For centuries, banks were built on paper trails and brick-and-mortar branches. However, long before smartphones, banks were already collaborating with fintechs to build innovative value propositions. In South Africa, this collaboration dates back to the late 90s when payment providers began integrating with banks to offer seamless card processing. Then came the internet, transforming banks from financial vaults into digital innovators—launching an era where your smartphone could be your bank which marked a significant shiftin the industry. As the growth of smartphones accelerated so did the adoption of digital banking. This in turn has paved the way for fintechs to rewrite the rules of finance.
The transformative force of open banking essentially levelled the industry’s playing field on a global scale by giving individuals and businesses control over their financial well-being. Within a few short years, open banking transactions reached over $57 billion dollars and estimates project an increase to $330 billion by 2027.
What started with open banking—connecting us to seamless financial experiences through mobile devices—is now evolving into something even more revolutionary: open finance. But is our country ready for it?
Realising a safe, open finance industry
While open banking connected fragmented financial systems, overcame infrastructure challenges, and provided access to the underbanked, limitations exist. Open banking still has access inequalities, as not all customers have equal availability of digital platforms. Data privacy and security concerns exist, and market-driven models create conflicting open banking environments.
Consequently, regulatory frameworks such as Europe’s Payment Service Directive 2 (PSD2) and the United Kingdom’s Open Banking Standard were developed to create a financial environment that is more competitive, open, and secure. However, simply replicating these jurisdictions in every country is not a viable solution, as each financial territory has unique market dynamics, compliance requirements and policies, and technology infrastructures.
For South Africa, an equivalent of PSD2 doesn’t currently exist, which creates its own set of challenges for our country. To ensure widespread local adoption, a collaborative open banking approach between banks and fintechs and favourable regulatory policy processes are needed.
This means that, although open banking is less than a decade old, South Africa already needs to brace for the next financial revolution.
Open finance is here
We’re in a world where financial data can work for you—where paying your bills, securing a loan, or managing your finances becomes effortless, no matter how you choose to pay. An example where we see this already taking place in is when we visit the doctor. Instead of filling in various forms by hand before your consultation, your medical aid shares the required information upon request to your phone with a secure OTP link. Once the consultation is complete, your doctor shares the billing information with your medical aid.
Think of open finance as open banking on steroids. Beyond just connecting your accounts, it puts you in the driver’s seat, allowing you to control and leverage your entire financial footprint. Picture this: your financial data doesn’t just sit in isolated systems anymore; instead, it flows securely and effortlessly between banks, insurers, investment firms, and even healthcare providers—all at your command and all with your consent. This is the future we’re stepping into, and South Africa’s fintechs need to be ready to lead the charge.
Described as the ‘forward-thinking vision of financial services’, open finance builds on the principles of open banking but on a much more extensive scale, not only transaction information. Enabled by closed and open APIs, an open finance system facilitates secure and standardised exchanges of financial data between different parties, such as banks, financial institutions, and third-party providers.
Essentially, all aspects of South Africans’ financial life will be transcended with open finance – above and beyond what is possible with open banking. There is only one hurdle standing in the way. Data-sharing will be the deciding factor.
Collaboration on data-sharing is critical
While South Africa is still in the early stages of industry-wide open banking and open finance adoption, learnings from a global perspective clearly indicate that collaboration around data-sharing is critical. Not only does interoperability depend on this, but the pace of adoption and future innovation as well.
To ensure data and funds flow freely and securely, with consumer consent, across an open finance ecosystem, consumers and businesses need to be educated on the benefits of data-sharing with third parties. Unfortunately, a lot of stigma surrounds the fine print in data-sharing agreements. For instance, screen scraper platforms will ask for consent to access your banking details to process payments, but the agreement includes permission to share your financial information with credit bureaus.
While challenges are evident in the world of open banking, the opportunity exists to right these wrongs and lay a secure, seamless, and solid foundation for open finance. This is where the important role of fintechs comes into the picture.
Fintechs and financial inclusion
As a leading payments aggregator in South Africa and one of the first payment aggregators to go to market with an integrated open banking payment solution, Pay@ enthusiastically supports open finance. Especially in South Africa, this digital disruption will fast-forward the financial inclusion of our country’s banked and underbanked, customers that prefer cash payments, and those without credit histories.
South African fintechs need to combine their efforts to raise awareness about the customer benefits and incentives of data sharing, collaborate with businesses from various industries, such as insurance companies and retailers, to ensure their participation in secure data-sharing, and work with government to put a South African open finance jurisdiction in place.
In doing so, fintechs such as payment aggregators, will make their historical mark in digitised finance, realising a unified and financially inclusive country, where inclusivity is the cornerstone.
With some experts predicting that Africa could become one of the largest and most innovative fintech markets in the world, let’s look forward to driving South Africa into the new open finance era.
