Africa’s central banks lead the way, embrace open banking

Nairobi. Regulators on the continent are developing frameworks that allow customers of traditional banks to engage with third-party service providers via their banking apps - blowing open a multi-billion dollar market.

Nigeria in March became the first African country to launch open banking on the continent, after publishing guidelines on how traditional lenders may connect to a global digital market poised to grow from $13.9 billion to $123.7 billion by 2031, according to Allied Market Research.

According to a circular published by the Central Bank of Nigeria, the regulations are backed by the country’s data protection laws and are geared towards enhancing efficiency, competition and access to financial services.

“The adoption of Open Banking in Nigeria will foster the sharing of customer-permissioned data between banks and third-party firms to enable the building of customer-focused products and services,” said Central Bank of Nigeria’s Payments Systems Management Department Director Musa Jimoh in the circular.

The regulations follow significant growth in the take-up of open-banking services by some commercial banks, fintech companies and large audit firms, in the West African country.

Fintechs like Paystack, OnePine, Wallets Africa and TeamApt, the giant audit firms KPMG, PwC and EY, and Sterling Bank, are among early adopters of open-banking in Nigeria.

It has taken Nigeria more than five years to come up with the required regulations, after first expressing interest in developing an open banking system, in 2018.

More African central banks are set to follow, with a number already launching real-time rapid digital payment platforms or backing cross-border e-payments.

The South African Reserve Bank (SARB) in March launched a real-time rapid payment platform dubbed, PayShap, to modernise its national payment industry.

As in Nigeria’s case, PayShap is a product of a collaboration between the South African Commercial bank regulator, BankservAfrica, The Payments Association of South Africa and South African banks.

It is also rooted in SARB’s rapid payments strategy to modernise the country’s national payment services by 2025.

“The introduction of PayShap, driven by BankservAfrica and the Payments Association of South Africa (PASA), is an important step on this modernisation journey, and will support innovation and enhance interoperability,” said the SARB in a statement.

Absa, First National Bank, Standard Bank and Nedbank will pioneer the initial roll-out that is intended to facilitate real-time clearance of low-value transactions to a maximum value of US$168 (R3,000), helping reduce reliance on cash in the country. In March 2023, the Central of Egypt (CBE) entered into a Memorandum of Understanding with the Central Bank of Jordan to supervise electronic payment systems and financial technology services jointly.

The MoU strengthens their joint banking supervision that started in 2004, with the latest scope covering mobile phone payments, digital payments, digital banks and emerging areas of Fintech.

“The developed financial infrastructure reflects efforts made by CBE to promote the transformation to a less-cash society in light of the framework defined by National Payments Council chaired by President Abdel Fattah El-Sisi,” according to a statement by CBE.

The two regulators said they would also strengthen partnerships in fintech by exchanging information and expertise related to a regulatory “sandbox’ - a test bed for alternative financing and open banking operations.

Open banking is also on the cards at Kenya’s Central Bank, following the launch of a five-year domestic payments digitisation plan in December 2020.

In a document entitled “Kenya National Payments System Vision and Strategy 2021 – 2025”, the regulator expressed its commitment to embracing Open Banking and Applications Programming Interfaces (APIs) backed by the country’s data protection regulations. Consequently, CBK said it would work to define standards for API development and mandate data portability.

“CBK hopes to address the diverse needs of the Kenyan people and its economy, and support our nation’s ambition of becoming a digital, cash-lite and 24/7 economy, including enhancing our global leadership in digital and mobile money innovation,” said CBK in the document.

Kenya’s Central Bank cited plans to work with industry stakeholders, including fintechs, money remittance providers, payment processors, aggregators, SACCOs and Kenya Bankers Association.