Open Finance Initiatives Around the World: What Can South Africa Learn
South Africa has been moving towards open finance in recent years. Based on the adoption of similar open finance structures around the globe, the benefits to its consumers, innovative financial ecosystem and society are clear.
For consumers, open finance provides better choice, protection and personalised service aligned with their financial needs. Furthermore, if done in the right way, they will have more ability to understand and adjust their financial behaviours. For the innovative financial ecosystem, open finance offers financial institutions and fintechs alike better access to consumer-permission financial data, enabling them to better understand their customers’ positions and improve their services to meet specific consumer demands. For South African society, open finance promises to provide a stable and safe financial system that protects consumers against fraud and money laundering, along with greater data overview to improve public policy.
Despite these benefits, the specifics of implementing open finance in South Africa have yet to materialise fully. However, debate is underway within the Financial Sector Conduct Authority (FSCA) and the wider industry.
A step in the right direction towards regulation
In 2020, the FSCA released a report1 identifying routes to regulation. It revealed an openness to data-led innovations a regulated open-finance framework would enable. If implemented, a well-connected framework of regulations, standards, implementation, and enforcement, South Africa can go beyond open banking systems already in place and reap the full advantages of open finance. Meanwhile, South Africa can not only learn from other open-finance implementations but improve on them, too.
What approach has the United Kingdom taken?
In 2016, the United Kingdom’s Competition and Markets Authority formed a new entity to define and deliver customers’ rights to access, control and share their customer, transaction and value-added financial data. The mandate has been largely successful, with nearly five million people leveraging open banking in the UK.2
While this number seems large, it could be bigger given the system’s maturity. One roadblock has been a requirement that providers must reauthenticate users’ permissions to remain connected to third-party applications every 90 days. It may sound simple, but has presented a serious hurdle for consumers. Only recently has the UK’s Financial Conduct Authority made changes that will unlock this issue.
Where is Australia in its journey towards open finance?
Under Australia’s open-banking regime, the Consumer Data Right, consumers may opt in to share their data with accredited organisations. But unlike the UK, Australian citizens can benefit from other types of financial data than just banking transactions alone, as they have the option to share their data from home loans, bank accounts, personal loans and offset accounts with these same accredited organizations.
However, while Australia continues to expand its data availability, banking-data providers, and accreditation of third-party organizations, Australian banks and fintechs have yet to be fully transformed. Data feed reliability needs improvement, so traditional forms of data gathering will be relied upon until those issues are ironed out.
What is next for South Africa?
South Africa’s vision is to deliver an open-finance framework that supports third-party financial-services providers in retrieving customer financial data and developing products and services around it. Clearly, it is already on a journey to creating such a framework. The question is not if but when and what lessons can be learned from other international rollouts.
