Kenya: Open Banking and Financial Services Transformation

One of the crucial pillars of the Kenya’s Digital Economy Blueprint is Digital Business which focuses on digital trade, digital financial services and digital content. The goals and primary objectives of this pillar is to provide a robust marketplace that leverages technology to ensure that every citizen and business can trade goods, information and services. The pillar envisages to harness Kenya’s reputation as a global leader in digital finance innovations by enabling an open, secure, and resilient digitized financial system powering a digitally driven and inclusive economy. This digital transformation ushers Kenya into the new realm of digital economy where data is 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 Kenya’s 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 a trusted third party service provider and enables that third party to initiate payment directly from the consumer’s account. This is made possible through the use of application programming interfaces (APIs). The fundamental principle behind 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 or efficiently manage their finances, it is entirely within their rights to do so. This is enshrined in the Data Protection Act, 2019 which gives data subject the right to control, edit, manage, and delete information about themselves and decide when, how, and to what extent this information can be shared with third parties.

Adopting Open Banking has the potential to increase consumers’ choices and improve financial outcomes for Kenyans. From a consumer perspective, Open Banking has the ability to make finance more convenient, better tailored and fundamentally smarter. It gives consumers the freedom to share their personal data with regulated third-party companies that can then use that data to provide alternative financial services that make it easier for them to move, manage and control their money. From industry point of view, Open Banking promises to lower entry barriers to financial services by enabling leading-edge financial technology 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 Open Banking implementation. 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 (CMA9) whose scope is 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 consumer account information and payment initiation without dictating the technology to accomplish this but leave that to individual institutions. 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.