The traditional retail and e-commerce sector and non-bank digital or traditional lending are central to Nigeria’s economy. On 21st February 2023, Business Day reported that retail contributed 10 to 15 percent to the Nigerian GDP (Gross Domestic Product).
Due to fragmented regulatory authorities and lack of access to data, Nigeria cannot estimate how much non-bank lenders, popularly called money lenders, contribute to the GDP.
In any case, it may not be insignificant and ordinary experience shows that money lenders, whether digital or traditional money lenders, service a chunk of our lending market. Access to finance is a crucial pillar of financial inclusion.
Not all money lenders share consumers’ data with the credit bureaus established under the Central Bank of Nigeria’s (“CBN”) Guidelines for Licencing Credit Bureau in Nigeria 2008.
The Federal Competition and Consumer Protection Council (“FCCPC”) deepens its drive to accredit digital money lenders under the Limited Interim Regulatory/ Registration Framework and Guidelines for Digital Lending, 2022.
The Business Day’s report claimed that retail payments, that is, consumers’ purchases from retailers in 2021, grew by 61.1 percent to N16, 324.84 million from N10, 132.3 million in 2020.
There may be significant growth in retail payments in 2023 due to the national cashless policy and the adoption of digital payments.
What is open banking
VISA NAVIGATE describes Open Banking as a system through which consumers or businesses authorize third parties to access their financial information, bank and investment account data such as transaction or payment history, or services like making a payment or requesting a loan.
The regulatory frameworks for Open Banking in Nigeria are the CBN’s 2021 Regulatory Framework for Open Banking in Nigeria and the 2023 Operational Guidelines for Open Banking in Nigeria (the “Open Banking Regulations”).
In Nigeria, Open Banking Regulations described Open Banking as sharing and exchanging financial data between banks and authorized TPPs (Third-Party Providers) through open APIs (Application Programming Interfaces) – with the customer’s consent unless required by a court of law.
We acknowledge existing commentaries on open banking in Nigeria. We focus on how Opening Banking regulations opens opportunities in Nigeria’s retail, retail and money lending regulations.
Nigeria ranks among the African countries that do not have a retail policy – the Lagos Business School’s Retail Academy aims to propose a draft national retail policy to the Nigerian authorities.
Meanwhile, open banking affects customers’ onboarding and purchase journey, goods financing and lending, credit scoring, product marketing, retail and money lending regulations, and promoting issuing of credit cards.
Customers’ onboarding and purchase journey
Customers’ data and a secured data management system may be helpful in the transition from a pop-and-mom shop to a customer-centred retailer. Speaking of the customer onboarding experience, we know that once a rider with a card payment option signs up on a taxi-hailing platform or platform operator, the operator checks the rider’s account balance through a debit that it will refund later.
With open banking API, the customer onboarding experience process becomes seamless and real-time because the platform operator can access the customer’s bank account or wallet without a debit once the customer consents to the platform operator’s creditworthiness check.
Read also: CBN goes after politically exposed bank customers
Of course, taxi hailing is a retail credit sale. Similarly, retailers can have real-time access to customers’ financial information and transaction data under the Open Banking Regulations.
Retailers and money lenders must intentionally court customers’ attention and embed trust in their business processes. Trust is critical to data disclosure, and open banking rides on a data-sharing culture.
Nigerian banks require a minimum of six-month laytime for creditworthiness with a severe lack of data sharing. It used to be that a decade-old customer of Bank A could not use its financial transaction data in Bank A to access funds from Bank Z.
Open banking enables retailers and money lenders to access customers’ bank accounts or wallets within Nigeria’s financial system, including non-CBN-regulated entities.
Retailers’ and money lenders’ access to prospective customers’ bank accounts or wallets enable retailers and lenders to design and implement the buy now pay later (BNPL) and secured lending.
Retailers’ and money lenders’ access to customers’ personal information and financial transaction data under the Open Banking Regulations revolutionizes the consumer’s purchase experience and journey.
Consumer goods financing and lending
A customer’s identity is crucial to e-commerce, retail and money lending. Combining open banking with open data could easily verify customers’ identities and enhance purchase journeys and experience in goods financing and non-bank lending.
Open banking revolutionizes brand loyalty because a retailer can monitor customers’ spending habits and gain valuable insights into the customer’s lifestyles. A customer whose financial data shows payment to a building contractor or dealers on building materials may be planning to move into their home.
Machine learning would generate valuable and near-accurate insights that a retailer can rely on to market to its customers. Open Banking promotes upselling and cross-selling in the retail and money lending sector.
Credit scoring and product marketing
Enhanced credit scoring services exist for the retailers and money lenders’ benefit. Specifically, non-CBN-regulated entities cannot register security or collateral on CBN’s national collateral registry.
The national collateral registry is a CBN-owned and operated electronic public database that contains information on security interests in movable property such as farm produce, digital assets, intellectual properties, motor vehicles, household or office equipment, goods, or account receivables.
But open banking provides retailers and money lenders seamless access to the national collateral registry because it is part of a customer’s personal information and financial transaction data – part of the tier two services under the Open Banking Guidelines.
An established behaviour monitory system reduces risks such as customers or borrowers defaulting rates, over-borrowing, over-securitization, and enhanced financial transaction data. Admittedly, credit scoring and ranking firms use APIs that combine artificial intelligence and algorithms to predict consumers’ behaviour and rank creditworthiness.
Open banking enables access to reliable customers’ personal information and financial transaction data for the retailers’ and money lenders’ product design and deployment.
Retail and money lending regulations
Respective Ministries, Departments and Agencies across Nigeria’s 36 States and FCT (Federal Capital Territory) regulate non-bank money lenders, while there are no specific regulators for retailers in Nigeria.
The retail sector is regulated by the FCCPC, ministries of trade and investment, NITDA (National Information and Technology Development Agency) and enforcement agencies such as Lagos State’s KAI (kick against indiscipline) that criminalizes the on-the-go channels popularly known as hawking on traffic.
Money lenders’ contributions to Nigeria’s GDP are uncertain because of the absence of financial transaction data. With open banking, financial transaction data from the over 40% of unbanked Nigerians who still access credit finance from non-bank lenders could become mainstream.
Effective regulation of technology must depend on intelligent data. Intelligent data rides on well-aggregated financial transaction data. Therefore, regulators, retailers, non-bank lenders and other stakeholders should interactively ensure that financial data from non-bank lending segments and retail are correctly accessed, accurately aggregated and made intelligent.
Promoting issuing of credit cards
Card schemes such as EMV (Euromoney Mastercard and VISA) and Nigeria’s recently launched domestic card scheme anticipate credit cards. Yet, debit cards dominate Nigeria’s payment system, not credit cards.
Credit card rollout and adoption may thrive if Open Data such as NIN (national identity number), BVN (bank verification number) and a robust collateral registry for moveable and non-moveable assets combine with open banking in Nigeria.
Effective credit scoring ensures good debt management and low default rates.
Concluding, we see entrepreneurial opportunities in how open banking could interact with traditional retail, e-commerce, non-bank money lending and digital lending in Nigeria.
Open Banking will promote and enhance the customers’ purchase journey, such as onboarding, marketing and retention, credit scoring, financing of consumer goods and lending, adoption of credit cards, product marketing, and retail and money lending regulations in retail and money lending.
Trust is critical to customers’ data disclosure. Customers’ data include personal information and financial transaction data.
The future of e-commerce, digital (non-bank) money lending, traditional retail and (non-bank) money lending depends on how stakeholders build trust into each business process and ensure intelligent data.
Enwe, partner, Fintech, retail and education law at SRJ. You may reach him at [email protected]
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