Kenya: Open Banking and Financial Services Transformation (Lawrence Dinga)

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The global digital transformation has ushered Kenya into the new realm of the digital economy where data has become the new form of currency, the new oil, and the driver of growth and change. The use of digital technologies and data underpins digital transformation across all sectors of the economy. In the financial sector, there is a growing expectation on the part of consumers to control and leverage the data they generate in order to enjoy the convenience offered by data-driven financial services. Open Banking presents an opportunity to do just that. Open Banking is a technology that allows a consumer or an SME to securely share their account information and transactional data with trusted third party service providers and enables the consumer or SME to instruct that third party to initiate payment directly from their account. The fundamental precept of Open Banking hinges on the fact that data has value and the data held by the bank about the consumer belongs to the consumer and not to the bank and if the consumer wants to use that data to get access to better financial products and services, it is entirely within their rights to do so. These rights are clearly enshrined within the Data Protection Act, 2019.

The adoption of Open Banking has the capability to increase consumers’ choices and improve financial outcomes for Kenyans. From a consumer perspective, Open Banking has the potential to make financial services more convenient, better tailored and fundamentally smarter. It gives consumers the ability to have access to a wider range of useful, competitive and consumer-friendly financial products and services that meet their needs. From industry point of view, Open Banking promises to lower the barriers to entry to financial services thus enabling leading-edge financial technology service providers (fintechs) to develop new and innovative products, solutions and services to consumers and businesses. It is important to note that all parties participating in Open Banking must meet standards with respect to consumer protection, privacy, and security while also supporting the continued resilience and stability of Kenya’s financial sector.

International jurisdictions have taken a variety of different approaches to the implementation of Open Banking. In the United Kingdom, the Competition and Markets Authority (CMA) mandated the creation of Open Banking API standards for the U.K’s nine largest incumbent banks aimed at data sharing and payment initiation. The Open Banking Implementation Entity (OBIE) is a not-for-profit organization charged with the implementation of Open Banking in the UK. In the European Union, Open Banking is a regulation led initiative through the Second Payment Services Directive (PSD2) and it requires large banks to open up access to account data and payment initiation without prescribing a standard API. Australia has a government-led Open Banking initiative, as part of broader efforts towards consumer data rights and enabling competition. It is regulated by the Australian Competition and Consumer Commission and its scope is data sharing only with no payments initiation. In Kenya, the Central Bank of Kenya has published its 2021-2025 vision and strategy document which sets the agenda on the future of the country’s digital payments ecosystem including the adoption of Open Banking technologies. The Ministry of Treasury is also finalizing a Digital Finance Policy framework which seeks to ensure that financial services are delivered to Kenyans through integration with digital technologies.

Due to the risk associated with opening up data from financial institutions to third-parties, there is crucial need for development of a comprehensive supporting policy, legal and regulatory framework for financial data protection and governance that is firmly enforced across all existing and emerging players in Open Banking. Such legal and regulatory framework must take into account the unique needs of financial and payments data and data users. In overall, Kenya has the potential to be a leader in the development and adoption of Open Banking in Africa, but it risks falling behind if it does not take timely and concrete action now.

Source: https://www.finextra.com/blogposting/21165/kenya-open-banking-and-financial-services-transformation?utm_medium=rssfinextra&utm_source=finextrablogs

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