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Does Open Banking Hold The Future For The Financial Sector?

In the advent of internet and technology, most services can be done from anywhere, anytime with just a touch of the button.

This could be shopping, communication, holding meetings, banking and business management among others.

One sector that is experiencing the touch of technology, with services that could take days to execute now being done in less than a minute.

However, integrating services from different banks to one platform has been a ‘challenge’, to banks especially due to competition.

Customers who have accounts in different banks have to download apps or access services differently from these bank.

But what if banks could utilise open banking for their services?

Open banking, in which banks share certain data via secure application programming interfaces (APIs), allows for the development of a range of digital financial services that can be used by customers to more easily transact, manage their finances and have full access to all their data.

Financial service providers are authorised to use this data without having to build new data stores of their own, they can quickly adapt to changing trends and offer new and unique services to customers.

“In developed nations, fintech is helping transform the existing financial services landscape, where in Africa it is about bringing financial services to large sectors of the population who have never had access to financial services before. Open Banking can play a unique role in this,” says Willie Kanyeki, Myriad Connect Business Development Director – Africa.

In the European Union, for instance, Payment Services Directive 2 (PSD2) legislation was introduced last year to obligate banks to provide third-party Account Information Service Providers and Payment Initiation Service Providers with access to their customers’ accounts through open APIs in order to build financial services. The legislation ends banks’ monopoly over financial services, bringing new competition, new urgency to innovate, and potentially – additional costs. For customers, it brings the freedom to manage their finances with the app or service provider of their choice. However, one shortcoming of PSD2 has been the lack of a clear standard for secure authentication.

Read: Court Halts Sale Of Gakuyo Assets To Recover Lost Money

“East Africa can manage its own Open Banking initiative to avoid the pitfalls already experienced in other markets. Choice and a level playing field are desirable outcomes of Open Banking, but the emergence of a monopoly, or the erosion of banks, may not be,” says Michael Muturi, Solutions Consultant, Myriad Connect.

Security and authentication are essential components of open banking to ensure every digital transaction is properly authenticated to prevent and detect fraud, but also critically, to provide express consent for consumers’ data to be shared in the ecosystem.

Putting standards in place for API formats is also important as it allows open banking to deliver on its potential, offering simple integration and development.

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Francis Muli

Written by Francis Muli

Senior reporter at Kahawa Tungu, Muli has a passion for human interest stories. He believes in unearthing societal rots that have been hidden from the public eye. He has also carved himself a niche in writing business stories. He has worked for various organisations including Kenya Television Service, Business Today among others. Follow him on Twitter @FmuliKE.
Email: mulifranc2@gmail.com

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