These open banking startups are driving the next wave of fintech innovation in AfricaSeptember 7, 2021
All of a sudden, open banking is a very real phenomenon in Africa, with entrepreneurs and investors alike betting on the long-term opportunities within the nascent space.
First of all, what is it? Open banking is a practice that provides third-party financial service providers with open access to consumer banking, transaction, and other financial data from banks and non-bank financial institutions through the use of APIs and data aggregation services. Once established, it will allow for the networking of accounts and data across institutions for use by consumers, financial institutions, and third-party service providers.
Widely considered a major innovation that is poised to reshape the banking industry, open banking is new everywhere, but in Africa it is starting entirely from scratch. In this year’s edition of Finnovating for Africa, Disrupt Africa tracks only six players in the space thus far, four from Nigeria and two from South Africa, yet it appears to be opening quickly, and is also attracting strong investor interest.
Those six ventures have already raised US$15,675,000 (1.8 per cent of fintech funding since 2015) between them, more than startups from more established verticals such as security and ID, investtech, personal finance, and education have in that time.
Why the interest? Firstly, the potential is undoubtedly significant, as a growing fintech ecosystem on the continent needs startups like these to bridge the gaps. Second, there is progress in the most developed markets, namely Nigeria and South Africa, hence why 100 per cent of open banking startups hail from these markets. In Nigeria, an independent forum is looking at open banking standards, while in South Africa the Intergovernmental Fintech Working Group (IFWG), formed by, among others, the National Treasury and the Reserve Bank, is providing a platform for future engagements on open banking.
Elsewhere in the world, open banking is progressing at pace. In the US, for example, President Biden recently signed an executive order instructing the Consumer Financial Protection Bureau (CFPB) to mandate new regulations giving consumers full control of their data, making it easier for them to switch lenders. The European PSD2 regulation for electronic payment services is pushing open banking forward there, too.
Paris Valakelis is co-founder of truID, an open finance platform that allows users to securely access consumer financial data from all major banks in South Africa. Formed in 2017, truID is the first of the six African open banking startups to have begun operations, and Valakelis is excited for the future.
“Open banking is a movement already in motion and one that’s picking up pace, eventually, it will become a unified open data framework, encompassing all consumer data safely and securely,” he said.
“The movement is a technological shift encouraging innovation, boosting market capitalisation, increasing financial education and improving…