A startup is anything that solves a problem. It could be any problem — Financial problem, capital problem, regular problem, social problem etc. In Africa, competition within the banking industry has generally been lackluster due to an inadequate amount of banks for people to choose from.
This is why you hear of reports that state that about 57 percent of Africans are unbanked, and those who are, work with more well-known banks and stick to them for decades. Open banking tries to change this situation, by changing the way in which data is shared in the banking ecosystem, always with the authorization of the customer.
What is Open Banking
Open banking is the practice of enabling secure interoperability in the banking industry by allowing third-party payment services and other financial service providers to access banking transactions and other data from banks and financial institutions.
This shifts the role of banks from being one-stop-shops for financial services to more open platforms where consumers can start to embrace a modular approach to banking, opening the door to innovative fintech startups to offer consumers better ways to manage their finances online.
Through the use of technology, regulations, and services, open banking allows these startups and other corporations to create new banking services and business models, essentially enhancing the capabilities of the banking industry.
Just like every idea brings challenges, open banking startups have created solutions to ease the process― in order to drive innovation and create a safe, reliable, and efficient banking experience for everyone.
Poised to reshape the banking industry, open banking is new everywhere. Disrupt Africa tracked only six players in the space last year, four from Nigeria and two from South Africa, however, the space is opening up quickly and at it attracting strong investor interest, in 2021, the six ventures had raised US$15,675,000 (1.8 percent of fintech funding since 2015).
Recently, Nigerian Open Banking Startup Mono expanded to Kenya. Mono enables its partners to build apps that make transfers from their customers’ bank accounts instantly, help them understand their users’ cash flow with more detailed information, and offer convenient credit, among other things.
Open banking is growing increasingly popular because of the several capabilities it offers to users. Among merchants, open banking can lower the costs of online transactions. It eliminates the risk of cash mishandling, making e-commerce a more pleasant experience. As a result, many open banking startups have already created solutions to continue driving innovation in the world of fintech.
Loans: Among the problems Open Banking sets out to fix is loans, as many SMEs and startup founders will tell you loans can be vital when expanding your business. But getting a bank or loan provider to approve one can be tricky, not helped by timely bureaucratic processes and a lack of financial data. Open banking could help this.
Easier Payments: With third-party companies now able to make bank transfers, innovations that lead to faster payments, added transparency, and lower transaction fees are inevitable. Nowadays, a large percentage of B2B payments are still made by cheques and credit cards, but with the rise of online payment platforms, this may very well change, especially as the online payment market consolidates.
Open Banking is not just a trend that is creating opportunities for banks and fintech startups, it is creating opportunities for clients who will benefit from a lot of continuous innovations in the coming years.
