Explainer: What Nigeria Adopting Open Banking Regulations Means

Nigeria has become the first African country to adopt open banking regulations. Earlier this month, The Central Bank of Nigeria (CBN) issued operational guidelines for open banking in Africa’s largest economy. This was disclosed in a circular signed by Musa Jimoh, director of the payment services management department. According to the circular, the adoption of open banking in Nigeria will foster customer-allowed data between banks and third-party firms to enable the building of customer-focused products and services. In this explainer, we take a deeper dive into the significance of the new open banking regulations in Nigeria, what it means, and why it should matter to you.

What does open banking in Nigeria mean?

The Central Bank of Nigeria (CBN) is allowing third-party institutions like financial technology companies and mobile money apps to access other financial institutions’ customer data such as bank transactions. Open banking applicability also includes agency banking, financial inclusion, Know your customer (KYC), and credit scoring/rating, among others. On February 7, 2021, the CBN released the regulatory framework for open banking in Nigeria, which laid the groundwork for an industry committee to create the draft of operational guidelines in May 2022. This draft is what has now become the law for bankers and fintech companies supervised by the CBN. The regulatory framework for open banking in Nigeria established principles for data sharing across the banking and payments system to promote innovations and broaden the range of financial products and services available to bank customers. As a result, open banking recognizes the ownership and control of data by customers of financial and non-financial services, and their right to grant authorizations to service providers for the purpose of accessing innovative financial products and services. According to McKinsey, by 2030, open data ecosystems could boost GDP in European economies and the UK by 1 to 1.5% and 4 to 5% in India. 

Why should you care about open banking in Nigeria?

Open banking will lead to faster approval timelines for customers when they apply for loans based on their credit or financial history. For startups building amazing savings, payments, or investment solutions, fewer resources are required to develop a personalized product for consumers. Banks can also earn revenue as they charge these third parties institutions for access. Open banking regulations are also aimed at enhancing efficiency, competition, and access to financial services in Nigeria. These guidelines are anticipated to drive competition and improve access to financial and payment services.

What roles do participating entities play?

There are three key players: the API Provider, the API Consumer, and the customer. The API Provider (AP) is a participant that uses an API to avail data or services to another participant. An API Provider can be a licensed financial institution/service provider, a Fast-Moving Consumer Goods (FMCG) Company or other retailers, Payroll Service Bureau and so on. The API Consumer (AC) is a participant that uses an API released by the API providers to access data or services. An API Consumer can be a licensed financial institution/service provider, an FMCG or other retailers, Payroll Service Bureau, among others. The customer is the owner of the data to be shared, and they will be required to provide consent for the release of data for the purpose of accessing financial services.

How much does the Nigeria open banking API cost?

The Open Banking API standards and sandbox are a set of open-source non-profit API standards designed to be used by banks, other financial institutions, and developers in Nigeria for free. 

Who is behind the Open Banking Nigeria project?

The project is backed by individuals with extensive industry experience and passion to simplify and transform payments in Nigeria. Some of the earlier backers of open banking in Nigeria include but are not limited to Sterling Bank, KPMG, PwC, EY, Paystack, Teamapt, Wallet Africa, and OnePipe. The coalition has now expanded to include the likes of Mono, Switch, Lendsqr, Palmpay, Carbon, and Trium. The release of the final guideline is a culmination of a long journey for open banking in Nigeria. On June 1, 2017, a group of industry veterans, led by Adedeji Olowe, decided that Nigeria needs to lead with payments innovation and formed an open banking working group which ultimately became formalized as Open Banking Nigeria.

 How is the customer protected?

 With CBN’s monitoring and the support of the 2021 Data Protection Bill, consumers are safer because operators will adhere to established data privacy guidelines to keep their data safe from bad actors. The Data Protection Bill was passed in 2021 to replace the 2019 Nigeria Data Protection Regulation and will play a key role in the implementation of this latest regulation for open banking in Nigeria. Also, Nigeria’s president, Muhammadu Buhari in February 2022 approved the establishment of the Nigeria Data Protection Bureau (NDPB) to take charge of data protection enforcement instead of the National Information Technology Development Agency (NITDA) ensuring the effectiveness of customer data safety and monitoring efforts. Additionally, all customers will be required to provide consent for the release of their data for the purpose of accessing financial services. No customer data will be provided to any third parties without the permission of the customer. 

Will third parties offset the cost of buying this data on the customers? 

While some customers are concerned about their financial service providers offsetting the costs of purchasing customer data from banks on the customers, it still remains unclear how each individual provider will respond to the new cost of customer data purchases. Most of them will have to integrate the new costs into their existing budgets or find a suitable workaround that shouldn’t leave customers feeling like they’re being ripped off. 

Were financial service providers previously offering open banking services not adhering to CBN regulations?

Several financial services companies like Mono, Stitch, and Okra have all had to come up with innovative hacks to provide similar solutions to open banking. They were not ignoring CBN regulations because there weren’t any specific regulations on the matter. With the new open banking regulations, a wide range of financial service providers can now offer a more robust and accurate set of data to customers in Nigeria.