Africa is embracing open banking at an increasing rate, and it’s becoming a significant force in reshaping the financial landscape across the continent. From Nigeria to South Africa, open banking is poised to be the next major development, comparable to the mobile money revolution that greatly impacted Africa. With a high percentage of unbanked individuals and small to medium enterprises (SMEs), open banking could offer transformative solutions for millions of people.

The informal economy in Africa is rich with opportunity for fintech innovation. It provides a substantial market of unbanked and underbanked individuals who are eager for secure, reliable, and innovative financial services. Africa’s vast and diverse market presents an ideal environment to benefit from open banking and open finance.

Although Africa is still in the early stages of fully implementing open banking, several countries are taking significant steps toward establishing regulatory frameworks that can support its growth. Let’s explore how some African nations are paving the way for open banking.

Kenya: Leading the Charge

In December 2020, the Central Bank of Kenya (CBK) unveiled a draft five-year digitalization plan aimed at revolutionizing the country’s payment systems. This plan strongly advocates for open banking and emphasizes the need for regulations. CBK’s approach includes developing standards for application programming interfaces (APIs) and creating a robust risk-management framework. The National Treasury of Kenya is also working on a policy for digital finance that focuses on four key objectives: developing open banking infrastructure, protecting consumers, regulating the financial system, and nurturing sector growth.

Nigeria: Laying the Groundwork for Open Banking

Nigeria has been a frontrunner in the open banking movement in Africa. The Open Technology Foundation (OTF) launched the Open Banking Nigeria initiative in 2017, with the goal of establishing standardized APIs. In 2021, the Central Bank of Nigeria (CBN) introduced a comprehensive regulatory framework for open banking. This framework outlines guidelines for data sharing and access to APIs, marking a pivotal moment in Nigeria’s open banking evolution. With these regulations in place, Nigeria is fostering increased competition and energy in the fintech sector.

Ghana: A Growing Ecosystem

Ghana’s stable and expanding economy makes it an ideal environment for digital financial services to thrive. In March 2021, the Bank of Ghana introduced a regulatory sandbox pilot to encourage fintech development, including open banking. This initiative positions Ghana as an emerging leader in open banking adoption and shows promise as the global economy accelerates and fintech continues to expand across the continent.

South Africa: Innovation at the Forefront

South Africa is also making strides in the open banking sector. In 2020, the South African Reserve Bank teamed up with government agencies and the Intergovernmental Fintech Working Group (IFWG) to establish The Innovation Hub, which focuses on fostering fintech experimentation and innovation. Additionally, South African start-up TrueID received substantial funding to build open banking infrastructure. This follows the 2019 move by two major South African banks, Nedbank and Investec, to embrace open banking, signaling a growing commitment to modernizing the country’s financial services.

The Future of Open Banking in Africa

African tech start-ups are currently experiencing a boom, with venture capital investments reaching over $1 billion in equity by 2018. Chinese investors are also showing strong interest in supporting fintech companies across the continent, with an increasing share of this investment directed toward the open banking sector. Companies like OnePipe, Stitch, and Okra are driving innovation in open banking, and the sector’s momentum continues to grow.

By creating innovation hubs and accelerating the open banking movement, African countries can develop into leaders in the fintech space, fostering homegrown intellectual property and nurturing creative talent.

Conclusion

Open banking holds immense potential for transforming the financial landscape in Africa, offering solutions that could bring millions into the financial system. As countries across the continent take steps toward building open banking frameworks, the opportunity for fintechs to flourish is growing. The future of financial inclusion in Africa looks bright, with open banking poised to drive innovation, enhance competition, and improve access to financial services for unbanked and underbanked populations.