Is Kenya Ripe for Open Banking?

With the global economy undergoing the digital transformation and driving rapid change, major developments in the Kenya’s financial sector have been concentrated in banking and payments. By adopting digital technologies and agent networks to lower the cost of delivering and accessing accounts, payments and loans, the financial sector has significantly broadened its reach and size since the amendment of the Banking Act in 2009. The digital transformation has also enabled credit-only providers offering digital loans to consumers over their mobile phones to enter the market. The rapid public acceptance of these services in Kenya has demonstrated the mature adoption of digital technologies and the real benefits that this adoption has brought to previously underserved and unserved populations. Data has become increasingly important part of the payments equation. It is collected, analyzed, and used at various points during a payment transaction, and also plays a vital role in making sure the payment reaches its intended destination. Leveraging on data to provide data-driven financial services has an unimaginable impact on customer satisfaction.

Open Banking or consumer-led finance leverages on financial data sharing. Comprehensive financial data held by financial institutions says a lot about the financial behavior of a consumer or an SME. It is important to note that this data belongs to the consumer or SME and should they want to use it to get access to better financial products and services or efficiently manage their finances, it is entirely within their rights to do so.  Implementing Open Banking can empower consumers with more choice and control over their financial lives, and drive competition in the financial industry. Consumers have 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 consumers to move, manage and control their money. Open Banking ecosystem requires banks to share transaction level consumer financial data with trusted third-party service providers via standardized and regulated Open Banking APIs. The APIs should be freely or publicly accessible to financial technology providers (fintechs) and other partners to build innovative and contextual solutions to customers. However, providing free or monetized APIs depends on the legal and regulatory framework within the respective jurisdiction.

Legal, Regulatory and Policy Framework

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. In the European Union, the introduction the Second Payment Services Directive (PSD2) regulation, which became effective on January 13, 2018, requires large banks to share consumer account data with regulated third party service providers when the consumer has given their explicit consent. Together with the General Data Protection Regulation (GDPR), these two pieces of legislation cover al facets of Open Banking. It is believed that they would drive competition and result in better financial deals and services to consumers.

In 2019, Kenya passed into law the Data Protection Act which sets out the requirements for the protection of personal data processed by both public and private entities. The Act also saw the establishment of the Office of the Data Commissioner which is the national independent regulatory authority responsible for upholding the fundamental rights of individuals to have their personal data protected. Section 26(b) gives the data subject the right to access their personal data in custody of data controller or data processor. Banks and other financial institutions are considered data controllers or processors. However, a clear guideline or regulation is needed in order to operationalize  this section. The Central Bank of Kenya, which the financial sector regulator, has also 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. At the same time, the Ministry of Treasury is finalizing a Digital Finance Policy framework which seeks to ensure that financial services are delivered to Kenyans through integration with digital technologies.

Consumer Experience

Leveraging on data to provide data-driven financial services has an unimaginable impact on online customer experience, which is a key differentiator for any forward looking business. Delivering real-time, smooth services by aggregating consumer’s account information into single portal has made real-time banking services favorite among consumers. Forward thinking incumbent banks can remain ahead of the curve by adopting Open Banking to allow their customers interact seamlessly with other trusted third party service providers. Open Banking avails endless banking opportunities that allow consumers to take charge of their financial lives.

In conclusion, the time is now ripe for Open Banking in Kenya but some ammendments to the National Payment System Act, 2014 may be required as well as clear guidelines or regulations on the Data Protection Act, 2019 to make allowances for Open Banking.