The benefits of open banking have been spoken about within the global banking sector for some years now. While some local banks have already made concerted efforts to embrace the innovation opportunities that come with open banking, there is room for a more collaborative mindset – for the benefit of all.

Open banking remains fairly nascent globally, with some regions such as the UK and EU adopting a regulatory-led approach, where banks have been mandated to share their APIs (application programming interfaces) so anyone can test and use them to develop new products.

The regulatory-led approach of the UK government is showing signs of success. Research conducted by the Coalition for a Digital Economy shows open banking in the UK has created 4 800 jobs and is valued at £4.1-billion. What’s more, the open banking sector in the UK raised more than £886-million, while the median value of a UK open banking firm in the period was £16-million.

Three of the big four African players in open banking – Nigeria, Egypt and Kenya – have also opted to take the regulatory-led approach. South Africa, however, has opted for a market-led approach.

Local banks are capitalising on their already-established customer bases and partnering with smaller fintechs to deliver products for their customers that give them a competitive advantage.

South Africa had the opportunity to see how things have played out in other markets without the regulator taking a top-down approach and dictating how things should be done. This has meant that local banks got to partner with fintechs that would have already had global experience, creating a lower-risk environment, and this is always advantageous when trying something new.

While South Africa is making progress under its market-led approach, there is a mindset shift that still needs to permeate throughout the sector.

Lessons, opportunities

If you can see open banking as a way to accelerate valuable partnerships, once you have addressed the commercials and legal requirements, the upside is a real chance to bring valuable new services to your customers. Going in with an attitude that you will give up the bare minimum is not the best way to enter into any partnership. Some local banks have really cracked the formula and they’re the ones delivering exciting new offerings to the market.

It’s not only the UK that offers a good example of how open banking can accelerate innovation. Africa, too, has shown great progress as a result of lowering the digital drawbridges.

Read: Open banking could drive financial inclusion across Africa

After publishing guidelines, Nigeria became the first African country to embrace open banking, paving the way for more customer-focused products and services. Kenya’s central bank, meanwhile, has chosen a phased approach, with a five-year domestic payments digitisation strategy that includes a commitment to embrace open banking and APIs backed by the country’s data protection regulations. Ghana has also opted for a phased approach, with a four-year plan and the country has already created a regulatory sandbox to test new innovation.

According to Reda Helal, Network International group MD for processing business in Africa, the government-led approach is also bearing fruit in Saudi Arabia, where a progressive approach has resulted in lucrative venture capital funding for local fintechs. Similarly, the market-led approach of the United Arab Emirates is yielding early results, with the first open banking licence issued to Tarabut Gateway in February 2023.

South Africa has some excellent examples of how best to draft future regulations, customising them to suit the country’s unique needs. There is strong merit in deploying regulatory sandboxes. These offer a controlled environment where institutions can test their platforms on a real audience without having to comply immediately with all the regulatory obligations.

There is an exciting opportunity to extend use cases beyond just the banking sector to include a wide range of financial sector stakeholders. The entire sector stands to benefit from a more collaborative approach, and it makes sense to go through the process once and allow more players to benefit from these efforts.

Ultimate litmus test

While there is always room for more innovation, there is also always a lag between deployment and adoption.

From when open banking was first introduced, six of South Africa’s largest banks have already embraced it and are showing good returns on their effort. But, like all new services in the banking space, it takes time for people to hear about them, try them, and then learn to trust them.

The South African banking system remains one of the most advanced worldwide. When you’re modernising something at that scale, introducing new payment channels – introducing new regulation, introducing new ways of managing fraud – everyone wants to see rapid adoption. But sometimes the consumer puts the ultimate checks and balances in place, and that’s not a bad thing.

However, with an open mind, open banking could inject beneficial innovation into the local market, and it’s worth engaging with partners who have already walked that path.

The author, Richard Kadiaka, is regional MD, Network International. Network International, a London-listed technology company specialising in digital payments