By Segun Olaiya
Open finance and open banking are reshaping financial inclusion, offering greater access and efficiency in sub-Saharan Africa.
There are over 300 million Africans who do not enjoy access to financial services on this continent, so the increase in open finance and open banking will do tremendously well in closing this gap. In the past, it was considered a privilege to have access to traditional banking and something reserved for the rich. The middle class felt their money was barely enough for their basic needs and should not be stored, so they had no reason to go to a bank. Open banking is steadily challenging this archaic belief. It is now important for this change to come at this moment.
I remember when we went to a traditional bank, the customer had to come with a mat for his convenience, and it might take a little more than a day to finalise any transaction. Brick-and-mortar banks only ever catered to wealthy people in cities; people in rural areas, traders, and small companies had to use cash they got from their daily activities. Today the story is different. There are numerous companies that offer mobile money across Africa, making it easier for Africans to save and withdraw money at their convenience. M-Pesa started offering mobile money in 2007, and it was a groundbreaking feat then. It had its problems, though, as it was designed as a closed system that didn’t let third parties join, and that was a huge mistake. By 2021, the number of mobile money accounts in sub-Saharan Africa expanded to 562 million, but it was still challenging for companies to work together. A customer could use the mobile money to give cash to someone else, but they usually had to pay an expensive middleman to make the transaction happen.
The rise of open banking, unlike the mobile money model, disrupts this status quo as it treats the financial data as a conduit and not as a commodity. Notable brands, like Okra and Mono, reputed to enable secure data sharing between banks, fintech, and consumers, were set up in Nigeria to provide banking services to the unbanked population. Okra and Mono granted access to banking APIs to third-party operators, and it was this access that enabled the building of tailored solutions and tools for SMEs. Now we have credit scoring for workers in the informal sector; microinsurance for drivers; and invoicing tools for SMEs.
According to a 2023 IMF report I read, Sub-Saharan countries with open banking frameworks saw a 12% increase in formal financial inclusion. There is an increase in banking activities in regions where open banking is encouraged, so these gains aren’t incidental.
Open banking is not without its challenges, though. Regulatory fragmentation has been a critical challenge, not just for the traditional institutions but also for upstarts. The Central Bank of Kenya published its open banking guidelines in 2022, but the neighbouring country, Tanzania, has yet to formalise its approach. A few of the banks in South Africa delayed adopting open APIs until as late as 2023 because they feared proprietary concerns.
The consequences go beyond only money. The design of open banking decentralised, user-centric, scalable offers a guide for other industries. Imagine agritech applications providing crop insurance based on real-time market transactions or healthcare systems using anonymised financial data to find disease-prone areas via expenditure patterns. The World Bank projects that, given infrastructure development to enable it, sub-Saharan Africa’s digital economy may earn $180 billion yearly by 2025.
Critics argue that open banking alone cannot solve systemic poverty. They’re right. But it can redefine the trajectory. Disruption, as I observed, isn’t about better products for existing customers. It’s about transforming non-consumers into consumers. In the end, the measure of this disruption will be human rather than technological. How many independent small retailers sought financing? For what reason did farmers insure their agricultural output? How many families today use technologies to control their futures?
ABOUT THE AUTHOR
Olaiya Segun is an experienced Software Engineer with over 10 years of expertise spanning health-tech, fintech, e-commerce, and marketing-tech. He currently serves as a Senior Software Engineer at SOCi in San Diego, CA, and ShineOn in Florida, while also leading engineering initiatives at OnePipe, a fintech startup in Nigeria. Segun specializes in DevOps, Fullstack Development, and Technical Leadership, with a proven track record of building innovative solutions like paywithtransfer.com and integrating payment systems for major airlines. Passionate about technology, he also runs a software agency, Massive Brains Solutions, and shares his insights on platforms like dev.to.
For more information, check out their LinkedIn profile.