.
I explained that Open Banking was formally introduced in the UK in January this year, but that the concept had been in the melting pot for some years, driven by various factors. These included a response to the financial crisis of 2007-2008, national initiatives around open data, EU regulatory requirements surrounding payments and personal data management, and a desire to encourage a vibrant fintech community.
Explaining the development of Open Banking
The approach to Open Banking in the UK was shaped by new EU legislation in the form of the second Payment Services Directive (PSD2), implemented in January 2018, (replacing the PSD of 2007), and the General Data Protection Regulation (GDPR), instigated in May this year. These two pieces of legislation provide fundamental rights for consumers to own their data, to consent to it being transferred to other parties and used only for purposes known to them and to which they have agreed, and for consumers to have the data remain private if they so choose.
The approach was also shaped by the UK Competition Markets Authority, which, having conducted a market investigation into retail banking, mandated the nine largest UK banks to implement standardised open application programming interfaces (these are requirements that govern how one application can communicate and interact with another, also known as APIs) and data sharing with consent. This was done to spur innovation and competition in the banking sector.
On to Kigali
From Entebbe I moved on to Kigali, the capital of Rwanda, where I spoke on behalf of Dgen at the ‘Access to Finance Rwanda’ breakfast meeting – subject: Open Banking. My presentation aptly followed that of Hon. John Rwangombwa, Governor of the Central Bank of Rwanda, who discussed recently adopted payments legislation in Rwanda, modelled on the EU’s PSD2. This legislation provides for new types of payments providers (such as ‘payments initiation service providers’), expected to drive innovation in the sector. He also announced the creation of a regulatory ‘sandbox’ where controlled testing of new finance products or services would take place.
Will Open Banking work in Africa?
The meetings in Kigali and Entebbe opened my eyes to the considerable interest in how Open Banking might fit different African contexts. In particular, the model for Open Banking in Africa will need to take account of the phenomenon of mobile banking, requiring buy-in not only from banks, but also telcos, mobile networks and emerging fintech companies. FSD Kenya mentioned that they are already considering naming their initiative ‘Open Finance’, which we at Dgen feel is both practical and constructive.
But what are the benefits for the customer? In the vibrant business hubs of Africa, Open Banking will boost efficiency and create new services for bank customers. For example:
- assisting customers to find a suitable mortgage
- helping banks to match their customers with a new product
- allowing businesses to share data with their accountants
- advising on new products and ATMs
- comparing features of different accounts, lending offers and other bank products, enabling customers to get the best deal.
It’s all about creating an improved banking experience.
Staying on the same wavelength
Apart from Africa, Open Banking is also being considered by other countries including Australia, Canada, New Zealand, Japan, Honk Kong, Singapore, Malaysia, India and Mexico. There is, therefore, a strong rationale for all countries to come together with the same approach to Open Banking: to co-ordinate efforts, reduce duplication, increase interoperability, minimise costs and maximise benefits for the whole banking community. In fact, the Open Banking Standard – developed in 2015 by the Open Banking Working Group of behalf of the UK treasury – together with the work done by the Open Banking Implementation Entity (OBIE), is freely available via open licences, to countries interested in adopting it.
The OBIE has done groundbreaking work around the authentication and consent model for customers, the liability framework and dispute resolution management protocols, and the ‘Directory’, which is the central repository and means for access to all regulated market participants.
Adopting the principles and concepts of Open Banking can be a huge step forward for a country’s data infrastructure, which is necessary to support a truly digital economy. And Open Banking also creates design patterns that can be replicated across other sectors. Our expectation is that Open Banking will not only continue to evolve and encompass the full range of financial services but will also be applied in other sectors such as utilities and telecommunications and then further into the crucial areas of health and care.
To Uganda and Rwanda (and any country interested in Open Banking): thank you. We will be back!