As financial services in South Africa continue to evolve, open banking is poised to reshape the banking landscape. To discuss the regulatory developments and explore the challenges and opportunities, we assembled an esteemed panel, including a regulator from South Africa’s Financial Sector Conduct Authority (FSCA) and two distinguished industry professionals from the fintech and open banking sectors.
Below are some of the highlights of this thought-provoking discussion. You can watch the full webinar on-demand here.
How is the FSCA approaching open banking and open finance?
While data is already being shared in South Africa, there aren’t any specific financial regulations around open banking and open finance.
Nolwazi Hlophe, Senior Fintech Specialist at South Africa’s Financial Sector Conduct Authority (FSCA), says that when the FSCA released their three-year Regulation Plan in March, open finance – consent-based financial data sharing and payment initiation – was positioned as a strategic focus area, rather than a specific regulatory framework intervention.
This means that FSCA policy work on open finance is underway, and a regulatory framework intervention is likely to take place within the next three years.
How is the regulatory landscape supporting open banking?
Regulatory authorities are currently working with the industry to gather insights and coordinate efforts to support the implementation of open finance while addressing potential risks.
The Intergovernmental Fintech Working Group (IFWG), a collaborative body of several South African financial sector regulators, has established the Open Finance Integration Working Group (OFI WG) to build a better understanding of open finance and determine how to shape the potential regulatory framework.
Meanwhile, the South African Reserve Bank’s National Payment Systems Department issued a directive on screen scraping, highlighting risks around consumer protection, data privacy, and fraud. South Africa’s Competition Commission is another regulatory body examining open banking and open finance – specifically, the competition dynamics.
Kat Cloud, Global Open Banking Compliance Principal Director at Yodlee, says the FSCA has been working hard to reach out and get information from our industry. In developing their own approach, the FSCA and the wider open finance working group are evaluating other implementations of open banking and open finance, like the UK’s Payment Services Directive 2 (PSD2), Australia’s Consumer Data Right (CDR), and the Consumer Financial Protection Bureau’s Section 1033 final rule in the U.S., which will give individuals secure access to their financial data while establishing robust standards for data protection across the industry.
“The FSCA and South African regulators are really looking across the globe to understand the lessons learned from the different versions of open banking and open finance. Whatever the final version of open finance is for South Africa, it’s going to build on all these principles,” says Cloud.
While the industry still relies on screen scraping for data sharing, South Africa is clearly moving to the next phase, an API-based, technology-agnostic approach to data sharing. This shift prioritises consumer protection, security, and data protection and mirrors the evolution seen in other global markets.
Benito Mable, Director at 22seven, commends the FSCA's efforts to support data sharing. “This is really the start of a transformative impact for the industry where we see people living better financial lives, having greater control over their financial data, and making decisions that are suited for their needs,” he says.
How are open banking developments reshaping the financial services industry?
Benito envisions a future where people can invest regardless of the amount they hold and gain clearer insights into their spending behavior, among other things.
“We see the innovation coming. We just can’t see it happen fast enough,” says Mable.
Cloud agrees and points out that South Africa is not calling its approach open banking but open finance since the goal is to transform more than simply banking.
“One of the things I think I like about the approach in South Africa is that they're not calling it open banking. They're calling it open finance. They're already stating very clearly that we don't want to just stop at everyday banking. We don’t want to just transform that. We want to transform every element of a consumer's life.”
– Kat Cloud, Global Open Banking Compliance Principal Director, Yodlee
This broader scope enables use cases like connecting small businesses with capital, helping companies better understand and serve consumers, and helping consumers make more informed and strategic decisions.
How is open banking giving consumers more control over their financial data?
The FSCA has outlined five use cases in their open finance draft position paper:
- Account aggregation: Linking accounts can help consumers better understand their full financial life
- Financial management: Consumers can see what’s needed to reach their financial goals
- Alternative lending and credit scoring: Increased access to data can facilitate access to credit without increasing credit risk for providers
- Insurance: Consumers can see which products serve them best
- Payment initiation: Consumers can transact more quickly online
Global open finance initiatives are designed to put enriched financial data at consumers’ fingertips and deliver benefits like:
- A comprehensive view of financial assets (e.g., pensions)
- Improved financial inclusion, especially in diverse economies like South Africa
- A better understanding of saving patterns and credit
- Increased access to capital for previously excluded consumers and businesses
- Awareness of new financial products and services
- Improved spending insights for better financial health
What are key product developments for South African consumers?
Mable highlights that people focus on credit to live a better financial life, and wealth management typically has been reserved for the high net worth or ultra-high net worth population.
The mission at 22seven is to help all people reach their financial goals, says Mable. “We see a world where anyone can pursue wealth management products. Advice should be accessible to everyone.”
Achieving this mission requires partnering with banks, insurers, asset managers, and other industry players.
“Building this ecosystem is not only critical for the survival of the industry, but to achieve that transformational impact for all South Africans. And that’s the future we see happening through open finance.”
– Benito Mable, Director, 22seven
What can the industry do to help the FSCA make open finance a reality?
The FSCA is looking to develop an advisory group to help develop open API standards for all ecosystem actors in open finance. This advisory group would involve key members from industry, academia, and nonprofit institutions and would address specific concerns like cost implications, obtaining and managing consumer consent, and more.
The advisor group will also collaborate with industry experts and other stakeholders to develop standardised APIs for open finance. This will ensure consistent data handling among data holders, users, and subjects.
Hlophe says she expects the advisory group to be set up by March 2025.
"Sometimes the perception is that regulators want to do the work on their own. But to make open banking and open finance a reality, we have to collaborate, because it affects different aspects for banks, different aspects for insurers, and different concerns for investment companies and pensions.”
– Nolwazi Hlophe, Senior Fintech Specialist, FSCA
How will open finance be implemented?
The FSCA intends to start with the voluntary approach and then phase in or implement a mandatory, phased approach to open finance while engaging with other financial regulators and assessing the legal framework for weaknesses or gaps that need to be strengthened.
The FSCA also aims to empower consumers to respond to opportunities and risks in open finance so that they understand what consenting to data sharing means and what the inherit risks are with open finance services.
Where will South Africa be in 2-5 years when it comes to open banking and open finance?
Cloud believes that over the next two years, the voluntary approach will be very evident within the market, and the advisory group will be focused on building out and testing the open API.
Cloud emphasizes that testing the API to ensure the connections are viable takes time.. It also takes time to build trust with consumers. Even if they don’t know how an API actually works, consumers need to know that every time they log into their bank account, they’ll be able to access their money and see the correct information.
Over the next five years, Cloud says ideally, there would be access to a wide range of data points encompassing not just banking, but insurance, wealth, and pension information.
Mable says embedded finance is already a reality, with banking activities happening outside traditional institutions. “It is our duty to actually champion that cause and bring those experiences to the user wherever they are,” says Mable.
What is the relationship between the banks and fintechs?
The panel agreed that banks have generally been very open and that many are actively collaborating with fintechs to build APIs.
“At the end of the day, they themselves don’t love screen scraping. No bank really does… and there’s an actual consumer demand that consumers want their data to be shared. So they’re really trying to take that initiative and open up their doors and partner with fintechs to develop and test APIs and build them out,” says Cloud.
“The banks can benefit by experimenting with us, and going on to build different products that meet customer needs. That's really the future that we hope to see, very soon,” says Mable.
If we could take away one piece of advice from this discussion, what would it be?
Cloud shares that there’s a huge opportunity for fintechs in South Africa in the open finance space. Interested fintechs should enter the market early; partner with established players to get direct connections to data; and be aware that some banks may block access.
Mable says collaboration is key. “South Africa could be the catalyst for change. The rest of the continent will follow,” he says. “It's a very promising industry, and we're all here to participate and to benefit from it. But ultimately, consumers should be the beneficiaries of an open finance environment.”
Hlophe confirms that open finance is here to stay in South Africa. “We can’t ignore it,” she says, “but we need to approach it with caution, particularly from the regulatory perspective, to fully understand what it means for consumers and the risks. The open finance regime, which will be regulated according to one of our policy recommendations, needs to be safe and fit for purpose for consumers.”
Cloud says the goal is not just to give the consumers the data and send them on their way, but to give them continued access and ongoing advice and recommendations so they can build a better financial life. “It’s like that old saying,” she says, when you give a man a fish, you feed him for a day, but you teach him how to fish, you can feed him for life.”
“We’re going to get open finance. It’s going to happen. We have very clear initiative from the regulators, so it’s just working with industry and regulators to make sure it gets delivered.”
– Kat Cloud, Global Open Banking Compliance Principal Director, Yodlee
Looking Ahead to an Open Financial System
To learn more about Yodlee’s global work in open banking and consumer data rights, visit our open banking resources or follow us on LinkedIn.
Hear the recent webinar on-demand here, and contact our team if you have questions or would like to learn more.
