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Nigeria adopts new banking technique

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By Mercy Kelani

CBN released the project's regulatory framework earlier in 2021.

In Africa, Nigeria is first to adopt these new banking regulations. In the early days in March 2023, a circular that had the signature of director of the payment services management department, Musa Jimoh, it was disclosed that there was an issuance of operational guidelines for open banking by the Central Bank of Nigeria (CBN) to aid the country’s newly adopted banking regulations. The circular further disclosed that this new method of banking would encourage customer-allowed data between banks and third party organizations to ensure development of products and services that focuses on customers.

The Apex Bank of Nigeria has permitted third-party institutions such as mobile money apps and financial technology companies access to customer data of other financial institutions which includes data transactions. Application of these new regulations likewise entails inclusion of agency banking, Know your Customer (KYC), financial inclusion, credit scoring or rating and many more. This regulatory framework for open banking in the country was released by the CBN on February 7, 2021 which propelled the May 2022 operational guidelines draft.

Guidelines ensure competition and efficiency.

Now, the previously recognized draft is a law for banks and Fintech companies under supervision of the CBN. In the banking and payments system, the framework has enacted principles for data sharing to aid promotion of innovations and widen the availability range of financial products and services to bank customers. Therefore, there is recognition of data ownership and control by customers of financial and non-financial services. This recognition also approves their rights to permit authorizations to service providers for access to innovative products and services.

This new financial technique embraced by Africa’s largest economy is projected to foster speedy approval timelines for customers during application of loans on the basis of their credit or financial history. Banks, also, through charges enforced on third parties institutions for access can build revenue. Through this regulation, there is an expectation of enhancement in competition, efficiency and access to financial services in the country. With these guidelines, there will be stable competition while improving access to financial and payment services.

Technique has support of stakeholders with industry experience.

Additionally, it has been affirmed that there are three major players in the system (the Application Programming Interface (API) provider, consumer and the customer). The API provider, through an interface, provides data and services as a participant to another participant, while the consumer is granted access to data and services through API availed by an API provider. A  consumer could be a financial institution, a Fast-Moving Consumer Goods (FMCG), Payroll Service Bureau and many others. The consumer owns the shared data and gives consent for data release to access financial services.

The project is firmly supported by stakeholders with vast industry experience and passion to ensure easy and simplified payments in Nigeria. Some of the earliest supporters of open banking in Nigeria are sterling bank, PwC, Paystack, Wallet Africa, KPMG, EY, Teamapt, OnePipe. However, other financial institutions like Mono, Lendsqr, Carbon, Switch, Palmpay and Trium have also shown support. The idea of open banking in Nigeria was led by Adedeji Olowe and a group of industry experts who were keen on ensuring payment innovations in the country.

Consumers are protected by both the CBN and NDPB.

Furthermore, consumers are safe with the apex bank’s monitoring, the 2021 Data Protection Bill and the established data privacy guidelines which operators are bound to adhere to so as to keep data away from those with bad intentions. The president of the federation, Muhammadu Buhari, also ensured approval of the establishment of the Nigeria Data Protection Bureau (NDPB) to oversee data protection enforcement over the National Information Technology Development Agency (NITDA) and ensure safety of consumer data.

Related Link

Open banking: Website

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