Will SA lenders pursue innovative open banking?

Banks and fintechs have long been portrayed as adversaries in the battle for control of the financial services industry, but the advent of open banking has both parties realising they have more to gain from working together.

Fintechs are often young, highly nimble, with little cash and even less access to large customer bases. Some have huge investment dollars but struggle to produce a good return on investment. Banks have the customers, but lack the agility with which fintechs are able to develop technology.

By joining forces, the two can deliver better, cheaper, faster and more innovative payment solutions. And if they have a modern core or payments engine, they can do considerably more through the use of simple APIs (application programming interfaces), which allow diverse software components to communicate.

In Europe, this approach has been championed by the payment services directive known as PSD2, which regulates payment services and service providers across the union.

South African banks are known for being innovative and are not waiting to be regulated before embracing the change.

Open banking represents a fundamental shift in the concept of banking. It enables customers to offer their data in a secure manner to permitted third parties in return for more personalised services.

Used effectively, it enables banks to offer new services to improve customer experience, build loyalty, and develop new sources of revenue.

PSD2 is also being watched closely in South Africa.

If it proves successful, the feeling is that regulation may follow, particularly because the use of API banking for financial inclusion is gaining traction.

At the moment, local banks can decide if, how and when they will implement open banking and the benefits of this new approach can be realised easier. And when we look at examples like Yolt, a fintech owned by Dutch bank ING, we can see why.

The Yolt app lets users manage money with different banks for different financial services in one place. To benefit from these types of services, banks need real-time payment capabilities. In theory, this is not a problem in SA, where real-time payments have been available to bank customers since 2006.

Open banking is opening up payment services and ushering in a raft of innovations such as peer-to-peer payments and aggregated accounts.