By: Ilesanmi Emmanuel
What is Open Banking
Have you ever used a financial service that messages people on your contact list? Then you might have had an experience with open banking, or at least a similar concept. Open Banking is a centralized network of data privacy and sharing between third-party agencies, customers, and financial institutions. When users opt-in to Open Banking, it allows financial institutions, customers, and third parties to network their data, enabling financial providers to innovate more accurately by giving them access to data they might not have been able to access otherwise.
Open Banking has the potential to transform Nigeria’s financial landscape by enabling financial providers to innovate more accurately and helping customers access credit facilities safely. It can bring more people into the formal financial system and tailor financial products to better suit the needs of customers. It could lead to a much-needed overhaul of Nigeria’s credit system, ushering in the country’s new era of credit scores and rating systems, like what is obtainable in many Westen Countries rather than loan shark companies.
Open Banking: Centralization is Key
Data is the new currency. In today’s world and financial institutions are constantly seeking innovative ways to access and utilize it. Open Banking is one such innovation that has been gaining traction around the world, and Nigeria has become the first African country to adopt it. The Central Bank of Nigeria (CBN) recently approved the operational guidelines for Open Banking in Nigeria, issuing a circular outlining the framework. This has set the stage for a new era in the country’s financial industry, one that promises to revolutionize the way banks, fintech, and other financial service providers operate.
The Open Banking Nigeria coalition, comprising over 50 banks, consulting firms, and fintech companies, including Flutterwave, Paga, and Sterling Bank, is backing the new regulation, creating a centralized network of data sharing between financial institutions. Nigeria has become the first African country to have open banking regulations, and the potential benefits for both businesses and consumers are significant. When users opt-in to Open Banking, it allows financial institutions, customers, and third parties to network their data. It is a game-changer for the financial industry, opening up new possibilities for customers and businesses alike.
But, what does this mean for the everyday Nigerian? For starters, it means greater financial inclusion. In a country where almost half the population is unbanked, Open Banking has the potential to bring more people into the formal financial system. It also means better financial products and services. With access to more data, financial institutions can tailor their products to better suit the needs of their customers. This, in turn, could lead to more competition in the financial sector, and better interest rates and fees for customers.
Open Banking: Obstacles and Opportunities
While Open Banking is a significant step forward, it’s essential to note that it’s not a panacea for all of Nigeria’s financial woes. The country still faces challenges with financial literacy, digital infrastructure, and cybersecurity. Additionally, there is a risk that smaller fintech companies may be left behind as larger, more established financial institutions take advantage of Open Banking.
To mitigate these risks, there needs to be a concerted effort by all stakeholders to ensure that Open Banking is accessible to everyone. This includes measures to promote financial literacy, investments in digital infrastructure, and strong cybersecurity protocols to protect users’ data. It’s also important to ensure that smaller fintech companies have equal access to data and resources to compete with larger players.
The possibilities for open banking are endless, and it’s essential to acknowledge the efforts of the Open Banking Nigeria coalition members, like Mono, Okra, and Stitch, who developed creative hacks while waiting for open banking. This regulation will now allow them to access a larger pool of data and create more significant solutions that will benefit Nigerians. Open Banking Nigeria is a remarkable milestone that will shape the future of finance in Nigeria and provide limitless opportunities for innovation, entrepreneurship, and financial inclusion. It’s an exciting time to be a part of the Nigerian fintech ecosystem, and we can’t wait to see what’s next.