Open Finance can be defined as the sharing of consumer data between financial service providers (FSPs) and/or third-party providers on the basis of consumer consent.

Improved use of data and effective data sharing can support a better functioning market by facilitating greater competition and enabling innovation within the financial sector. This in turn, strengthens the business case and ability for FSPs (including fintech players) to tailor products and reach underserved populations – both individuals and micro, small and medium sized enterprises (MSMEs) – with better designed financial services that improve their resilience to shocks, productivity and inclusion in the formalised economy.

Collation of industry-wide data and accompanying access, also offers the potential for public sector decision-makers to use it to inform decisions. Financial regulators could use better data to more proactively and accurately identify potential risks or consumer abuses, as well as the impact of systemic shocks on both providers and their consumers. Policymakers could improve their ability to make new policy that contributes towards positive societal outcomes or evaluate existing policy by examining industry-wide transaction-level data on all formal financial flows throughout the economy.

However, whilst the promise of Open Finance and data sharing is significant in principle, in practice, the implementation of data-sharing approaches that are not fit for the local contextual realities in under-developed markets can introduce extensive risks, both systemic and for individual consumers. These include increased cyber risk, potential data theft and the possibility of increasing the operational cost for providers without realising the benefits. For individuals, and particularly vulnerable groups, this can translate into the direct risk of theft of both their data and savings, whilst the increased costs may be passed down to them from FSPs, exacerbating, rather than ameliorating, exclusion from the formal financial sector.

Over the next two years, Cenfri and Smart Africa, supported by the Hewlett Foundation, will conduct Open Finance market assessments and feasibility studies in two African countries. We will develop a tailored multi-year implementation plan for those countries (where appropriate) and build on the lessons from these to inform pan-African guidance on Open Finance. The goal of this project is to assess the feasibility, and design for the inclusive implementation, of Open Finance within African markets. The aim is to positively contribute to societal outcomes by enhancing the use of data to improve financial sector innovation and competition, and by improving public sector decision-making.

Read our initial exploration into open finance:

If you are interested in learning more about this project or in collaborating with us, please email Michaella Allen (michaella@cenfri.org) or Jeremy Gray (jeremy@cenfri.org).