An Open-Banking Friendly Regulatory Framework Will Help Grow Botswana's FinTech Sector

The recent BBS boardroom fiasco has shown the need for a way for consumers to be shielded from incompetent corporate governance which seems to be hugely influenced by egotistical characters who have put customer interests and satisfaction very far down their pecking order of priorities.

Luckily, despite being still rudimentary if not downright nonexistent in Botswana, fintech can provide this shield for consumers. Across the continent, in North Africa(Egypt), West Africa(Nigeria), East Africa(Kenya), and Southern Africa (South Africa), the fintech sector has seen immense growth over the last few years which has not only benefitted the unbanked in those countries to have access to banking services but also those who are banked and are looking for an option to the questionable corporate governance controlling financial institutions.

Fintech startups in the continent like PayStack, Flutterwave, Interswitch, and Fawry, among many others, are causing a major disruption in the banking sector and improving the lives of consumers at the same time. Investors too, especially venture capitalists, are flocking to fund the continent's fintech innovators. This combination of a huge market and capital availability presents the best enabling environment for fintech so why then is Botswana still left behind? Is it because of a lack of fintech innovators? Is it because of an unfriendly regulatory environment that is stifling and limiting innovators?

In order to figure out what's holding Botswana back in fintech, it would be wiser to address the second possible causation than the first. Here is why. "Build it and they will come". Having an enabling regulatory environment will consequently attract innovators to fintech. So in short, by addressing and solving the second probable causation, the country will in the process consequently solve the first possible causation of stagnancy in the country's fintech sector. How then do we create this enabling regulatory environment? This is where the concept of open banking comes in and can prove to be of huge benefit.

In short, open banking refers to the use of  APIs to connect banks and third parties, i.e. fintech developers. By utilizing open banking, fintech companies are able to create products and technologies that greatly improve access to banking services as well as providing convenience for end-users who utilize these services. By also offering better services through these products and technologies, fintech companies also force banks to also greatly improve their services, which benefits the consumer in the process.

Because open banking is reliant on the free exchange of often sensitive banking and financial information, regulations of both the banks and the government have proven to be not very receptive to this open exchange, making compliance a huge hurdle for fintech companies which then stifles their ability to create innovative products and technologies. In all fairness, this conservatism by banks and regulators is justifiable but it should not be a deterrent to creating a conducive environment for the prospering of fintech. Through cooperation between banks, government through the central bank, and fintech developers, robust cybersecurity measures can be implemented to combat the potential data security threats which might sprout as a result of open banking. 

Nigeria is a great benchmark for Botswana's regulators on how to safeguard financial and banking information while also enabling open banking to prosper. On February 17th 2021, the country's central bank, the Central Bank of Nigeria, issued the "Regulatory Framework for Open Banking in Nigeria" which established the principles for data sharing across the banking and fintech ecosystem. The framework has done a lot in promoting fintech innovation in the country and has propelled startups such as PayStack and Flutterwave to create innovative products and technologies which have seen them achieve immense growth.

For a country with a large unbanked population as well as a dire state of corporate governance, fintech products and technologies are very much needed to make banking services not only accessible but also convenient for citizens while also shielding them from corporate executives' incompetence. By having an enabling regulatory framework that makes it easy for third-party innovators to create disruptive products, Botswana can join the rest of the continent in having a vibrant fintech sector.

For banks and other financial institutions, the growth of the country's fintech sector should not be viewed as a threat that has to be stopped dead in its tracks but rather an opportunity for these institutions to work together with the country's innovators to make banking convenient and more accessible to the country's populace. An amalgamation of efforts between banks, regulators(government through Bank of Botswana), and innovators is still needed to address issues of security, cross-platform friction, etc that might arise from implementing open banking.

Banks should also see the growth of the country's fintech sector as a wake-up call to improve the quality of their services and put customer satisfaction and convenience at the fore of their existence instead of existing to satisfy boardroom egos. If they fail to serve the customer, they should understand that they can be disrupted out of existence by the country's fintech innovators. To foster banks to cooperate with innovators, an efficient and effective regulatory framework should be there to rein them in if they decide to not play nice.