Bank Adoption of APIs in South Africa at a Crossroads: Not All Banks Will Make It Over

As South Africa’s banks wake up to the power of modern, flexible API architectures, they face a choice – go big on a revolutionary vision for APIs at the heart of financial services or stick with limited use-cases that could deliver less benefit in the long run.

A Dynamic Regional Leader – With Decisions to Make…

While the world’s attention may focus on specific achievements by banks and fintechs in markets such as Nigeria and Kenya, there’s no question that South Africa remains the continent’s financial services powerhouse. According to a late 2024 survey by African Business magazine,[1] four of the continent’s top eight banks by market capitalization are South African, while the country’s gross GDP is more than 15% larger than its nearest rival, Egypt – and second only to Botswana in terms of GDP per head.[2]

This status, coupled with long-established links to the UK, Israel, and other markets, has enabled South African banks to lead the continent in payments innovation, from cards and EPOS terminals through to internet banking and mobile services. When it comes to Open Banking and open API architectures, market demand has already seen the introduction of API-led Open Banking products and services from players such as PayShap, Capitec Pay, Ozow, Stitch, and Nedbank’s API marketplace.

For some time, a market-driven approach to Open Banking seemed to work, with the relatively small number of major banks in South Africa meaning that any move by one player would trigger a response from others. In June 2023, however, South Africa’s Financial Services Conduct Authority (FSCA) published a draft position paper that aims to create a comprehensive Open Banking environment from 2025 onwards, protecting consumer rights and data while promoting financial inclusion, innovation and competition.

“Despite the presence of some Open Banking products and services, fresh approaches are required to realize the FSCA’s vision in the years ahead”

Putting the FSCA’s laudable aims to one side, current API until mid 2024 was largely limited to screen scraping – something one interviewee for this study describes as “a necessary evil” – to enable basic functions in payments and lending, rather than true open API approaches that enable data sharing and access to customer channels. Despite the presence of Open Banking products and services which make both cross-border and domestic e-commerce possible alongside bill payments and other functions, fresh approaches will be needed to deliver the FSCA’s vision of a truly open and dynamic banking services market.

Meanwhile, banks face rising competition from telecom companies and neobanks for consumer spend and share of wallet. According to international telecoms association GSMA,[3] sub-Saharan Africa accounted for 75% of all mobile money transactions world-wide by value, while the continent was both the outright leader and fastest-growing region in terms of adults with mobile money accounts used for payments and remittances. As for neobanks, one January 2025 estimate reckons there are currently 10 million users of neobank services in South Africa – a figure projected to almost double by 2027.[4]

South Africa’s established banks currently have an opportunity to create a modern, sophisticated Open Banking environment based on coherent API approaches. This new environment could power a financial services revolution, widening access to financial services across more of the population and accelerating the adoption of modern services while driving more revenue and cutting costs for banks. Players interviewed for this study say they expect between 13% and 20% more transactions per customer thanks to the ease of use and lower costs delivered by Open Banking, while one major bank said they expect to see a 10% reduction in the number of inactive accounts as truly open API architectures enable them to deliver more attractive services.

Open Banking: A Global Shift

Needless to say, such advantages are widely appreciated by forward-thinking banks and regulators globally. From the UK and Europe through to the Americas, Asia, and the Middle East, regulators are on a mission to introduce greater customer convenience and choice in financial services. At the same time, financial services players are looking to take advantage of digital technology’s full potential to improve customer service and generate additional revenues.

In the US, for instance, the Consumer Financial Protection Bureau (CFPB) launched a program in October 2024 designed to bring Open Banking to all licensed banks over the next four years. The first deadline, for Federal Tier 1 licensed institutions to open their APIs to Third Party Providers, will arrive in April this year. Specific provisions laid down by the CFPB include the implementation of Section 1033 of the Dodd-Frank Act, which gives consumers the right to access and share financial data, plus a Personal Financial Data Rights Rule enabling customers to access their data free of charge, among other benefits.

In Asia, markets as diverse as India, Australia, South Korea and China are also forging ahead, driven by smart approaches to APIs and data access. Since 2010, India has introduced a consumer and business ID database (Aadhaar), the world’s largest biometric database with 1.3 billion participants, followed by the Unified Payments Interface, or UPI, an enormously successful instant payments system which now processes more than 14 billion transactions per month.[5] Likewise, Australia introduced instant payments via its New Payments Platform (NPP) in 2018, followed by an R2P service known as BPAY which is now used by more than 60,000 businesses and 150 banks across the country, with around 44% of Australians using the system in Q4 2022.[6] All of these innovations are driven by shared, open API architectures that are sufficiently flexible to enable innovation, while also being fast and secure enough to attract users.

The Status of Open Banking and APIs World-Wide

Source: BBVA, Economist Intelligence Unit

The UK: A Paradigm for South Africa?

Given long-standing business and historical links between the UK and South Africa, Britain’s success in Open Banking and API deployment provides an interesting example for South Africa to consider. The UK was often cited as a reference market by South African bank developers: as one puts it, “the UK and European markets were natural references for us when we started to develop our API strategy.”

In 2016, the UK’s Competition and Markets Authority (CMA) ruled that the country’s top 9 banks needed to open up to greater competition. Accordingly, the CMA mandated in 2017 that all banks should provide access to their customer data via a single set of APIs, and UK Open Banking was launched that year – one year before the EU’s PSD2 brought Open Banking legislation to the rest of that region.

As of 2024,[7] more than 11 million UK businesses and consumers use Open Banking services, representing 13% of consumers and 18% of small businesses. There were 14 million UK Open Banking payments made in January 2024, representing growth of around 70% per year. In value terms, there were around £4.5 billion (US$ 5.625 billion) of Open Banking payments in 2023, a number expected to rise by around 60% once final figures for 2024 are released in late Q1 2025.

The UK has been a resounding Open Banking success, especially when compared with other European markets. Four times more consumers use Open Banking in the UK compared to other European markets,[8] while the number of open API calls between banks in the UK for 2023 is greater than that for France, Germany and Italy combined.

Such success serves as an example to South African banks of what’s possible with the right API strategy. For instance, a UK clearing bank has exploited the similarities between the API deployments for its Payments as a Service (PaaS) and BaaS models to reach 550,000 mid-sized SMEs – around 10% of the total addressable market in Britain. By providing a pricing menu and modular payment plans for its client base, this UK clearing bank achieved an 18% uplift in its net fee income, grew customer deposits by more than 100% and improved its net interest income by 142% between 2022 and 2023 – proof positive of the commercial viability of Open Banking services when done right.

Lessons for South Africa from the UK and Europe

It’s clear that South African banks have an eye on the example of the UK, as those banks interviewed for this study most frequently mentioned UK and European institutions – specifically Barclays, Nordea, ING and Deutsche – as top performers in their approach to API deployment. They’re also the examples South African developers are most familiar with in terms of their focus on API deployment across compliance, premium products and other areas.

Specifically, South African banks and fintechs praised these institutions’ ability to work with third parties, including their capacity to provide easy access to bank APIs including assistance with use cases and collaboration on development and testing. They also appreciated the presence of sandboxes provided by these institutions which made it easier for third parties to facilitate development, implementation and testing of shared or joint products.

What Concerns are Stopping South African Banks from Embracing an API Approach?

While South African banks feel they have capable development teams, and a reasonably mature API strategy, those interviewed for this study mainly feel their institutions lack an “API first” culture and developed API operating models. One bank interviewed for this study said, “shifting to an API model is scary to many because it resets the old way of thinking about how we banked,” while another noted that, “unless ownership comes from the top, technical common sense is lost.”

Furthermore, the institutions interviewed for this study evince an overarching concern regarding their capacity to generate revenue from Open Banking, and how best to monetize their API approaches. As one large bank puts it, “time will tell if data monetization in South Africa translates to shareholder value.”

Source: KoreFusion

Other frequently voiced concerns include the fear of losing exclusive access to customer’s
financial data, the risk of exposing customer data to third parties and associated reputational
and fraud risks, as well as banks’ financial capacity to develop their API sets, even when
sharing costs with partners. Worries about a reduction in fee and transaction income as instant
payments replace debit cards, as well as open APIs leading to product commoditization and
consequent poor returns on investment were also apparent.

Overall, it’s clear that the time is ripe for South African banks to assess the optimal approach to
investing in API development, how best to sequence and deploy APIs – and above all, how to
monetize APIs for sustainable revenue development and better client services.

API Strategy Success Factors for SA: A Multi-Phase Approach

“Preparing for an API-led future is part of unlocking strategic value.Put simply, we invest in APIs because they are critical to win, and will help us grow our share of transactions and deposits.” – Leading SA Bank

Phase One: Embracing an API-First Approach

A successful API strategy should adopt a phased approach. In the first phase, banks must
ensure they have four basic premises covered, as follows:

• • • • An API-First Culture Across the Enterprise: This means, simply, that all senior management, product, and development teams are committed to API-enabled solutions, and make API-based products a priority. As one interviewee for this study puts it, “this is a new path, so you need to have everyone aligned and empowered because no one knows all the answers.”
        
        
      • Baseline Technological Commitment: Banks must have access to sufficient development power as well as the capability to enable programmers to develop and implement applications, ensuring that APIs are at the heart of the product life cycle. Another interviewee notes that, “to succeed with APIs you can’t treat them like an IT problem and fund them piecemeal. It’s part of the product life cycle and part of life going forward.”
        
        
      • Cloud-Based Technology and an Agile Core Architecture: For API-led products to be successful, third parties require access – and in practice, that means cloud deployment. Furthermore, banks can’t ask partners to wait or change their plans while they patch up an outdated legacy system: a modern, agile core software architecture is necessary. One tech professional at a large SA bank told us, “preparing for an API-led future is part of unlocking strategic value. Put simply, we invest in APIs because they are critical to winning and will help us grow our share of transactions and deposits.”
        
        
      • Customer Focus: Transaction volumes and values and fee income won’t grow unless customers are satisfied with the products on offer. And that means innovating new products based on customer demand, something any successful API strategy should embrace. A self-criticism shared by many South African banks is that they have prioritized innovation to extract profit from their customer base with insufficient regard to using technology as a means to improve customer journeys. A leading South African CEO puts it like this: “Making money is not an objective, it’s a consequence of happy customers. To be the best retail in the world we live the brand promise of customer satisfaction.”

 Phase Two: Identification and Development of APIs

Having committed the organization to an API-first approach and ensured the relevant skills and focus are in place, banks can then move to identify those areas in which they need to develop API-based products and services as a priority.

Illustrative API Development Cycle Map

Source: KoreFusion Analysis

As the graphic above suggests, there is a virtuous circle of API development, inasmuch as API development in one area – say banking platforms – will facilitate the development of APIs for banking innovation and client connectivity. In selecting areas for API development, it’s important to bear in mind those short, mid- and longer-term goals that are important for your organization. For instance, base-level APIs such as transaction authorization and customer authentication, or real-time payment APIs, are likely of higher priority than value-added areas such as customer support or loyalty products.

Based on our global experience and comments from interviews in South Africa, we have identified a priority ranking for API products by type which takes into consideration both the potential of those products to add value – and their sustainability regarding longer-term revenue potential.

API Products Ranked by Potential and Long-Term Value

Source: KoreFusion Anaysis

Phase Three: Pilot

As the CEO of ING Bank, Steven van Rijswijk, put it during Berlin’s 2024 Merchant Payments Ecosystem (MPE) conference, “Open Banking APIs have not provided the revenue all of us expected five years ago, but the concept is proven and will refine itself.” In other words, what matters is an approach that enables banks both to refine their API-led products before wide proliferation and maintain focus and investment over a longer period.

From Europe to North America, Asia, and the Middle East – and indeed in South Africa – banks have found pilot projects which deploy APIs to limited or targeted constituencies to be of greatest use. Running pilot projects helps banks to confirm both the technological feasibility and effectiveness of products, as well as helping them to anticipate customer response to the product.

In South Africa, Nedbank’s API marketplace has been used to pilot use cases for specific products, empowering banks and fintechs to test their APIs with select audiences – both internal and external. In one case, a bank was able to test an Artificial Intelligence (AI) app for internal use and determine that it saved employees 42 minutes per day; in another, a free credit scoring app achieved a 30% use ratio among 1.2 million users during its pilot phase. Such examples provide proof of concept for API strategies, giving banks confidence to continue to invest in development. As one interviewee in South Africa put it, “that initial shaping exercise really boiled down the shape of how to take things forward and trial the business concept itself.”

Phase Four: Maintain Focus and Commit to Meaningful Investment

To illustrate how South African banks can learn from peer countries, we reference an earlier study focused on technology and API investments in the USA. Our in-house analysis of 38 US banks with between US$5 billion and US$100 billion under management shows banks that commit to full digital transformation, invest heavily and early, and maintain that investment are those best able to sustain and promote firm-wide innovation. Furthermore, we found evidence that the most successful banks, in terms of digital transformation, are outspending less successful banks by a factor of 2.5 to 1.

Typically, banks with the highest investment in technology as a percentage of their asset base are those most focused on innovation, equipped with an extensive in-house IT team and significant buy-in from senior management. At the other end of the scale, those who invest at a lower level tend to adopt a project-by-project approach to IT spending, more focused on saving costs and enabling day-to-day operations than on innovating for customers. To succeed, our analysis suggests that banks must invest sufficiently in IT to enable the creation of an innovative digital product roadmap focused on customer needs and improving internal processes, powered by a fully-staffed internal IT team and backed up with the total commitment of senior management.

“We focus on what is most valuable and needs most attention, but there is no point in spending time and wasting ourselves on the long-tail of merchants.” – Head of IT, South African Bank

In South Africa, investment in technology that develops APIs has been a challenge. There is concern among local development teams in banks that the pool of developers is limited and that internal teams are pulled in multiple directions. The current vision leading banks are taking is to split API development according to Pareto’s Law, whereby the APIs and core enablement requirements are being managed in-house. In-house teams are also being tasked to managing strategic merchant or business accounts, while more commoditized services that touch many customers and businesses are being entrusted to the handful of very capable third party API developers and integrators that are making a name for themselves in South Africa. One South African head of IT shared, “we focus on what is most valuable and needs most attention, but there is no point in spending time and wasting ourselves on the long-tail of merchants. Best if we use somebody else for that.”

Phase Five: The Importance of Partnership

As banks proceed in their digital journey, the right kind of partnerships can make all the difference. By identifying third parties with API solutions that fit bank needs, banks can achieve optimal capabilities while maintaining control – whether that’s in payments, insurance, remittances, loans or wealth management.

Via a careful selection process which identifies both a bank’s most vital areas for development and those partners best suited to fulfil the banks’ needs, banks can replace services previously provided by their core systems with best-in-breed, fully digital solutions that deliver the services customers are looking for. In doing so, banks can also extend the lifespan of their core system by reducing the range of functions it has to fulfill.

Base-level partner selection criteria include a fundamental cost/benefit analysis as to whether it makes financial sense to outsource development, plus an assessment of time-to-market with an external partner versus internal development. Needless to say, speed is just as important as accuracy when it comes to getting new products to market. Other criteria – often vital to success – include the ability to build cross-functional teams between your bank and an external partner, as well as ensuring your partners have coding skills that complement or build on those your bank’s internal resources.

Conclusion: The Illusion of Choice?

We began this paper by stating that SA banks face a choice: either go all-in on an API-first strategy or continue on the current path of gradual development for API-first products where a need is identified. In reality, however, there may be no choice: failure to invest in comprehensive API-first “whole bank” approaches could leave SA banks vulnerable to more nimble digital-first competitors that are investing more, not to mention those telcos which are as likely as banks themselves to hold meaningful customer relationships.

South Africa’s established banks have a number of natural advantages in this fight, from their status as regulated entities through to their established product and technological advantages – but they need to act quickly to avoid seeing these advantages eroded. If successful, SA banks have the opportunity to position themselves at the forefront of Open Banking in Africa, emulating the UK’s success in Europe, and that of markets such as China and South Korea in Asia. This is a fight that’s theirs to lose – and not all banks may make it …

KoreFusion spoke with representatives from eight South African banks, four payment facilitators, and five South African fintechs for this study, in addition to drawing on analysis from our work with banks and fintechs around the world. For more information, please contact hello@korefusion.com and we’ll be happy to help you and your business.

[1] African Business, September 2024: “Africa’s Top 100 banks”: https://african.business/2024/09/finance-services/africas-top-100-banks-2024-going-global

[2] Sourced from the International Monetary Fund, World Economic Database October 2024: https://www.imf.org/en/Publications/WEO/weo-database/2024/October/

[3] The GSMA, March 2024: “The State of the Industry – Mobile Money 2024”: https://www.gsma.com/sotir/wp-content/uploads/2024/03/GSMA-SOTIR-2024_Report.pdf

[4] African Business, 8 January 2025: “South Africa’s banks post growth as economic climate improves”: https://african.business/2025/01/partner-content/south-africas-banks-post-growth-as-economic-climate-improves

[5] National Payments Corporation of India: UPI statistics: https://www.npci.org.in/what-we-do/upi/product-statistics

[6] Roy Morgan Research (Australia), 25 October 2022: “PayPal and BPAY are most popular digital payments”: https://www.roymorgan.com/findings/paypal-and-bpay-are-australias-most-frequently-used-digital-payment-services-although-afterpay-is-more-well-known

[7] UK Open Banking, March 2024 Impact Report: https://openbanking.foleon.com/live-publications/the-open-banking-impact-report-2024-march/adoption-analysis

[8] UK Open Banking, March 2024 Impact Report: https://openbanking.foleon.com/live-publications/the-open-banking-impact-report-2024-march/executive-summary