Uzoma Dozie, founder and CEO of Sparkle, a fintech company, in this interview with BusinessDay’s Frank Eleanya, speaks on the Open Banking guidelines released by the CBN recently. He highlights some of the benefits stakeholders in the financial industry would gain from the full implementation of the policy in the country.
The CBN has issued a guideline on Open Banking operations in Nigeria. What does that mean for the financial service industry in the country?
Open banking goes beyond just the banks. It encompasses financial institutions, pension funds, insurance companies, and even companies in the fast-moving consumer goods (FMCG) sector. What this means is that open banking will aim to unlock the tonnes of data that are stored by these companies in order to convert them into useful information to make decisions that will benefit the customer.
Furthermore, the customer now has a say in what happens to their data, so we all have to up our game with respect to that customer experience. We can no longer ‘talk the talk,’ but we have to walk it too, or they (customers) take their data and go.
What does it mean for Nigerians who use these financial institutions? How much do you see Open Banking contributing to the Nigerian economy?
Open banking has been operational in the UK for about five years and has contributed over £4 billion to the country’s economy. Open Banking, if well implemented in Nigeria, is the revolutionary next step in a customer-centric approach to banking. Power has now been vested in the customers’ hands as they get to grant permission to participating organisations to pull their data from all their existing transactions in order to make informed decisions about their finances. It will ensure a more sanitised financial services sector, enhance transparency in banking operations, and no doubt increase economic development.
For the Nigerians who use these financial institutions that are Open Banking ready, it means these organisations, with the customer’s permission, should be able to offer more to their customers, including lending solutions, embedded financial services, and lower-cost services. For the economy, it will unlock data and information that has been siloed on many platforms preventing us from making informed decisions. Open banking changes everything, or should I say opens everything up.
The UK is considered a leader in Open Banking because it requires its banks to open up their data through a common standard. Do you think the CBN guideline would achieve this common standard sufficiently?
At 45.41 percent, Nigeria ranks 79th in the world on the financial inclusion table as of 2021. There’s been a monopoly of sorts in the ownership of customer data where the first movers, otherwise known as traditional banks, have data leverage compared to the newer comers. Open banking will allow for a more streamlined and interoperable financial system leading to innovation for better financial inclusion. The new guidelines will particularly improve accessibility to financial and payment services and enable the building of customer-focused products and services.
We’ll also need all hands on deck – all players need to embrace and onboard into the Open Banking registry so that we can harness the power of technology for the good of all. At Sparkle, we’ve always been advocates of technology for the good of all.
For many years, Nigerian banks have resisted sharing data with other institutions because of fear of competition. How does this Open Banking help them keep business flowing? Why should they comply with this guideline?
The gains of competition and collaboration are overwhelmingly positive for us all, whether as separate business entities or collectively as an ecosystem. There have always been regulations that guide the operations of banks and how much data can be shared about customers. With the collaboration that Open Banking allows, players would be able to interact under a set standard of guidelines – levelling the data playing field and encouraging innovation for the good of the customer. More relevant products and services can be developed, and that means higher returns and happy customers. For example, open banking can positively impact the ease of doing business in the country, thereby encouraging more people to join the formal financial economy, thereby raising financial inclusion.
How do you think the CBN should enforce compliance?
First, the CBN is responsible for onboarding participants into the registry and maintaining the registry for regulatory oversight reasons, and the requirements for becoming a player are quite high. Second, this registry will have an API interface, which will serve as the primary means by which API providers (banks and other related financial institutions) manage the registration of their API consumers. There is also a Consent Management Framework to ensure that customer consent is sought by the primary data holders for third-party users, who must also be fully identified to the customer. These permissions/consents are not given in perpetuity and can be withdrawn by a customer at any time. These are some of the measures put in place to mitigate risks and secure customers’ data, and the CBN will have regulatory oversight of the process and the system. It is expected that stakeholders will opt into the open banking system.
We have seen increased collaboration in the banking system. However, interoperability remains a challenge. Why do you think this is the case, and does Open Banking fix this problem?
With the checks and balances provided in the framework and the use of technology, ambiguities around interoperability will be contained and addressed.
The success of Open Banking requires bank customers to adopt it massively. The CBN isn’t exactly a good mass communicator going by the recent naira notes crisis. How do you achieve mass adoption of this initiative?
The guidelines provided by the CBN include technical and non-technical provisions for participants and the operations in itself. There are several stakeholders involved, hence, we can all become individual canvassers of the open banking gospel. It is particularly important to communicate this in a non-technical way so that all the stakeholders – customers and operators – can opt-in to ensure successful adoption. As a referee, the apex bank is a critical stakeholder in the process and has set the ball rolling with a well-thought-through framework. All that’s left is for the participants to key in. It will be beneficial to see more creativity and innovation in the industry to increase Nigerians’ access to financial services and products. Open banking will help accelerate this.