The South African Financial Sector Conduct Authority (FSCA’s) publication of their Open Finance Policy recommendations (dated March 2024) is a promising step in moving the market towards growing the data sharing ecosystem in South Africa, but has it come too late? 

My interest is both as a South African consumer and because South Africa’s approach and stance on Open Finance may influence the approach taken by other countries across the region.  

The approach outlined by the FSCA in their proposed roadmap is highly logical and aligns with emerging global good practice. What I particularly appreciate is the intention to focus first on putting in place the core building blocks for Open Finance, which should simplify the process for bilateral data sharing in the financial ecosystem, before then indicating a desire to move to a mandatory model. 

The approach also aims to be consultative, with standards and approaches informed through industry engagement and joint working groups. It has been consistently shown globally that this is absolutely critical to success – countries that meaningfully engage industry in this process have experienced faster and more significant traction than those that have simply decreed an approach. 

However, I have some concerns about what to expect from industry’s response to any attempt by a regulator to introduce any form of mandated data sharing. Consistently across the world, large financial service providers – who are also the largest holders of consumer data – have an apparent unwillingness to share data openly. Whether or not they are meaningfully using this data for their business model, they regardless perceive it as a major competitive advantage.  

In the UK, this friction came to a head in 2017 when a court ruling found the withholding of consumer data from other institutions as anti-competitive and required the nine largest banks to make such data openly shareable, based on consumer consent – thereby creating one of the first open banking environments globally. 

In South Africa, the five large banks have all already taken significant steps towards sharing data and all of them have fintech (or similar) partnerships through which at least some data is shared. These includes partnerships such as between Ozow and Capitec, and ABSA and Rainfin.  On the face of it this seems very good – providers are already taking the initiative to implement ‘Open Finance’, and indeed consumers are already seeing some of these benefits. However, no matter what they may say and even if they call it Open Finance or open banking – with very few exceptions, financial service providers in South Africa are engaging in closed data sharing and not open finance.  

Practically what this means is that the banks are forming a small number of contractual partnerships with select fintechs or other partners with whom they have bespoke data-sharing agreements. Therefore, while consumers may well see short-term benefits, in the medium-term this market dynamic further entrenches the competitive advantage of the largest banks and significantly limits the extent of benefit that consumers will see.  

What will happen if the FSCA now endeavours to make open data sharing, on different terms than financial institutions are used to, the established approach? 

There is a strong parallel with the ongoing process in the US. To date, the US financial regulators have played no significant role in the sharing of customer data between financial service providers. Instead, thousands of US financial institutions have participated in an environment of voluntary data sharing. FDATA (the Financial Data and Technology Association) has acted as the ecosystem coordinator – developing industry standards and codes of conduct and has claimed success as building the largest Open Finance ecosystem in the world to date.  

However, towards the end of last year, the US Consumer Financial Protection Bureau (CFPB), which is similar to South Africa’s FSCA, announced an intention to regulate this market. The reason: because the voluntary approach was creating a highly distorted and unlevel playing field, with a wide range of differing approaches amongst US financial service providers and many of the largest retaining a protectionist (and anti-competitive) stance. This has also created substantively inconsistent approaches for consumers. Early this year, the CFPB provided more detail on its proposed approach, and it has been criticised for how little it intends to cover.  But having allowed the market to develop substantively has made it more difficult to change course and regulate for a fair and open market environment.  

I fear that the FSCA is about to face a similar response from industry, and I hope that they retain a firm position on behalf of all South African consumers. 

Given our work across the continent, we think the way the FSCA progresses will have an important impact on the rest of the region in at least two ways: 

1. South Africa can create a clear demonstration case for other regulators to learn from. South Africa is not the furthest progressed towards Open Finance on the continent, but it has the best-equipped market to rapidly implement open data sharing. South Africa can also create a strong precedent. In Zambia, for example, we found similar anti-competitive data market siloes already emerging around the two large mobile money providers. Strong action by South Africa will provide Zambian regulators a strong precedent to follow.
2. Secondly, a next step after national Open Finance is likely to be cross border data sharing. This is a topic that local regulators like the National Credit Regulator are already giving due consideration. Before we get to data crossing national borders, there is a logical step for regional decision-makers to start developing harmonised API and data standards. Most of the largest financial institutions across the continent are multinational, and so creating heavily individualised national API and data standards will create significant market inefficiencies, with the smallest economies likely to lose out. As several of these multinationals are headquartered in South Africa, there is a strong rationale for coordination between South Africa and the rest of the region. Therefore, we hope that South Africa’s regulators will work with regional bodies like the SADC secretariat earlier, rather than later.

The potential opportunity of Open Finance in South Africa is exciting, and the FSCA is well-positioned to act as the champion regulator. The biggest challenges it is likely to face is opposition from industry, and it is important that emphasis is applied to supporting use cases that offer a business case, while also taking decisions that may be unpopular in the short-term but will yield real benefits for consumers over the longer term.