Open Banking: Breaking Down the Barriers for Financial Institutions

  • Posted by: Kenneth Ogada
  • Category: Blog

Open banking is a concept that has been making waves in the financial sector since its introduction. It involves sharing customer data, with their consent, among different financial institutions to provide better services and products. While this may seem an invasion of privacy to some people, open banking has numerous benefits for both customers and banks alike. In this blog post, we will be breaking down the barriers of open banking and exploring how it is transforming the industry by unleashing new opportunities for innovation and collaboration between stakeholders. Join us as we dive into the world of open banking!

Introduction to Open Banking

In the past, customers’ banking data has been held hostage by their financial institutions. If a financial service provider’s customer wanted to switch banks or use a new financial service, they would have to start from scratch, providing all of their previous banking history themselves. This process is not only time-consuming and frustrating, but it also puts customers at risk of losing important data along the way.

But now, Open Banking has already started to revolutionize the way people bank in Europe and other parts of the world. And there’s no reason it can’t do the same in Africa. Open Banking has the potential to make life easier for financial institutions and their customers alike – all we need is for the banks, saccos and microfinance to get on board.

What is Open Banking and How Does it Work?

Open Banking is a term used to describe the use of open APIs that allow third-party developers to access financial institution data and build applications and services around it. It has the potential to revolutionize the way banks’ customers bank and manage their finances. This allows their customers to get the most out of their financial products and services, without having to go through their bank for everything.

By making data accessible to third-party developers, Open Banking has the potential to create new and innovative products and services that make managing finances easier and more efficient for these consumers.

Curious About what an API is?

An API is a set of programming instructions that allows software to interact with another piece of software. In the case of Open Banking, financial service providers’ data is made available through APIs so that third-party developers can access it and build applications and services around it. This is what we can an API-First Culture. It starts with a central hub for building and managing APIs, allowing organizations to quickly access customer data with their consent.

To facilitate this process, financial institutions should have an effective API strategy in place that includes well-defined policies and processes, robust security controls, and reliable governance. Additionally, you need to invest in the right technologies and platforms that will help manage the entire lifecycle of your APIs successfully. By creating an API-First culture, banks can unlock digital transformation potentials such as improved customer experience, automation of internal processes, and revenue growth.

Kenya’s Open Banking Landscape

Kenya’s payments landscape has undergone many changes, like most countries. During the past fifteen years, the National Payments System (NPS) in Kenya has undergone fast transformation. The Central Bank of Kenya (CBK) has enabled significant advancements in payment services over time, beginning with the modernization effort that resulted in the development of the Kenya Electronic Payment and Settlement System (KEPSS) in 2005 and the passage of the NPS Act, 2011, as well as the NPS Regulations, in 2014. Mobile money was introduced in 2007, thanks to CBK’s assistance. It has opened a new era for payment services in Kenya and elsewhere.

In light of the above, CBK in December 2020 released a document titled Kenya National Payments System Vision and Strategy 2021 – 2025. The document contains the regulator’s commitment to establish a regulatory landscape that supports innovation. And the key thing being embracing Open Banking and APIs. This was and still is a significant step towards promoting financial inclusion and increasing access to financial services for Kenyans. CBK seeks to define standards for API development and mandate data portability. The view is that Kenya-based users will have more options and innovative solutions in the near future.

Vision and objectives of the Kenya National Payments and Strategy 2021 – 2025 (CBK)

The document outlines specific objectives of the regulator’s initiative as follows:

1. To facilitate payments systems that meet the diverse needs of users and support the country’s development agenda.
To ensure payments systems are secure through influencing industry and global
standards, and adopting safe technologies.

To power an ecosystem based on collaboration leading to launch of premier and
globally competitive innovations.

To implement a supportive policy and regulatory framework that is firmly enforced across all existing and emerging players.

The above NPS Vision and Strategy sets a clear road map for Kenya’s NPS for the next five years (2021 -2025). And almost all stakeholders were involved in the discussions around the strategy. Talk of the Payment Service Providers (PSPs), banks, SACCOs, FinTechs and other end users. CBK traversed all sectors for input regarding the implementation of the policy document.

Among the developments that will come with the new standards are:

  • API specifications for identification, verification, and authentication;
  • Customer account information/data access
  • Transaction initiation
  • Formats and coding languages for APIs.

Most legacy banks are also not ready to open their APIs to fintechs or share customer data with competitors. But CBK has assured of clear risk management frameworks and standards. These will include providing clarity on liability and consumer protection. As a matter of fact, this is a bold initiative in its entirety. The initiative could potentially improve the efficiency and transparency of the banking sector, reduce costs for customers, and promote the development of innovative financial products and services.

What’s the Trend in Open Banking Beyond Africa?

Banks are required to make their APIs available to third-party service providers from January 2018 under the EU’s Second Payment Services Directive (PSD2). PSD2 is a regulatory framework that aims to increase competition and innovation in the payments industry while also improving consumer protection.

The European law PSD2 governs electronic payment services. It aims to increase innovation, improve the security of payments in Europe, and aid in the modernization of financial services. Indeed, APIs are becoming increasingly important in many financial industries in the EU, as shown by PSD2.

What’s the EU Doing towards Open Banking?

Banks in the EU are changing the authentication methods they offer their clients in terms of security, for instance switching out coordinate cards or tokens for mobile phone messaging or more sophisticated tokens. The EU is also creating the systems and procedures that would enable banks to utilize the exclusions provided for by the strong client authentication laws for transactions with minimal risk.

Overall, most professionals in the technology and financial sector agree that APIs will be the technical medium that will allow banks to realize open banking. Open Banking has the potential to transform the banking sector and improve financial services for customers.

Benefits of Open Banking for Financial Institutions and Their Customers

Open Banking has the potential to bring many benefits to both consumers and financial institutions as highlighted below:

For Consumers

Open banking has a lot of potential benefits for customers. For one, it could make it easier for them to switch banks or financial providers if they so choose. It could also give them more control over their data, and allow them to more easily compare products and services between different providers. Additionally, open banking could help customers manage their finances better by giving them more visibility into their spending and saving patterns.

Financial Institutions

Open banking has a number of benefits for banks, saccos and microfinance, including increased customer engagement, improved data security, and greater innovation opportunities.

  • Increased Customer Engagement

Open banking allows financial institutions to better engage with their customers by giving them more control over their data. Customers can choose to share their data with third-party applications and services, or they can keep it within the confines of their financial institution. This gives customers more control over their finances and allows them to make better decisions about their money. By opening up customer data, banks can develop new features and services that make it easier for customers to do things like track spending, transfer money, or pay bills. This increased engagement can also lead to more loyal customers who are less likely to switch to another bank.

  • Improved Data Security

Open banking also improves data security for financial institutions. When customers share their data with third-party applications, they are doing so on a secure platform that is regulated by the government. This means that financial institutions can be sure that their customer data is safe and secure.

  • New Revenue Streams

Open banking also has the potential to create new revenue streams for financial institutions. By partnering with third-party developers, banks, saccos and microfinance can offer new products and services that generate additional income.

  • Greater Innovation Opportunities

Open banking provides greater innovation opportunities for financial institutions. By opening up customer data to third-party developers, financial institutions can encourage the development of new products and services that can help them better serve their customers. This can lead to increased customer satisfaction and loyalty, as well as new revenue streams for the financial institution.

How Financial Institutions Can Leverage Open Banking

Open banking has been a hot topic in the financial world for the past few years. And for good reason – it has the potential to revolutionize the way financial service providers interact with their customers.

In a nutshell, open banking is a set of regulations that require banks to provide third-party developers with access to customer data. This data can then be used to develop new applications and services that make it easier for financial institutions’ customers to manage their finances.

Open banking requires taking the necessary steps to ensure that all areas of a financial institution are ready and willing to adopt it.
It starts with the leadership of the entity

Leaders need to recognize that there is a paradigm shift taking place and must facilitate the adoption of new technologies. This includes introducing a shift in mindset, investing in infrastructure, and optimizing processes. They must also foster collaboration between different departments, such as product management, marketing and sales.

A clear understanding of customer needs

The next step is to create API products that meet those needs. Moreover, having an API strategy in place is essential for ensuring success with API-first initiatives.

Thus, banks, saccos and microfinance should have the right tools and technologies in place to enable them to benefit from open banking. By further integrating APIs into existing systems, financial institutions can improve customer experience, increase efficiency and move faster towards digital transformation.

Challenges and Opportunities of Going “Open”

Open banking presents both challenges and opportunities for financial institutions. On the one hand, it opens up new possibilities for customer engagement and data-driven innovation. On the other hand, it also creates new risks and challenges around data security and privacy.

To fully realize the benefits of open banking, financial institutions need to carefully consider how to address these challenges. Here are some key considerations:

Data security and privacy

Open banking requires sharing customer data with third-party developers. This raises concerns around data security and privacy. Financial institutions need to have robust data security and privacy policies in place in order to protect customer data.


Open banking is still a relatively new phenomenon, and regulatory guidelines are still being developed. Financial institutions need to stay up-to-date on compliance requirements in order to avoid any potential penalties.


Open banking gives rise to new competitors, such as fintech startups, that can challenge traditional financial institutions. Financial institutions need to innovate in order to stay ahead of the competition.


The success of Open Banking for financial institutions will depend on several factors. Think of the availability of robust and secure API standards, the willingness of banks to participate, and the development of a regulatory framework that protects customers’ data and privacy. Why? Open banking has the potential to revolutionize the financial services industry by making it more accessible and efficient for financial institutions and their customers alike. With its focus on security, customer data protection, and convenience, open banking promises a new way of conducting transactions while greatly improving upon existing financial services.

The Future is Open: What’s Next for Financial Institutions on the Journey to a More Transparent Financial Ecosystem?

It will be interesting to see FSPs implement Open Banking and realize the benefits it will bring to their consumers.

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