Open Technology Foundation, a non-profit organisation, has highlighted five benefits that open banking can bring for Nigerian fintechs and the economy.
These benefits include 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.
It stated that open banking offers fintechs a window of opportunity to take advantage of their challenges and provide 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 enables 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. On March 7, 2023, the apex issued operational guidelines for open banking in Africa’s largest economy, making Nigeria the first African country to adopt the regulation.
Read also: The future of Nigerian finTech
A report by Allied Market Research predicted that the open banking market will reach $43 billion by 2026, growing at a 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 noted.
According to 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,” they said.
According to Enhancing Financial Innovation and Access data, 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 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.
Only 27 percent of Nigerians are financially healthy, so financial inclusion continues to be a challenge in Nigeria, but the Open Technology Foundation said fintech is pivotal in addressing it.
“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.
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