Open banking is a system that allows banks and financial institutions to share financial information securely with each other through technology. This sharing of information can help improve financial services and products available to customers. Open banking allows third-party access to financial information by utilizing application programming interfaces (APIs). The game-changer preceding this is the collection and centralization of customer data through the BVN – Bank verification number introduced in February 2014, enabling all financial data and biometrics details for each customer to be domiciled and updated in a CBN-managed data infrastructure. As the saying goes, ‘Data is the new oil’, with the potential access to data within regulatory controls, Open banking is projected to significantly transform the way Nigerian businesses manage their finances, providing them with greater choice, flexibility, and control over their financial data.
Overview of Open Banking in Nigeria
Open Banking was adopted in Nigeria in 2017, making Nigeria the first African country to do this. However, on the 7th of March 2023, the Central Bank of Nigeria approved the operational guidelines to open banking in Nigeria ushering in an open banking regime in Nigeria. The operational guidelines provide a framework of procedures that dictate the ways in which banks and other financial institutions can access and handle customer data.
Since it was introduced, open banking has increased collaboration in the finance industry. The adoption of open banking amongst other factors accounts for the rise of fintechs in Nigeria, and as at today, there are over 200 fintech companies in Nigeria, focusing on different aspects of financial services across payments, collections, lending, digital banking amongst others. This number is bound to increase year on year, as the number of ‘bank-able’ Nigerians increase.
Also, open banking has improved financial inclusion in Nigeria, making financial services more accessible to people who were previously excluded from traditional banking services. With open banking, experts believe that the security of banking and financial institutions will be more optimal as the Central Bank of Nigeria (CBN) now requires banks and fintech companies to use secure APIs (application programming interfaces) to share customer data. This can help prevent data breaches and fraud.
As we usher in the Open Banking era, here are a few benefits:
- Access to a wider range of financial products and services: With open banking, Nigerian businesses have access to financial products and services beyond those offered by their primary financial institution. This can include loans, insurance, and investment products, which can help these businesses manage their finances more effectively.
- Improved cash flow management: Open banking enables Nigerian businesses to access their financial data in real-time and in one view, giving them a more accurate and up-to-date view of their cash flow. With this, these businesses have been able to manage their finances more effectively, make more informed decisions, and avoid potential cash flow problems.
- Streamlined processes: Open banking has helped Nigerian businesses to save time and reduce costs. With open banking, businesses have been able to automate processes such as invoicing and payments, reducing the need for manual intervention and improving efficiency. This is made possible because open banking allows the integration of banking APIs into other business support solutions across different use-cases for ease of building and doing business at scale, in Nigeria
Conclusion
With the introduction of the guidelines for open banking, financial institutions and all stakeholders now have a framework that guides collaboration, innovation, and provision of more value to customers. By embracing the principles of transparency, security, and data privacy, open banking can foster a more competitive and customer-centric banking landscape. As we move towards a more connected and digital world, the guidelines for open banking will continue to evolve and shape the future of finance in Nigeria.
