Introduction
When it comes to discussing Open Banking, Open APIs in Banking, BIAN APIs, and Banking as a Service, it’s important to understand that these are all different concepts that relate to the same singular idea of giving third parties access to a bank’s data and/or functionality so they can create new or different experiences and products for customers.
Although people often use these terms interchangeably, it’s important to understand the distinctions between them so you can better understand the role each one plays in the world of banking.
In this article, we will explore the differences and similarities between various concepts with David Roldan, an API expert from Sharper. We will also give an overview of what is happening in Africa.
Open Banking
Open Banking is a network of financial institutions that share data using APIs. By opening these APIs to sharing, 3rd parties have easier access to financial information, which allows them to build new and different apps and services.
Financial institutions have been hesitant to participate in open banking because it would mean competing with one another; however, regulators have been urging them to do so. This is true for the Open Banking Standard in the United Kingdom and the PSD2 in Europe. In other regions, though, open banking is being driven by market dynamics.
Developers can use Open Banking APIs to access a limited set of features such as account aggregation and payment initiation. We recommend looking at the regional standards to see what standards are available in your area.
Open APIs in banking
APIs allow information to be shared between different systems, whereas open APIs refer to a publicly available interface that allows data or functionality to be shared. Open APIs in open banking allow third parties to access a financial institution’s customer data (with the customer’s permission) or the financial institution’s service offerings and functionality. This is significant because it allows customers to have more control over their data and allows third parties to provide value-added services to customers.
BIAN APIs
The Banking Industry Architecture Network (BIAN) is a model of business capabilities, scenarios, service domains, and business objects used in banking and other financial services. This enables cost reduction and management change by developing digital standards and best practices in service-oriented architecture and banking APIs.
The BIAN APIs are a set of banking-related APIs that support the partitions and service operations of the BIAN Service Domain. They are built in a RESTful architecture style, making it simple for organizations to incorporate them into their API management strategy. This speeds up time-to-market and improves banking best practices for financial organizations that adopt them.
The BIAN APIs are a set of service operations that are designed to make it easier for global banks to adopt modern banking interoperability standards. These APIs are not required, but they can be used to simplify digital transformation. In addition, Open Banking APIs and Open APIs for Banking can be built on top of the BIAN APIs.
Banking as a Service (BaaS)
Banking as a Service (BaaS) may sound similar to open banking at first, but there is a crucial difference between the two. While open banking provides third-party access to the data of existing bank customers, BaaS provides access to bank functionality so that non-bank companies can connect users outside of the bank’s existing customer base to banking services. In other words, open banking gives third parties access to data that’s already there, while BaaS allows for the creation of new data sets and connections.
Banking as a Service provides a company with the ability to construct its own customer experience, under its brand name, with the support of a bank’s existing infrastructure and specialist knowledge. This allows providers to create a unique and differentiated offering for their customers.
Banking Transformation: An African Perspective
Like in other industries, banking in Africa has evolved to take advantage of new technologies. For example, with the advent of mobile phones, 96% of Kenyans now use MPESA, a fintech for mobile money transfers and payments. 10% of all people using mobile banking in the world are Kenyans.
PSD2 was supposed to come into effect five years ago, but due to negotiations, it only just came into effect in 2019. Many developed countries have “old” banking systems that make any modern progress look like a mistake. However, Africa’s banking infrastructure is not yet fully developed, so modern technology has not caused as much destruction on the continent. Some experts refer to Africa as a “greenfield” for open banking.
Challenge
Open Banking and BAAS both face challenges and opportunities in Africa, a key market for these technologies. Open banking has the potential to shape and improve financial systems around the world. Africa, in particular, faces obstacles and challenges that make it difficult to use traditional banking methods. For example, 50% of Africans do not have a bank account.
There are still very few working banking APIs in Africa. Many countries in Africa lack traditional banking infrastructure or banking licenses operated by technology companies. In addition, regulators have been slow to provide policies and frameworks for open banking. For example, the central Nigerian, Rwandan, and Kenyan banks recently launched open banking frameworks.
This scarcity of working APIs presents a challenge for FinTech companies operating in Africa, which must rely on other means for customer acquisition and data distribution. For African startups working on innovative solutions to improve financial inclusion, this lack of access to banking infrastructure can be a roadblock to success.
Outliers
Banking APIs have the potential to improve access to financial services for Africans living on the continent, but they are primarily only available in a few countries like Kenya, Nigeria, and South Africa. This is promising, but companies are still struggling to make these APIs work properly.
API fintech companies like Mono and Okra from Nigeria are leading the way when it comes to the potential future of API banking. With the continent’s economy growing, more and more tech-savvy Africans can spend money on apps and online services. This presents a huge opportunity for both banks and non-banks to enter this market and become interoperable financial service providers.
Solution
“Africa has great potential” is no longer a slogan, but rather a harsh reality for many fintech companies. Financial exclusion has been a major setback, as millions of people in Africa remain unbanked. This lack of access to customer data makes it difficult for fintech companies to compete with those in developed countries. Fintech companies should also keep security and customer data a priority to avoid the challenges faced by the first European PSD.
Second, APIs can help banks overcome infrastructure challenges. In general, the term “API” refers to an open API that can be integrated with third parties. However, they can also help build robust business architectures that are flexible and modular. This way, they can offer more value to customers who use them.
Fintech has the potential to revolutionize banking in Africa by making financial services more accessible and affordable. However, there is still work to be done before open banking APIs are up and running smoothly on the continent.
Conclusions
The advent of the API economy has largely changed the way banks and financial technology companies operate within the financial services industry. APIs (Application Programming Interfaces) provide a digital link between the IT systems of an enterprise and play a crucial role in a bank’s digitization process. By connecting a bank’s IT ecosystem with various internal and external systems and digital channels, APIs help banks exploit significant competitive advantages.
Africa is gradually catching up to other continents in terms of open banking development. Although we haven’t seen a comprehensive open banking framework emerge just yet, individual countries are taking strides toward digital transformation. A few African nations have even become leaders in open banking regulatory frameworks.
Sources:
What Is Open Banking? – Forbes Advisor
Open Banking & Banking APIs Explained W/ Examples (insiderintelligence.com)
Banks are open to open banking: Better ways to work with FinTech (bai.org)
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