A striking feature of the Open Payments Conference was the desire to share, develop and exchange ideas for developing modern payments services for the South African market. There seemed to be a pre-baked mutual understanding amongst participants of what economists describe as the “common good” – i.e. it’s in everyone’s interest to collaborate if the outputs are considerably more than just a simple rearrangement of current winners and challengers.
Steering Open Banking with a South African compass
There were still cautiously dissenting voices too. Unsurprisingly some raised concerns about the need for clarity of regulations. In terms of international norms for open banking, it seems that the regulatory environment in South Africa has been avoiding proscription and prescription in favour of a deliberately “facilitative” approach. But within the stated goals and initiatives of the SARB 2025 vision, it seems that a stronger push towards consumer-centric open data is inevitable, backed not just by principles, but also perhaps by new rules too.
Whilst the SARB is facilitating modernisation, and promoting new cultures to extend the public good, the payments market itself – through its industry bodies and associations – is changing. The old perception of financial services as a closed-door club is shifting to allow wider participation.
PASA is already working on its dissolution and the creation of a wider, inclusive industry body that regularly involves intermediaries, software vendors, systems integrators at the inception of new initiatives. It is reassuring to see a wide community working on technical standardisation processes (like definitions of APIs for open access) as well as user considerations.
The emergence of a wider support community will lead to more efficient modernisation opportunities for established banks. Well-informed and agile suppliers will be able to help banks to steer towards changing customer demands and behaviours. The delivery models will lean to more nimble yet resilient infrastructure providers (typically cloud-based), agile enough to handle policies and rules as they emerge and evolve.
But South Africa’s open banking movement ought not be restricted by the confines of traditional financial services. South Africa has wider aspirations, principles and visions, based on resurgent values of civic responsibility, inclusivity, public-private partnerships and – dare I say it – “ubuntu”.
The unique socio-economic factors of South Africa present challenges to the traditional business models of regulated banking and payments. But the fluid world of open banking offers solutions to those challenges. Perhaps digital payments are not for every citizen, but the demand for digital services from micro-businesses, spazas and modern entrepreneurs is swelling.
Fulfilling this new demand does not need to be enforced onto traditional banks. There are plenty of willing TPPs of different shapes and sizes, perhaps including bigger tech companies and/or telcos too, able to expand this sector without putting undue stress and risk onto the fundamental national infrastructures of finance.
As we consider the expansion potential of the South African digital economy, is it worth pausing to reconsider what is needed within open banking to make it a worthwhile initiate of change? For all the discussions about technical standards, APIs, IT infrastructure and the complicated pipes and plumbing of payments, a functional open banking scheme is only genuinely successful if real consumers and businesses use it with gusto.
This needs planners to bring consumers along in a spirit of understanding and trust, avoiding unnecessary confusions and disorientations that could otherwise stifle adoption. This might need a re-balancing of the supplier community – less technical architects, more User Experience experts perhaps, and a sprinkling of anthropologists too. It needs suppliers that are less keen on creating a shiny new thing, and more oriented towards pragmatic re-use of existing components of well-understood digital infrastructure – things like mobile apps, authentication systems and QR-code exchanges that already exist in citizens’ muscle memory.
There will be a delicate balancing act between imposing a standardisation of these new transactions and “ceremonies” created by Open Banking, versus a free-for-all market approach. Too much of the latter may lead to confusion and inertia. Worse, too many options may play into the hands of fraudsters who are well adept at exploiting and socially engineering new scams whenever customers are asked to adopt new transactional and interactional behaviours. Too much standardisation on the other hand might stifle innovation and create new variants of closed-club stasis.
Based on the enthusiasm at the Cape Town conference, the way forward for South Africa is to ramp-up the open, collaborative discussions and to move to a committed phase of community building, with well-defined interactions between the various participants of the Open Banking ecosystem.
Where are we heading?
It seems inevitable that some form of open banking is brewing in South Africa. The global playbook of central bank involvement, industry body restructuring and encouragement of FinTech are already well progressed. The momentum for open collaboration is visible. Debates about the need or otherwise of new regulations attest to a community already busy at work on plans for open banking.
Rather like the biggest banks in the US that initially repelled all forms of TPP access, but then led industry initiatives like FDX to standardise bank-TPP relationships, banks in South Africa have an opportunity to shape the future of openness in South Africa. Any undue delay in this process is likely to result in more proscriptive intervention from one of more regulators.
Some within the established banking community have a queasiness about openness, particularly about balancing existing compliance/KYC commitments against new obligations to accept transactions from “unknown” agent TPPs. A frequently-raised concern regards the control of access, authentication and consent processes.
But the banks that manage these processes in a consumer-friendly manner do not stand just to protect their existing banking customer, they also position themselves to be the trusted agent for those same customers that may need their ID, credentials and data to be processed earlier in the value chain.
The role of mobile phone services in South Africa may have a bearing on open banking too. There was a time in the 2000s when emergent global telco operators rapidly expanded mobile services and went to battle with established banks. Sometimes they chose a tricky path of bank licence acquisition (like O2 in the UK) or of creating mobile payment services (like Vodafone in Kenya).
Although it may seem a nostalgic cliche to recall the era of Banking v Telco, there is merit in considering the role of cell phones as something more than just another digital channel. As well as the obvious benefits to operators of getting closer to customer lifestyle data, it’s also a handy mechanism to support customer-managed controls, preferences and – perhaps crucially – easily understood consent and authentication mechanisms. It is no surprise therefore to see at least one big bank in South Africa offering a branded mobile phone service.
As if to endorse this point about Telco, a week after the Cape Town conference, Apple announced the acquisition of UK-based Credit Kudos, an open banking service provider specialising in the aggregation and dissemination of data.
So is the control of data the final destination of open banking? That’s a misguided and oversimplified view – yes, data is valuable, but Apple’s strategy is more likely to be based on the enablement of that data on behalf of rightful data owners (typical citizens, customers) rather than helping big businesses to build stores of personal data.
Global trends in open banking already seemed to have converged to a point of common understanding. Global regulatory interest in data ownership, sovereignty and privacy is not far behind, as are initiatives to solve the burden of web-based authentication and ID verification. These are underpinned by regulations (like the new EU eIDAS) that mandates the recognition of electronic certificates within digital interactions.
This field is being pushed further by related policy initiatives such as the creation of interoperable European digital wallets, used not just for financial transactions, but also for the exchange of verifiable credentials.
The challenges for participants in South African open banking lie beyond the near distance of defining interactions between banks and TPPs. The bigger, existential questions concern what role they wish to play – not just for financial transactions in open finance, but for all interactions in an open digital world.