Open Banking? Open APIs in Banking? BIAN APIs? Banking as a Service? An African approach

OpenBanking? Open APIs in Banking? BIAN APIs? Banking as a Service? Aren’t we talking about the same? Definitely, no. However, people are using them interchangeably but they are not the same thing, although they all relate to a singular concept of giving third parties access to the bank’s data and/or functionality to build new or different experiences and products for customers.

In this article, co-authored with Janes Kemunto Kengere , we will explore the main differences and similarities between all these concepts and give an overview of what is happening in Africa.

Open Banking

It provides access to a network of financial institutions’ data using APIs. By opening APIs to sharing, 3rd parties have easier access to financial information, which allows them to build new and different apps and services.?

Because the outcome of open banking is ultimately competition, many financial institutions (FIs) have been reticent to take action; therefore, regulators have been the key driver of open banking’s spread. This is the case of the Open Banking Standard In the UK or the PSD2 in Europe. In other regions, Open Banking is being driven by the market dynamics itself.

Open Banking APIs, in essence, provide a common mechanism for interfacing with a reduced set of features such as account aggregation or payment initiation. I recommend taking a look at the standards of the region of your interest.

Open APIs in banking

APIs allow the sharing of information between systems, while open APIs refer to a publicly available interface that gives access to the sharing of data or functionality. In open banking, open APIs give third parties access to a financial institution’s customer data (with the customer’s permission) or the financial institution’s service offerings and their functionality. This is important because it can allow customers to have better control over their data and gives third parties the ability to create value-added services for customers.

BIAN APIs

The Banking Industry Architecture Network (BIAN) provides a comprehensive model of the business capabilities, business scenarios, service domains, and business objects used in banking and other financial services to reduce costs and manage change through the creation of a set of digital standards and best practices in service-oriented architecture and banking APIs.

BIAN APIs are a collection of banking-related APIs supporting the BIAN Service Domain partitions and service operations in a REST architecture style so that organizations can incorporate them in their API management strategy speeding time-to-market and improving banking best practices for financial organizations who adopt them.

BIAN APIs are a set of service operations to streamline the adoption of modern banking interoperability for global banks. They are not required and are available to simplify digital transformation. On top of them, Open Banking APIs and Open APIs in Banking can be built.

Banking as a Service (BaaS)

On the surface, BaaS may sound similar to open banking, as both provide the user access to a financial institution’s platform. The difference is that while open banking provides third parties access to the data of existing bank customers, Banking as a Service provides third parties access to bank functionality so that non-bank companies can connect users outside of the bank’s existing footprint to banking services.

Banking as a Service gives a provider the ability to build its own, differentiated experience for its customers, under its brand, supported by the bank’s existing infrastructure and expertise.

Banking Transformation: an African perspective

Like in all other industries, the African continent has successfully "jumped over" some traditional banking structures. For example, with the advent of mobile phones, 96% of Kenyans use MPESA, a fintech for mobile money transfers and payments. After a 5-year delay and negotiation, PSD2 came into effect in 2019. The "old" banking systems of developed countries make any modern progress look like a glitch. However, Africa’s banking infrastructure is not yet fully mature, so modern technology has not wreaked havoc on the continent. Some experts refer to Africa as a "greenfield" for open banking.

Challenge

However, Open Banking and Baas face both 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.

Unfortunately, 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 Nigeria, Rwanda, and Kenya banks recently launched open banking frameworks.

Outliers

The few viable ones are mainly in Kenya, Nigeria, and South Africa. While this is promising, companies are still struggling to roll out working banking APIs in Africa. This will improve access to financial services for Africans living on the continent – not just Africans living abroad.

API fintech companies such as Mono and Okra from Nigeria are beacons of the potential future of API Banking. As the continent's economy grows, more and more tech-savvy Africans can spend money on apps and online services. This is an opportunity for banks and non-banks to enter this market and become interoperable financial service providers.

Solution

"Africa has great potential" is no longer a slogan. Financial exclusion has been a setback for fintech companies. With millions of unbanked people in Africa, customer data is not as readily available through the banking system as in developed countries. Fintech should also “skip” the challenge of the first European PSD and keep customer data and security secure.

Second, APIs can solve a bank's infrastructure challenges. In general, the term API usually refers to an open API for third-party integration. However, they can also help build modular, flexible, and robust business architectures that deliver real value to customers.

Fintech shows us how banking APIs can help people access financial services on the African continent at the lowest cost. However, work still needs to be done before a functioning banking API exists in Africa.

Sensedia's approach to Digital Transformation in Banking Sector

In such a complex context, developing manual integration will not deliver the necessary scalability, and governance will be much more complicated. These are mainly the reasons driving us to the definition of Solution for Open Finance that was built on top of our API Platform, which has modules designed to improve workflow governance, all of them of paramount importance for Open Banking and Open Finance markets.

Figure 1 depicts the componentized architecture for Open Finance. We will describe each of the components in the sections below.

Figure 1 Sensedia’s Open Finance Solution Architecture

As it is shown, there are four fundamental pillars of Open Banking. It allows financial institutions and third-party providers to provide new and attractive financial services and products to their customers. The four pillars are:

• API Design and Building: data consumption is paramount to formulating an Open Banking strategy. API adds? ? value and how it aligns with a company’s strategic goals and objectives should be the top priorities for all API strategies.
• New Partners: the ’Open’ model is not about competition, but about creating ecosystems and expanding the customer experience. Merging partner data and providing highly personalized products and services is crucial in Open Banking.
• Governance and Compliance: in order to manage risk, any data liability issues between banks and TPPs, such as a security breach or an unauthorized transaction, data and open transaction providers are legally obliged to inform customers how their data is being used, how they can control it, how it is stored and how the company is audited.
• Security and Consent: it is mandatory for companies providing data (via APIs) to comply with a number of security and access management regulations, ensuring there’s a clear understanding about who is consuming the data and where it is flowing to.

Conclusions

The advent of the API economy has essentially revolutionised the way Banks and FinTechs work within the financial services industry. APIs are a digital glue holding the IT systems of an Enterprise so that API Economy plays a significant role in the digitisation journey of a Bank. It is instrumental in integrating the Banking IT ecosystem with various internal and external systems and digital channels. Banks that create and maintain a true API Economy can exploit significant competitive advantages.

While Africa is yet to develop a comprehensive open banking framework, several countries have created roadmaps for digital transformation and open banking. Recently, a handful of African nations have emerged as leaders in open banking regulatory frameworks.

We at Sensedia are experts on Open APIs in different sectors and provide a Open Banking Solution compliant with most of those regulatory frameworks.