Open Banking seen addressing Nigeria’s N51trn credit gap
The formulation and implementation of an open banking framework in Nigeria’s financial system can potentially address the $51 trillion credit gap in the country.
This is according to stakeholders at the BusinessDay Open Banking Exchange (OBEx) with the theme ‘Open Sesame: Unlocking the future of financial innovation through third party providers’.
The stakeholders include Adedeji Olowe, CEO of Trium Networks and Trustee of Open Banking Nigeria; Niyi Toluwalope, CEO of eTranzact; Boye Ademola, partner and lead, Digital Transformation, KPMG; Fara Ashiru Jituboh, co-founder, CEO, and CTO, Okra Inc; and Sowemimo Abiodun Alex, founder, and CEO, CapitalMetriQ.
Others are Gbolabo Awelewa, country manager and CEO vCISO, Infoprive; Femi Omogbenigun, managing director and CEO, 3Line Card; Ope Adeoye, founder of OnePipe and Trustee, Open Technology Foundation; John Oke, CEO, Wallets Africa; Folasade Femi-Lawal, Head of Card and Messaging Business, First Bank; and Elsa Muzzolini, General Manager, Commercials, Mobile Financial Services, MTN Nigeria.
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Adedeji Olowe said the concept of Open Banking is to enable banking customers to grant access to their accounts and the data they own with full consent to anyone or any company they desire. And the ability to do so would have to be consistent across the entire banking landscape given that customers may have more than one account domiciled in different banks. An Open Banking system ensures that customers do not require two methods to do the same thing.
Beyond just conferring rights on banking customers, Open Banking has other potential benefits for the financial services including bridging Nigeria’s unbanked and underbanked gaps.
According to Boye Ademola, Nigeria currently hosts a population of about 50 million people who lack access to financial services or not sufficient services due to proximity to banks or cost of access.
In the past, the Central Bank of Nigeria has identified different pillars to tackling the unbanked problem. One of them is through access to credit.
“One of the biggest challenges to credit in Nigeria has been the fact that there is no access to information to score credit. I did a study with some guys there is about $51 trillion worth of credit gap in Nigeria today,” Olowe said.
“Practically everyone has to save for every single thing they want to buy in Nigeria today. If you do not have access to credit information, a lender is not able to give that credit.”
In an Open Banking system, every bank would need to provide easy access to transactional information via API which would allow smaller fintech firms to access information that will enable them to give credit to millions of Nigerians who need it for different reasons.
Fara Ashiru Jituboh noted that the ability of the banking customer to direct where and who gets to use the data could broaden the push for value creation since it is the company that addresses the customer’s need that would eventually get access to use the data. A company that knows that it will not get another access if it misuses the one it has been granted would be forced to find creative ways to meet the customer’s expectations.
But fundamentally, Open Banking reinforces the need for collaboration in the financial services sector, said Niyi Toluwalope.
For instance, most of the infrastructure that the financial services sector is riding on to push out digital banking innovations were built by mobile network operators. The internet alone powers mobile applications, digital banking services, and mobile money deployments currently ongoing. On the other hand, banks have also invested heavily in infrastructure to create a safe environment for customers’ data and resources. Thus, if the CBN should ask the banks to give up control of the access to the data it has, there should be a benefit that they derive from doing so.
“This is why I like the direction of collaboration. The data is actually an asset. One of the things we need to talk about is how can the banks monetize these assets,” Toluwalope said.
Elsa Muzzolini agrees that Nigeria has the infrastructure to kick off its Open Banking but said, however, that the regulatory environment needs to be more accommodating of competition. According to her, competition would only yield the expected dividends in an environment where there is “less fear and more collaboration”.
It is also “fear” of the unknown that has kept stakeholders, especially banks, from openly embracing Open Banking, and which has also ensured they are not very eager to relinquish control and let the competition have access to data.
Ope Adeoye said that although all the banks have signed a willingness to participate in Open Banking, the fear of being the first to take an action has been a major drawback. Many of the banks would say they are waiting for the CBN to give them direction before they will take the initiative. This is despite having APIs that are legacy and are doing multiple projects per time and with different vendors.
John Oke as well as many of the stakeholders said the regulatory environment is beginning to change. For instance, a few years ago, banks were not permitted to invest in fintech firms but that barrier has been removed. Some banks are even contemplating a holding company structure that allows them to invest extensively in the fintech space. However, investment activities are not happening as frequently as many would expect even though startups in Nigeria are one of the dominant in terms of foreign investments in tech into the African continent.
The way to go could make the business model for Open Banking more clearly for traditional financial institutions, says Toluwalope. The regulator has reportedly been engaging stakeholders on the Open Banking initiative and some believe that it is partly responsible for the release of Sandbox framework in January.
Ademola said it could help to look at models from outside the country and study how the regulators went about creating an efficient Open Banking framework that has allowed collaboration and competition to thrive side-by-side.