Open Banking APIs Help Africa’s FinTechs Expand

According to International Monetary Fund (IMF) data, there are more than twice as many mobile money accounts as there are bank accounts across many African countries.

To give just one example, in Mali there are 935.6 registered mobile money accounts per 1000 adults, suggesting an exceptionally high level of penetration. Yet the same data shows that the number of depositors with commercial banks is just 195.1 per 1000 adults.

With these kinds of numbers, it might appear that open banking is a dead end on the continent, without a large enough base of account holders for it to be worthwhile.

But in fact, some of Africa’s biggest banks are betting big on open banking application programming interfaces (APIs) that enable FinTechs to access their data and services.

Whereas elsewhere open banking is associated with account-to-account payments, in Africa, the movement is proving its value even among the unbanked population.

As Ecobank’s FinTech lead Djiba Diallo told PYMNTS in a recent interview, the pan-African bank’s open banking strategy is as much about expanding the reach of its services and allowing third parties to build on top of its infrastructure as it is about enhancing the offering for existing customers.

Read on: APIs Bridge FinTech Infrastructure and Bank Regulatory Expertise

“It’s about connecting the bank’s services or enabling FinTechs to connect with the bank’s services, be it for enabling payment, be it for collecting money, [opening] accounts or to create tokens to withdraw money on our ATMs,” Diallo explained.

Elaborating further, she said that Ecobank partners with telcos and mobile money operators to allow them to leverage its technology and services, allowing them to create more useful products that can be used to withdraw cash from ATMs and for digital payments, for example.

In fact, across Africa, banks are growing their API catalogs and creating sandbox environments to embrace mobile money and allow FinTechs to tap into their payment rails, ATM networks, and even account opening and lending services.

This type of FinTech enablement holds the most potential for segments of the African population that banks have struggled to reach in the past.

Richard Southey, the chief digital experience officer at pan-African bank Absa, also told PYMNTS that “open banking kind of plays are important in that banks on their own are never going to be able to develop all the bespoke applications, which are going to be important towards an informal trader, for instance.”

He added, however, that “FinTechs are starting to solve those problems [and] we are seeing more and more banks getting involved in putting out API marketplaces for FinTechs to climb on to.”

African Regulators Eye Open Banking Frameworks

While Ecobank was moved to open up its infrastructure to third parties out of a realization that FinTechs can reach new customer segments that the legacy banking model has traditionally underserved, many African countries are also considering a regulatory nudge in the style of the EU’s second payment services directive (PSD2).

That piece of legislation acted as a catalyst for Europe’s open banking movement by creating a legal mandate for banks to share account data with authorized third parties and allow payment initiation via open APIs.

In October last year, the Central Bank of Egypt (CBE) adopted a new set of regulations governing the country’s instant payments network (IPN).

See more: Egypt’s Central Bank Approves Instant Payment Regulations

Taking a different approach to open banking than PSD2, the new regulations allow approved mobile phone applications to provide payment services and instant transfers, revealing the mobile-centric nature of Africa’s nascent open banking sector.

CBE’s First Sub-Governor of Banking Operations Amany Shams-Eldin said at the time that the focus on mobile payment apps was intended to “[support] the improvement of the financial services provided, and contributes to creating new competitive opportunities that will attract new customers to the banking sector.”

Meanwhile, the Central Bank of Nigeria has published a Regulatory Framework for Open Banking, defining how Nigerian banks should approach data sharing with third parties.

For its part, in a strategy document for the years 2021-2025, the Central Bank of Kenya (CBK) also hinted that an open banking mandate is on the horizon. “CBK will work to define standards for effective and appropriate API development and mandate robust but secure data portability in the market,” the five-year plan said.

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