• Saturday, December 02, 2023
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Explainer: What to know about Open Banking

The Central Bank of Nigeria (CBN) on Wednesday issued operational guidelines for open banking in Africa’s largest economy.

This was disclosed in a circular referenced: PSM/DIR/PUB/CIR/001/043, dated March 7, 2023, and signed by Musa Jimoh, director of payment services management department.

According to the circular, the adoption of Open Banking in Nigeria will foster customer permissioned data between banks and third-party firms to enable the building of customer-focused products and services.

“It is also aimed at enhancing efficiency, competition and access to financial services in Nigeria.

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 recognises the ownership and control of data by customers of financial and non-financial services, and their right to grant authorisations to service providers for the purpose of accessing innovative financial products and services.

Open Banking applicability includes agency banking, financial inclusion, Know your customer (KYC), credit scoring/rating, among others.

These Guidelines are anticipated to drive competition and improve accessibility to financial and payments services.

What is Open Banking Nigeria?

Open Banking Nigeria is a set of Open Banking APIs designed specifically for the Nigerian financial industry.
These APIs are to be adopted as a standard for the Nigerian financial industry.

What is Open Banking for?

This has been designed for all deposit money banks, microfinance banks, and other financial institutions.

Given the open banking regulation, any organisation that has data of customers which may be exchanged with other entities for the purpose of providing innovative financial services within Nigeria, shall be eligible to participate in the Open Banking ecosystem, the guidelines stated.

Read also: MTN Nigeria allots incentive shares to 120,359 retail investors

What are the roles of participating entities?

API Provider (AP): This refers to a participant that uses API to avail data or service 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.

API Consumer (AC): This refers to a participant that uses API released by the (API) providers to access data or service. An API Consumer can be a licensed financial institution/service provider, an FMCG or other retailers, Payroll Service Bureau, among others.

Customer: This refers to the data owner that shall be required to provide consent for release of data for the purpose of accessing financial services.

Is Open Banking a commercial software?

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

Who’s behind the Open Banking Nigeria project?

As explained in Open Banking blog, the project is backed by individuals with extensive industry experience and passion to simplify and transform payments in Nigeria.

Early backers of open banking in Nigeria includes but not limited to Sterling Bank, KPMG, PwC, EY, Paystack, Teamapt, Wallet Africa, and OnePipe. The coalition now expanded to include the likes of Mono, Switch, Lendsqr, Palmpay, Carbon, and Trium.

On February 7, 2021,the CBN released the regulatory framework for open banking 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 fintechs supervised by the CBN.

Also, the Nigeria Data Protection Regulation (NDPR) which was released in 2019 as data privacy is a foundational pillar for open banking.

How much does it cost?

The API standards and sandbox are free to use for everyone – banks, OFIs, developers, among others.

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.

The group engaged with banks, fintechs, CBN, and other international stakeholders.