Insights

Open Banking in Africa: Perspectives from Nigeria, Ghana, Egypt and South Africa

Written by Warren Handley, Standards Product Manager at Ozone API

Too often we view Africa as a single market, failing to acknowledge vital differences between countries. These differences can range from consumer behaviour and cultural nuances to infrastructure and legacy banking systems.

The purpose of this article is not to understand how open banking is progressing on the continent as a whole, but rather to identify and evaluate exciting movements in different African markets, and analyse the sentiments of experts from their regions.

What is open banking

As with almost all articles about open banking, we must include the prerequisite ‘What is open banking?’ question.

While this has become a precursor to almost all articles and conversations on this topic, I support this repetition. The more people we can get to understand what it is, the more society can reap the benefits. It also teaches us to discuss it in an accessible way.

Answer: open banking is a mechanism that allows consumers to share their financial data with third parties, upon the consumer’s consent. 

One way I can explain how open banking works, is to explain how I manage my funds. I have a Barclays account that I receive my salary into and use for monthly expenses and I have a Revolut account for when I travel, but I want to see both of my accounts in a single view to budget more effectively. If I download an app to help me do that, and I give it permission to access my bank account data, my banks have to make that data available. 

Another example: I want to apply for a loan but my credit score isn’t a true reflection of my creditworthiness. I can share my account information, giving the loan provider a view of my transaction history and proof that I receive monthly income, and they can work out how big a loan I can afford.

There are more use cases for how open banking works in this Essential Guide to Open Banking article.

How will open banking benefit African countries?

The UK was the first market to mandate the implementation of open banking and is resultantly often quoted as having created the ‘blueprint’. As other countries have followed, we’ve seen open banking standards adapted to market needs with varying success. Before assuming its relevance for African countries, I set out to answer if open banking would be beneficial for African countries.

Some of the benefits of open banking include increased competition, more personalised financial offerings, as well as faster, cheaper and safer payments. And – like in the loan example above – there are high hopes for an increase in financial inclusion.

All of these can be beneficial for economies that typically see high transaction fees, high levels of fraud and significant portions of populations unbanked or underbanked.

To validate these benefits, I spoke with a number of African experts, including bank executives, fintech professionals and entrepreneurs. Some of the respondents firmly agreed on the benefits, although with slightly differing opinions on what will matter most. Others, however, raised important challenges and arguments as to why we cannot simply adopt open banking as we have seen it elsewhere. 

Open banking in Nigeria

Looking to Nigeria, Adedeji Olowe – founder of Lendsqr and a trustee at Open Banking Nigeria – believes through variable recurring payments (VRPs) and [continuous] consent we will see the creation of a subscription economy.

 “As we know, cash is king. If businesses can begin to offer services with more confidence in if and when they will be paid, this will improve cash flow management and allow businesses to grow. When businesses grow, the economy grows”. 

He also believes lending to be one of the most influential use cases because, contrary to the savings and budgeting tools we see in more developed markets, “there’s no point talking about savings tools when there’s no money to save”. People in Nigeria need access to affordable, responsible lending, and lenders need to reduce the risk of lending to achieve this.

Open banking in Ghana

Heading west to Ghana, Tarek Mouganie, Founder and Group CEO of Affinity Africa, a digital bank, agrees that access to credit will be a leading use case for open banking. In credit, everyone has something to gain. The consumer or business requires access to funding, the financial institution charges for this, and both are incentivised to reduce the risk in this transaction as it makes it cheaper for all parties involved. It was, however, also Tarek who raised one of the biggest challenges to open banking in African markets.

Speaking to Ghana specifically, he shared how open banking adds major value when you can add various products on top of an underlying datasource. But according to Statista, in 2023, less than 40% of the Ghanaian adult population held a bank account and 63% of all transaction value still happened in cash.

So what happens when that underlying data does not exist or is not rich enough? To understand this further, it helps to go back to the initial problem open banking was meant to solve.

For years, banks have controlled consumers’ financial data, so what open banking is really trying to achieve is empowering customers to share their data for their own benefit. That’s hard to achieve when the data doesn’t exist. That’s not to say that open banking doesn’t have a role to play in largely unbanked markets, nor that it won’t have a larger role to play in the future.

I first heard Tarek speaking about open banking on a panel at the Africa Tech Festival in Cape Town. He shared how there is an appetite from Telecommunication Service providers to offer (and consume) open APIs. Where banks may lack some essential data, these telcos have it in abundance. Hypothetically, banks could streamline their onboarding process by simply doing KYC checks with the applicants’ network providers, making it easier for consumers to open bank accounts. What also struck me was how refreshing it was to hear from a CEO of a bank how much value can be provided for consumers and businesses through open APIs. When asked what is needed to see the adoption of open banking in Africa, he replied with “We need three things: regulation, regulation, regulation”. I’m not sure if I mentioned that this was from the CEO and founder of a bank. This does bring me to my next question, though: how should open banking be implemented?

Both Adedeji and Tarek believe the regulator has a major role to play in creating an ecosystem for open banking to thrive. Adedeji, in fact took it upon himself to found Open Banking Nigeria, a non-profit organisation that has started creating an open banking standard to assist the central bank in the implementation of a framework.

This has proven to be a more ‘by the market, for the market’ approach, however it requires a regulatory nudge to get it over the line and they have hit political stumbling blocks. Delivering open banking takes time, raising a question of how delivery schedules align with political tenure. Countries such as Kenya, Tanzania and Namibia have started to release draft frameworks, request market input and publish underlying regulations that, at the very least, indicate an intent to promote open banking.

Open banking in Egypt

Ozone API’s General Manager for the Middle East and North Africa region, Nihal Abughattas, shared how “Egypt is navigating its path toward open banking with cautious optimism”, adding that The Central Bank of Egypt (CBE) is actively exploring frameworks to foster the adoption of open banking, recognizing its potential to enhance financial inclusion and drive competition among financial service providers.

An open ecosystem would be particularly beneficial for Egypt, allowing the relatively large number of existing third-party providers (TPPs) in the market to access data in order to offer diverse financial services and bolster financial inclusion. 

To enable this open ecosystem, several critical levers are necessary. These include the development of a common API standard to ensure interoperability, implementation of FAPI (Financial-grade API) security protocols to protect user data, establishment of a trust framework to govern the relationship third-party providers, and the introduction of granular user consent mechanisms to support a wide range of use cases.

In terms of market readiness, Nihal believes that the growth in wallets, the large number of fintechs and the recent adoption of an instant payments initiative are all promising indicators of progress. Whether we are likely to see industry move ahead of robust regulations and a mandated approach is however yet to be seen.

Open banking in South Africa

In South Africa, the FSCA recently released their position on open banking. In short, the regulator believes that open banking will have major benefits for the economy and that it should be implemented through a mandatory approach (despite a few respondents to the paper suggesting otherwise). Interestingly, the CEO and founder of a prominent identity management company in South Africa believes there is room for a more market-driven approach.

South Africa—like many other African markets—is dominated by a small number of major banks, making bilateral agreements and market-driven efforts easier to coordinate. Perhaps there is a happy medium, allowing the market to move forward with open banking while the regulator defines their standards, and even allowing the market to guide the process in doing so.

Support from the open banking ecosystem

An interesting distinction to make between some of the more advanced open banking markets and many African countries is the need for aggregators. In markets such as the US and Europe, where there are hundreds or even thousands of banks, third party providers (think the budgeting app in the earlier example) can gain access to the majority of these banks through a connection to a single aggregator. This saves them the time and money of connecting with each individual bank.

In the South African example, there is less of a need for this as there are only a few banks to integrate with. Instead, there may be a greater need for outsourced expertise in compliance and commercialisation. The reality is that it is expensive for banks to build and maintain these open APIs, and it requires an expansive talent pool to do so. By outsourcing this work, financial institutions can benefit from the learnings of other markets and implement their open banking infrastructure in a more cost effective, efficient and compliant manner. This is where we at Ozone API come in.

Looking to the future

Open banking in African countries represents a promising yet complex opportunity, despite potential benefits tempered by some regional challenges. By facilitating data sharing, open banking will enhance financial inclusion, increase competition, and provide more personalised financial services, addressing critical issues such as high transaction fees and limited access to credit. And, as our experts alluded to, this will drive economic growth.

In my opinion, the success of open banking hinges on robust regulatory frameworks and the adaptability to unique market conditions, and to see this, we need collaboration between regulators and industry. The ongoing efforts to develop standards underscore the importance of tailored approaches, and the potential influence of stakeholders such as telcos offers significant opportunity. As African countries progress, balancing regulatory mandates with market-driven initiatives will be crucial, ensuring that open banking is effectively implemented to meet diverse local needs and spur financial innovation across the continent. 

If you would like to know more about some of the emerging use cases we are seeing around the world you can check out our Global Open Data Tracker, or if you have any questions, please send me a message on LinkedIn or email me.

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As part of our Open Banking Global Tour, we’re virtually travelling around the globe to do a deep dive into where counties are within their open banking journey. Explore other countries we’ve explored so far:

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