Open banking

Hope your week has been great so far. In 2019, the CBN released a circular through the payments system management department to deposit money banks and payment service providers on the regulatory framework for the open banking policy. The regulatory framework was created to promote stability in Nigeria’s financial system as well as promote innovation, competition, and collaboration among financial service providers in Nigeria. Two years later, the CBN released a circular on the operational guidelines for open banking. The circular stated that the main aim of this adoption is to enhance efficiency and competition in the financial sector as well as improve access to financial services in the economy.

The open banking policy in Nigeria requires banks to share their customers' financial data with third-party providers (TPPs) through application programming interfaces (APIs). This sharing of data allows TPPs to develop new products and services that are more tailored to the needs of the customers. For example, a TPP could use a customer's transaction history to offer them a more suitable loan product. One of the primary benefits of open banking in Nigeria is that it encourages innovation in the financial sector. The sharing of data allows TPPs to develop new products and services that are more innovative and responsive to customers' needs. This can lead to more competition among financial service providers, which ultimately benefits consumers. Open banking can also promote financial inclusion in Nigeria, which is one thing the governor of the CBN has been actively pushing for. Many Nigerians do not have access to traditional financial services, such as bank accounts or loans. By allowing TPPs to access financial data, these individuals can be served by new and innovative financial products that better meet their needs. An example would be the use of USSDs by individuals who do not have access to technological devices that are compatible with bank apps or fintech apps. So, with the open banking policy, TPPs can gain access to data on these classes of people and tailor a product that meets their needs which other players in the financial system have been unable to “meet”.

So what?

Open banking allows businesses to build innovative financial services tailored to insights gotten from financial data thereby meeting the financial needs of the Nigerian populace. Open Banking APIs also give businesses the tool to connect accounts of individuals across various platforms, therefore, making the management of assets convenient. From all this, it is clear to see the potential results this policy can produce majorly capitalizing on innovations and efficiency. Any inkling of doubt about how safe the financial data of individuals are addressed in the guidelines of the Open Banking Policy, where parties involved are ensured to employ data privacy and security requirements as well as adhere to consumer protection regulations.