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 industry and encourage new forms of collaboration and competition.
The advent of open banking has opened up exciting possibilities for fintech innovation. This practice enables banks to share customer data with third-party service providers such as fintechs and mobile money operators, who can then leverage this information to create innovative solutions that benefit consumers. The regulation will pave the way for a more streamlined and interoperable financial system, allowing for the development of new financial applications with access to customer data that will expand financial inclusion and provide custom loans. That way, we’ll get credit scoring and rating, improved financial inclusion, and merchants will get better tools for managing money flow.
The guidelines and regulations for open banking provide a framework for how banks and third-party financial institutions handle customer data while ensuring consistency and security across the system. Notably, the guidelines also outline the roles, responsibilities, and expectations of all participants – banks, third-party financial institutions, and customers – and set minimum requirements for each to ensure safeguards for financial system stability under an open banking regime.
In open banking, data is shared through APIs, and importantly, only with the explicit consent of the customer. Until now, several fintechs such as Mono, Stitch, and Okra had to resort to innovative workarounds to provide similar services as open banking. However, with the new regulations in place, these service providers can access a more robust set of data and offer more comprehensive solutions to customers.
The open banking regulation in Nigeria was initially proposed in 2017 when industry experts formed Open Banking Nigeria. In 2021, the Central Bank of Nigeria (CBN) released a regulatory framework for open banking. That led to the creation of an industry committee that developed the draft of the open banking regulation in 2022. Now that the regulation is in place, the CBN will establish a registry while financial institutions can leverage the regulations to build new financial solutions.
The open banking regulations will be supported by the Nigeria Data Protection Regulation (NDPR), which was released in 2019, as data privacy is a crucial foundation for open banking. The Nigeria Data Protection Regulation (NDPR) ensures that data privacy is at the forefront of open banking, promoting trust and confidence 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.
Notably, this breakthrough will take some time to bear fruit. But there’s no doubt about its potential to revolutionize the country’s financial sector. Nigeria is one of Africa’s leading fintech markets, so it will play a significant role in marketing the idea to the rest of the continent.
This Article was originally published on Ventures Africa