Open Technology Foundation, a non-profit organisation, has highlighted five benefits that open banking can bring for Nigerian fintechs and the economy.
They are increased reach and capabilities, improved financial inclusion, greater efficiency, improved customer experience and increased competition and innovation.
“Within the greater startup ecosystem in Nigeria, the fintech sector employs the most people and receives 70 percent of all startup funding. By 2025, fintech sales are anticipated to increase by eight times to $30 billion,” the organisation said in a recent report.
It said open banking offers fintechs a window of opportunity to take advantage to meet their challenges and provides top-tier products to Nigerian customers.
“With over 250 fintech startups in Nigeria, it is clear that open banking can serve the strategic objectives of many sub-verticals ranging from lending to personal finance and from agritech to digital insurance,” it added.
Open Banking is the process of enabling third-party payment services and financial service providers to access consumer banking information such as transactions and payment history.
In 2017, the open banking regulation was initially proposed when industry experts formed Open Banking Nigeria. In 2021, the Central Bank of Nigeria (CBN) released a regulatory framework for open banking.
The following year, the CBN issued the regulatory framework guidelines for open banking. And on March 7, 2023, the apex issued operational guidelines for open banking in Africa’s largest economy. This made Nigeria to become the first African country to adopt the regulation.
A report by Allied Market Research said the market size of open banking is predicted to reach $43 billion by 2026 at a growth rate of 24 percent.
“Fintechs are poised to play a transformative role within the open banking ecosystem, ushering in an era of innovation and financial inclusion,” analysts at open technology foundation said.
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According to the analysts, fintech’s ability to drive technological advancements, offer diverse financial solutions, and extend services to the banked and unbanked population holds immense promise for the country’s economy.
“As the fintech landscape evolves, collaboration between regulatory bodies, traditional financial institutions, and fintechs becomes crucial to ensure a supportive and inclusive open banking environment.”
Data from the Enhancing Financial Innovation and Access, the county’s financial inclusion rate grew to 64.1 percent in 2020 from 63.2 percent in 2018.
The 2020 figure is below the CBN’s 80 percent financial inclusion target for the year 2020.
Although the inclusion rate dropped marginally from 36.8 percent in 2018 to 35.9 percent in 2020, the excluded adult population of 38.1 million reported in 2020 was higher than the 36.6 million recorded in 2018, meaning 1.5 million adults fell into the exclusion circle in the last two years to 2020.
The World Bank’s 2021 global findex report also showed that Nigeria’s banked population increased by 15.6 percentage points to 45.3 percent. This implies that almost 56 percent of Nigerians are unbanked.
With only 27 percent of Nigerians being financially healthy, financial inclusion continues to be a challenge in Nigeria, but fintechs are pivotal in addressing it, Open Technology Foundation said.
“Through their technology-driven approach, they are making financial services accessible to the unbanked and underbanked populations.
“By leveraging mobile technology and innovative payment solutions, fintechs are bridging the gap and extending financial services to previously underserved communities,” it added.