Open Banking in Nigeria: Steering the financial revolution with prudence
Michael Irene is a data and information governance practitioner based in London, United Kingdom. He is also a Fellow of Higher Education Academy, UK, and can be reached via moshoke@yahoo.com; twitter: @moshoke
Why Open Banking matters to Nigeria
Historically, Nigeria’s banking sector has exhibited remarkable adaptability. From battling economic volatility to championing digitisation, our banks have navigated tumultuous waters. Open banking, as seen in regions like Europe under the PSD2 regulation, offers a model that could redefine the Nigerian financial ecosystem.
Holistic customer profiles
Open banking, by virtue of its very design, allows for the creation of comprehensive financial profiles. A user’s transactional behaviours, scattered across multiple institutions, can now be amalgamated.
Democratising financial innovation
The exclusivity of financial product development no longer remains in the stronghold of traditional banks. Fintech companies, with their nimbleness, have access to a wealth of data, enabling them to craft bespoke solutions.
Expanding the financial frontier
With approximately 36.8 percent of Nigeria’s adult population excluded from formal financial services, open banking can facilitate specialised products, tapping into hitherto untouched markets.
Collaboration over competition
The symbiotic relationships that open banking foster can lead to a collaborative atmosphere where banks and fintech companies work in tandem to maximise value for end-users.
A new world of opportunities
Unified financial management
Imagine Mrs. Amina, a textile merchant in Kano, managing her savings, current accounts, and investments across three different banks through a single app. The convenience factor alone can enhance customer loyalty and engagement.
Tailored loan offerings
Mr. Okafor, an entrepreneur from Enugu, seeks to expand his palm oil business. By analysing his transactional data from multiple banks and assessing his creditworthiness holistically, he can be offered a business loan specifically tailored to his needs and repayment capacity.
Cross-selling with precision
Banks can leverage data to identify service gaps in their clientele. A bank might discern that a customer, who has a car loan, might be in the market for auto insurance, leading to targeted product promotions.
Navigating the privacy tightrope
As potent as the prospects of open banking are, it presents a maze of privacy concerns:
Fragmented data security
Data, when siloed within an institution, has defined protection parameters. With data flowing across entities, vulnerabilities can arise at any touchpoint. As such, it’s important to understand the data flows, contracts carry data sharing clauses and other governance touchpoints.
The essence of informed consent
Beyond the legal jargon, ensuring that users genuinely comprehend the implications of their consent, especially in a nation with diverse literacy landscapes, is challenging.
Regulatory harmonisation
The CBN has been proactive with data protection guidelines, yet the fluid nature of open banking demands continuous regulatory evolution. Aligning institutional practices with these evolving norms will be pivotal.
Delineating responsibility
In an unfortunate event of a data breach, determining accountability, especially when multiple entities are involved, can become a daunting task.
The executive’s compass
The dawn of open banking is both an opportunity and a call to heightened responsibility. Steering their institutions involves:
Investing in cybersecurity
Enhancing internal cybersecurity frameworks and ensuring that third-party collaborations adhere to stringent security standards.
Educating the customer base
Empower customers through knowledge. Workshops, webinars, and simplified informational materials can play a pivotal role.
Collaborative regulatory
Engagements
Engage with regulatory bodies proactively, contributing insights, and seeking clarifications to foster a robust regulatory framework that champions both innovation and consumer protection.
Scalable infrastructure
As transaction volumes surge and data exchange becomes more intricate, ensuring that technical infrastructure are scalable, robust, and agile is of paramount importance.
Open banking, for Nigeria, isn’t just another financial model — it’s a potential revolution. As this landscape unravels, bank executives, with their prudence, foresight, and leadership, will play the quintessential role of custodians. The financial tapestry of Nigeria is being rewoven, and in its threads lie immense promise and profound responsibility.
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