#024 A study on Open Banking | Karen Nadasen

Karen Nadasen, guest · [00:30]So I'm the CEO of PayU South Africa. I have been in technology, I would say, for most of my life. I worked abroad for about nine years, and now I'm back in South Africa for ten years. I became the, the CEO of PayU at a very young age. I would say we were, we were both young because I was young, and PayU was also a, a startup when, when I took over, and it, and needed to go, undergo a massive transformation to form part of this, this global company. So I, you know, I was quite aware that I also needed to transform myself, to be successful in this role. the process itself took a lot of self-study, so self-study, coaching, mentorship for the first few years. And I think that for at least two years, I don't think I, I, I had a decent night of sleep. I would say I probably averaged like maybe four hours, five hours if I was lucky. So in 2019, you know, I could, I could finally breathe a bit, and this was really the first time in a long time that I felt comfortable taking some dedicated, study. So this is, this is really where I started to look at, okay, so, you know, what programs were out there, what executive MBA programs were out there that I could, that I could undertake. A few things that were important to me, so I had hosted, a few London business school students, for a couple of years, and so I really started to value programs that had certain accreditation and that were benchmarked and globally recognized. I have very young children, which were even younger at the time. My, my youngest was under a year old when I applied, and, you know, still quite dependent on me and attached. So, so I also wanted something that I didn't, you know, I didn't have to travel excessively for, or be away from home for long periods of time. and then something that was value for money, I'm always conscious about that, and at the time I wasn't quite sure exactly how I would, I would fund this. So, so these are like the basic criteria that narrowed it, it down for me, and I ended up going with the, the GSB.

Karen Nadasen, guest · [07:37]So any research is focused on the, you know, just the theoretical aspects, and you, you have a list of hypotheses which you're either, either proving or disproving or taking that and applying it to a different area or a different region and so forth. So design science, the difference is that you still have that theoretical aspect, but there, there's a portion that allows you to design an artifact of practical utility. And so I, I wanted to deepen my knowledge, specifically around open banking, I wanted to learn how it came about, more about it, but I also wanted to design something, a practical solution that could be used, particularly in South Africa, to make an assessment, so relevance firstly, and then to make an assessment of, of our own open banking implementation, and could also be used in, in, in other regions. So what I didn't know at the time, I think, is that, you know, this would be quite a protracted study because There was two parts to this. So that was quite difficult to complete in this period of time. I also, I couldn't find a theory to explain open banking, which means I had to develop a nascent theory. And I did this by following something called a retroductive inquiry, which is also something that we didn't learn. So I just, you know, I felt like I lost a lot of time during the process trying to figure out what strategy it was going to employ to get this information, but I finally got there with the help of my supervisor. So I conducted a systematic review of literature about money, the, invention of banking and the evolution of banking from 600 BC up to the 2007-2008 global financial crisis. So that in itself was quite a hefty task. I then employed a critical realist ontology to develop this into explanatory knowledge, so essentially to develop the nascent theory. And conducted interviews with thirteen practitioners who'd been involved in open banking implementation in some capacity in global markets, so that I could link this, this theory, this theory of banking evolution to the open banking phenomena that we were, we were seeing. So I also had to use, I had to use grounded theory, causal loop diagrams, context mechanism outcome diagrams, and context intervention mechanism outcome diagrams in, you know, extracting information so that I could, I could develop some type of theory, and you're familiar with all these concepts because we studied them excessively, but, yeah.

Karen Nadasen, guest · [12:12]so there were quite a few, there were quite a few, outcomes, but I'll talk about just the main aspects. So the first part is the nascent theory, right? So that's the theoretical contributions to the theory of banking evolution, which was based on money, the establishment of, of a bank from 600 BC all the way to the, to the GFC. And then this gave me a significant amount of insight as to how banking evolved and what, transpired, before and after each change and the role, particularly of regulatory intervention, and also how we got to banking oligopolies of today. And the second part of the study was the artifact that I needed to produce. So I took, I took theory and I took the findings around open banking evolution and why it occurs and open banking implementation around the world, and then I developed it into a model that had two parts, and this is, is the title. So the one part was the drivers of, open banking in markets, and so this had, there were 23 of these drivers, and I'll cover this a little bit later. And this could be used to assess the relevance in a market. So does this market actually need, the banking system to evolve? Essentially, does it need to move towards open banking? So that was the first part. And once you assessed relevance, the second part was a number of interventions that I'd found through the implementation of open banking that could then be, applied to change these market conditions. So essentially, this is how you would evolve the system. So, so then you, yeah, so you ended up with a way to assess relevance and based on the, the assessment, you were then able to assess your country or region's implementation efforts based on where the world was heading. And then the, the third aspect of this was in any design science study, you need to be able to apply this model. So I took both the, the relevance and the intervention aspect, and I, I then applied it to the South African model, and I interviewed, a wide range of national payment stakeholders from fintechs, all the banks, so that I could, apply this model and get some good recommendations for the market.

Karen Nadasen, guest · [16:34]So, it goes, open banking is a system that promotes fairness, competition, and innovation by facilitating the secure exchange of data, and that could be individuals' data and business data, commonly held by banks, with authorized third parties subject to consent. By means of technology innovations, so open APIs, in order to facilitate secure payments, account switching, and other beneficial products and services that may result in cost saving, digitization, financial deepening, and improved financial health of the consumer, and could produce longer-term economic benefits. So it's quite a long, it's quite a long definition. I try to cover all angles, but essentially I wanted it to, you know, to do that. Let me explain it, to you, right? So you have these banking systems, and banks will develop a whole host of products, essentially. and over time, what has actually happened is that the whole banking structure has become quite oligopic, right? So they don't really share much. So you have all these fintechs that have become popular because they're able to innovate and they're more agile than a bank could be. And so you, you sometimes have these bilaterals where banks will open up certain APIs for third parties like fintechs to build applications. So PayU is a payment service provider, and we are essentially a fintech. We provide financial technology to allow payments. So all open banking is, it's saying that it's trying to move away from this oligopic nature of banks and saying that the banks should open their APIs, right? But obviously, it's a risky business, so there needs to be some standards in place so that Third parties, instead of these very specific third parties, numerous third parties can consume these APIs, and by doing that, it will create an environment, that is far more competitive and far more innovative, and will solve problems for consumers that the banks have not been able to solve, because we sit with a big problem right now that we've got one point six billion people that are still unbanked, and the whole point of a payment system, financial system, is, is financial inclusion to facilitate trade. So that's really what it is. It's opening these APIs to a broader base for competition innovation, and some of part of that is de-risking.

Karen Nadasen, guest · [27:15]The other thing that was, that really stood out, from looking at the implementations in, in other countries was the need for South Africa to have a digital identity management system. And how this ties to financial inclusion, and specifically a, a really good use case there is looking at, the Indian market, of the Aadhaar system and UPI, and what a fundamental difference that, that has made. And the great news here is that we already have our own projects, the RPP project that kind of borrows ideas from India. The one thing I would say that we, we need to still work on is a, is a digital identity management system. the other aspect here is the importance of competition and working together. So South Africa still has quite an oligopic, structure with regards to banking. However, with the whole PIB changes, this is supposed to change. We are supposed to be a lot more inclusive now and include, the fintechs, the digital banks, and a number of other third parties in the payment system, which is, which is really, really important, for us to move forward successfully. And the last aspect is really technology-focused, and this again I think is borrowing from the learnings of other models on how to do things differently as an open banking system evolves by using blockchain technology, decentralizing certain aspects of the model, and then centralizing, switching for instance, fraud management, and consumer consent, because if you think about this in like, layman's terms, if I am going to be sharing my data, and if I'm going to be asked to share my data, so say I have got an application, and for this application I am requested to share information from nine banks. You know, and then that's just one application, right? So I'm going to consent to these nine banks. And then in, say, that 90 days' time, I have to kind of re-verify that I want to continue to se- to share my information. That's quite simple because it's just one application. But as the system progresses, you might actually have 30 different applications that require you to consent to your data being shared. And so for a consumer, this would become quite challenging over time. So there, there is certainly a lot of thinking that can be borrowed in terms of certain, certain aspects that could be managed differently and centralized for our market. But yeah, in general, it's still early days, for SA.

Karen Nadasen, guest · [32:52]Yeah, I mean, this was really an exhausting paper for me. I mean, I just, it kind of stretched me and molded me in, in so many ways that I cannot even explain to you. And I, you know, you obviously went your own journey, so you'll, you'll know what I'm talking about. And I think it's like, there were many times there that I just almost threw in the towel and I was like, why am I doing this? You know? And I think there it's persistence, just really reminding myself of why this was important to me was really, really important and sticking, sticking to that plan and to that journey. I think I was pleasantly surprised. So at the beginning of the paper, I thought, there's nobody that's going to want to contribute or very few people that are going to want to contribute this. And at the end, I was really so surprised on, on two accounts. So firstly, all the, the global information and research, that I'd done, you know, the people that were willing to contribute, that was just incredible. The second is that I had to apply to apply this in South Africa, and so there was, there was quite a bit of, because Africa had not actually made strides in open banking, I felt there might be some reluctance, and initially there was, but here again I was quite pleasantly surprised on people sharing. And so I think this has just given me a very different perspective on, really positively, on that there is an appetite in South Africa to really, really work together, and we might have differences in the way we think, but there's this, this appetite to really work together, to improve, I would say, our system and to improve financial inclusion. The historical going through the history of money, the history of banking, and how this evolved over time coming to open banking, I think just has been an incredible journey for me, and I would, anybody who is in, in payments, in the payments field should undertake that, and I think that this has just given me a greater appreciation for why financial inclusion is so important. In fact, like I now look at it as financial exclusion as being a failure of the, the payment system. So this is essentially, I would say, igniting a passion even more than I'd already had, and making me believe more in it, making me want to do a lot more, and also just creating the sense of just not competing, anymore, which I see, like I see competition as being something that's quite negative, and really, really working together to drive, bigger change.