CBN’S new Open Banking policy will unlock a new level of innovation and competition in the Finance Sector

CBN’S new Open Banking policy will unlock a new level of innovation and competition in the Finance Sector


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Within the last decade, the Finance sector has with the emergence of financial technologies witnessed massive digital transformations that have redefined how people bank and interact with financial products. 


As consumers appreciate the speed, ease and convenience of digital services in different aspects of their lives, the race among finance operators to satisfy the insatiable demands of customers is on. 


Now that the finance sector’s umpire has blown the whistle for a new level of innovation and competition, what is next?


Earlier this month, Nigeria became the first African country to adopt open banking regulations. The policy is poised to transition the finance sector into a new realm of secured interoperability and interconnectedness, through data sharing by financial service providers in the market. The Open Banking applicability includes Agency Banking, Financial Inclusion, Know your customer (KYC), credit scoring/rating etc. 


Adopted by the Central Bank of Nigeria, the policy enables third-party institutions (Fintechs and mobile money apps) to access other financial institutions’ customer data such as bank transactions. With this much-anticipated development, financial institutions can create more innovative products in the market,  unlocking a new level of competition. 


Powered by a series of Application programme Interfaces (APIs), regulations and services, it enables developers to create new banking services, business models, and e-commerce capabilities. For customers, this means that they can view and manage all their accounts from one centralized location. 


This development dates back to 2017 when the open banking regulation in Nigeria was initially proposed which led to the formation of Open Banking Nigeria by industry experts. Subsequently, the Central Bank of Nigeria (CBN) released a regulatory framework for open banking in 2021 and created an industry committee that developed the draft of the open banking regulation in 2022. 


In the 67-page document detailing a regulatory framework for industry players, the apex bank indicated that this new era would deepen the country’s financial inclusion and create incentives for the development of relevant financial service technology. 


According to Mckinsey, economies that embrace data sharing for finance could see GDP gains of between 1 and 5 per cent by 2030, with benefits flowing to consumers and financial institutions.


There is no gainsaying that a digital ecosystem that embraces the shareability of financial data with minimal efforts or manipulation will impact credit risk evaluation and risk-based pricing, improve workforce allocation, increase operational efficiency, better product delivery and customer service, better fraud protection and reduce friction in data intermediation.


Aside from the policy’s ability to enable operators in the sector to fully exploit payment and credit opportunities, customers of financial institutions will enjoy increased access to financial services, greater user convenience, and improved product options.


Meanwhile, a critical aspect of the policy is the Open Banking Registry (OBR), a public repository for details of registered participants to be managed by the CBN. According to the apex bank, this would provide regulatory oversight on participants, enhance transparency in the operations of OB, eliminate bad actors and ensure that only registered institutions operate in the ecosystem.


However, as with any digital-based service, there is always the potential for data breaches, data privacy and security issues as a result of malware attacks, unethical hacking and insider threat among others. 


While this could potentially create controversies and suspicions among customers, the policy allows customers to have increased control over their data as they have the reserved right to grant authorisations to service providers. 


It covers thematic areas such as consent management, data access rules, key performance indicators (KPIs), anti-competition rules, data ethics, data privacy, shared information framework, data verification process and information security.


Moreso, it is essential to state that the open banking regulations will be supported by the Nigeria Data Protection Regulation (NDPR), which was released in 2019. The NDPR ensures that data privacy is at the forefront of open banking, promoting trust and confidence in the financial system.


Although this development may take some time before it is fully implemented as financial operators will have to build their system and internal capabilities. However, from all indications, it has the potential of revolutionizing the country’s financial sector. As a leader in the Fintech market, its success will serve as a reference point for other countries on the continent. 


Read the Open Banking Regulation framework here 



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