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by Lwanga Elizabeth Nanziri, Paul Terna Gbahabo and Daniel Ofori-Sasu
Information sharing through the open banking model allows new entrants into the market, creating new opportunities for startups, fintechs and tech companies that aim to disrupt traditional finance models and increase financial inclusion.
This study examines the effect of open banking on financial inclusion in South Africa, using individual-level survey data for 2023.
Results from the propensity score matching technique show that open banking significantly reduces the number of unbanked individuals, improves bank transaction frequency and increases the use of credit, saving and insurance services.
The effect is even greater when open banking platforms are targeted – in this case, towards credit – with spillover to the non-targeted savings product categories.
However, the results also show that improperly targeted open banking could exacerbate banking exclusion.
Overall, these findings provide evidence that open banking is an alternative way to increase participation in the financial sector beyond holding a bank account.
Policymakers should design policies that enhance digital literacy and enforce sharing of credit information to improve the provision of financial products beyond traditional banks and non-bank financial institutions, while ensuring appropriate regulation mitigates risks related to consumer data.
