By Edgars Bīberis
As one of East Africa’s largest and most developed economies, Kenya is cementing its position as the region’s startup and economic powerhouse with its latest initiative to introduce open banking.
The initiative, coordinated by the Central Bank of Kenya, comes at a crucial time, as digital financial services are experiencing unprecedented growth – in 2022 alone, mobile money transactions in East Africa reached $491.8 billion, signalling a phenomenal growth in the adoption of digital payments.
The open banking initiative promises to further accelerate financial innovation in a country that’s demonstrably leading the pack in tech startup growth – in 2023, Nairobi overtook Lagos as Africa’s top digital hub and eclipsed its peers by attracting 31% of all investments in African startups.
Here’s what’s going to change
For years, mobile network operators have dominated peer-to-peer (P2P) payments in the region, bringing convenience to millions, creating new habits – and consumers appear willing to pay for that convenience.
Yet, the user-friendliness of financial services currently applies only to P2P payments. Other essential banking services – such as loans, deposits, investments, and card products – have largely remained underdeveloped, expensive, or out of reach for many.
In other words, Kenya has done a world-leading job in one small sector of the financial landscape. Open banking may be the key to unleashing innovation across the entire financial landscape.
As noted by Michael R. Eganza, Director of Banking & Payment Services at Central Bank of Kenya, “open banking will give businesses access to valuable data, used to tailor solutions for underserved segments of the population, including small and medium sized business owners. This will further the inclusion and growth of the local economy.”
Open banking, which requires banks to securely share customer data with authorized third parties, has indeed been a proven catalyst for the development of innovative financial products. Kenya’s timing for this initiative could therefore not be better – the country’s financial landscape is ripe for open banking.
‘‘The Central Bank of Kenya seeks to adopt an inclusive approach to ensure proposals incorporate input from stakeholders and industry associations, to develop a regulatory framework to drive progress,” Mr. Eganza explains.
Open banking further fits within the country’s agenda for moving towards a digital economy as articulated in the National Digital Masterplan.
It’s not just about Kenya
Europe’s experience with open banking can offer valuable insights. The European Union’s unified regulatory framework opened doors to global fintech companies, such as Revolut and Stripe, that brought their innovation and expertise to the market. The regulation, strengthened by the presence of global players, led to a surge of European fintech startups, increased competition, and customer-centric solutions.
Admittedly, differences in national regulations and legislations across African countries do not allow for a coherent implementation of initiatives such as open banking, as was the case in Europe. Africa lacks that unifying element that Europe had, namely, an EU-wide regulation. But, maybe, it doesn’t need one – Kenya can lead by excellence instead.
While there are similar open banking initiatives already existing in South Africa and Nigeria, which have made an impact in the South and West African regions, Mr. Eganza believes that their initiative presents a chance for ‘‘Kenya to maintain its leadership as a financial innovation hub in the East African region’’.
There is good reason to believe that the effects of Kenya’s open banking initiative will spill over into the broader region, essentially unlocking a 500 million people market opportunity for fintechs.
The question is – who will capitalize on it?
Global players are watching
I believe it’s extremely likely we’ll see new fintech unicorns emerge out of Nairobi’s Silicon Savannah, as Kenya’s dynamic startup ecosystem is in full bloom and won’t pass up such a unique opportunity.
At the same time, Kenya’s move toward open banking also creates strategic expansion opportunities for global fintech companies seeking to broaden their customer bases and diversify revenue streams.
Kenya can gain invaluable knowledge from jurisdictions that have implemented open banking, for instance, European fintech companies, having gained expertise under the European Central Bank’s open banking regulations, can bring this knowledge to Kenya. The lessons learned from building payment systems, integrating financial services with e-commerce platforms, and fostering customer trust in digital finance are directly applicable to the Kenyan context.
For global players, another route to market entry is through collaborations with local financial innovators – whether that involves establishing joint ventures or sharing technology and expertise. This approach allows fintechs to expand with their existing product offering while adapting them to local needs.
Simply put, for global fintech companies, Kenya’s regulatory open banking framework could be a key enabler for further integration within the region.
But they’re going to have local competition from some of the region’s top innovators, for whom this may likely prove a growbed for international opportunity – open banking may also be a foundation for newly-born Kenyan fintechs to expand into European and other markets. I’m excited to see Kenyan fintech companies bringing their innovative solutions to a global scale.
(Edgars Bīberis is the Regional Director of Sales and Business Development at Tietoevry Banking – Middle East & Africa).
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