Nigeria has taken a bold step to become the first African country to adopt open banking regulations. This move, approved by the Central Bank of Nigeria on March 7, 2023, will set the tone for the banking sector and encourage new forms of cooperation and competition.
The advent of open banking has opened up exciting opportunities for fintech innovation. This practice allows banks to share customer data with third-party service providers, such as fintechs and mobile money providers, who can then use this information to create innovative solutions that benefit consumers. The regulation will pave the way for a more streamlined and interoperable financial system, enabling the development of new financial applications with access to customer data that increase financial inclusion and provide customized loans. That way we get credit scores and ratings, improved financial inclusion, and sellers get better tools for managing money flow.
The open banking guidelines and regulations provide a framework for how banks and third-party financial institutions handle customer data while ensuring consistency and security throughout the system. Notably, the guidelines also outline the roles, responsibilities and expectations of all participants – banks, external financial institutions and customers – and set minimum requirements for each to ensure safeguards for the stability of the financial system under an open banking regime.
With open banking, data is shared through APIs, and more importantly, only with the express consent of the customer. Until now, several fintechs such as Mono, Stitch and Okra have had to resort to innovative solutions to offer services similar to open banking. However, with the new regulations, these service providers can access a more robust set of data and provide customers with more comprehensive solutions.
The open banking regulations in Nigeria were originally proposed in 2017 when industry experts were formed Open Banking Nigeria. In 2021, the Central Bank of Nigeria (CBN) has a regulatory framework for open banking. That led to the establishment of an industry committee that developed the draft regulations for open banking in 2022. Now that the regulation is in effect, the CBN will set up a registry while financial institutions can use the regulation to build new financial solutions.
Open banking rules will be supported by the Nigerian Data Protection Regulation (NDPR), released in 2019, as data privacy is a critical foundation for open banking. The Nigerian Data Protection Regulation (NDPR) puts data privacy at the forefront of open banking and promotes trust in the financial system. The implementation of the new regulation is expected to create an inclusive and robust financial system that benefits both merchants and customers.
In particular, it will take some time for this breakthrough to bear fruit. But there is no doubt about the potential to revolutionize the country’s financial sector. Nigeria is one of Africa’s leading fintech markets, so it will play an important role in bringing the idea to the rest of the continent.
