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 such a significant proportion of unbanked individuals and SMEs, open banking has the potential to revolutionise the lives of everyday Africans.

The current informal economy in Africa is an ideal environment for fintech innovation, providing fintechs with a large pool of unbanked and underbanked consumers hungry for safe, secure, and innovative financial services. Furthermore, due to its sheer size and diversity, the African market is an almost ideal marketplace for open banking and open finance.

A McKinsey study projected that Africa’s e-payments market will see revenues grow by 20% per year, hitting $40 billion by 2025. The global open banking market amassed a revenue of $13.9 billion in 2020, and is expected to hit $123.7 billion by 2031.

With 57% of Africa’s adult population still underbanked, and many lacking access to affordable credit, the sharing of APIs among banks, fintechs, and mobile money providers, according to fintech experts, presents a huge opportunity for the continent to expand financial inclusion to the rural areas.

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.

SOUTH AFRICA

A Boston Consulting Group study shows that 89% of South Africans exclusively use digital banking, indicating a wider industry trend and reducing the need for physical banking facilities. As open banking gains traction, it brings financial inclusion a step closer, offering new opportunities to previously marginalised segments of society.

Notably, a recent article by Venture Burn highlights that key players shaping the open banking ecosystem in South Africa include regulators, financial institutions, and TPPs. South Africa has recently taken a promising step towards regulating open banking, signalling progress.

To further stimulate fintech growth, the South African Reserve Bank (SARB) is broadening its focus beyond screen-scraping businesses, and has already signalled an intention to regulate data sharing. Notably, on May 23, 2023, SARB made a significant move by issuing a draft directive through its National Payment System Department (NPSD), addressing Instant Electronic Funds Transfer Credit (Instant EFT) payments.

KENYA

Nairobi-based Solv Kenya, a subsidiary of Standard Chartered bank, which has utilized open banking in the past five months to provide over 800 small and medium sized businesses access to credit, believes the era of waiting for days for a business loan to be approved is long gone.

“Yes, we use these APIs and machine learning to make the process faster—a maximum of 50 minutes—while eliminating any loopholes for fraud. We have disbursed $1 million and the adoption is high because the APIs have reduced the cost of access to credit by up to 3%. We protect client private data and we have also have integrated zero trust cybersecurity to our platform,” CEO Sheila Omukuba tells Quartz in a recent feature.

Back in December 2020, The Central Bank of Kenya (CBK) released a draft document outlining a five-year digitalization plan to modernize the country’s domestic payment landscape. The document, titled Kenya National Payments System Vision and Strategy 2021 – 2025, stresses the regulator’s commitment to establishing a regulatory landscape that’s conducive to innovation, as well as embracing open banking and APIs, among other key areas of focus.

OTHER PARTS OF AFRICA

Nigerian startups OnePipe, which aggregates APIs from banks and fintechs into a unified gateway, and Mono which builds open banking infrastructure for banks, are driving the revolution in the country and believe that all financial service providers should allow for free API integrations for inclusion to work in Africa. Back in May 2022, Nigeria’s central bank laid down guidelines for open banking in the country.

Morocco’s CIH Bank has been working with Finastra, an open banking fintech to digitize its services so customers can access them on a mobile app while improving customer experience and generating more revenue.

Tanzania’s most notable pioneer of open banking is NMB Bank, which launched the country’s first fintech sandbox in October 2021 to allow fintechs to access banking APIs meant to make payments faster. 

Banks in South Africa, Kenya, Tanzania, Rwanda, and Malawi are also betting big on APIs to entrench WhatsApp banking, which is meant to make sending and receiving money as easy and fast as chatting on WhatsApp. Open banking is also active in Uganda, Egypt, and Ghana.In conclusion, Africa’s informal economy, which accounts for almost 90% of the economy, remains a prime space for open banking innovation, offering players the chance to provide safe, secure, and innovative financial services to the 370 million unbanked consumers. A reduced cost of mobile internet is expected to raise financial inclusion in Africa and improve the continent’s GDP by 30%.