For 28-year-old Bolu Oweimo, a long-time customer of Nigerian e-commerce site Konga, finan- cial transactions have recently become much easier. With a Kon-gaPay wallet, she pays for purchases, de- posits funds, and can send money to her linked bank account when needed.

Oweimo benefits from open banking, which Africa’s most populous country, with more than 200m people, began im- plementing this year under the guidance of the Central Bank of Nigeria. Though an official take-off was scheduled for August, regulatory authorities have hinted at slight delays to further tighten nuts and bolts.

Open banking allows for financial data to be shared between banks and third-party service providers through the use of application programming in- terfaces (APIs). Traditionally, banks have kept customer financial data within their own closed systems. Open banking allows customers to share their financial infor- mation securely and electronically with other banks or other authorised financial organisations such as payment providers, lenders and insurance companies.

While open banking offers a multitude of benefits to customers and the economy in general, there are also risks associated with security of data, scams and hidden charges.

“Our approach to open banking re- mains measured,” said the Central Bank of Nigeria’s Governor Olayemi Cardoso at the 7 October opening of the annual Fintech Week in the commercial capital, Lagos. “We are ensuring that the neces- sary controls around fraud prevention and data protection are firmly established before full rollout.”

With customers’ permission, banks can now provide access to their account information, including balances, transac- tion history and the ability to transact, to other financial institutions, fintechs and even retailers. Even non-bank financial institutions extending a line of credit to customers can use open banking to ascertain their creditworthiness.

“It’s all very empowering when for- merly difficult tasks are simplified and put at our fingertips, literally,” said Oweimo, an Abuja-based fashion de- signer, recalling how she used to with- draw physical cash from one account to pay into another. “I now use the same wallet to receive payments from my own customers.”

The immediate impact of open banking for Oweimo and other Ni- gerian bank customers is quicker, cheaper and convenient transactions at all hours. Besides enabling faster and more accurate credit decisions by financial service providers, cus- tomers and the general public can expect more competition and offers of a wider variety of innovative finan- cial products using the open banking framework.

For small and medium business-es, a significant productivity boost is expected with services that cover invoicing, payroll management, ac- counting and other aspects of business that previously consumed their valuable time and money.

“What is currently unfolding is the culmination of a process that began with the surge of digital payments and fin- tech companies about a decade ago,” said Malik Oludare, a Lagos software engi- neer who works on payment applica- tions. “There was a need to avoid the proliferation of technical standards in the interest of all.”

The Open Banking Association was formed in 2017, with a membership of banks, fintech and tech companies, to work out a standardised and secure sys- tem access that would ensure seamless integration among participating organi- sations.

Banks in the forefront of these devel- opments included Wema Bank, FCMB, Sterling Bank and First Bank. They were joined by fintechs such as microfinance provider, Kuda Bank, wealth management firm Cowrywise and payment compa- nies such as Flutterwave, Interswitch and Paystack. The objective was to create one common standard that would make integration quick and transactions fast and secure.

To complement the efforts and give them a firm direction, the Central Bank in 2021 published a regulatory framework for open banking. It was this document that defined the scope of open banking, to cover services including payments, re- mittances, collection and disbursements, deposit-taking and credit management.

Also covered were treasury manage- ment, personal finance and advisory ser- vices, credit rating, mortgages, leasing and other innovative services.

Open banking evolution

The objective outlined by the regulator was to create an environment for the safe exchange of data, assess risks associated with running open Application Program- ming Interfaces (APIs), give guidance on risk management and stipulate minimum standards required for the exchange of financial data.

These were incorporated in the Pay- ment System Vision 2025 document re- leased by the Central Bank in 2022, which set targets and timelines for expected milestones. A five-year plan, it aims to strengthen and expand Nigeria’s digi- tal and electronic payments system, for which open banking is a prerequisite.

Among the first aspects of the plan implemented was agent banking, an ap- proach to financial inclusion whereby banks deployed agents with points-of- sale (POS) terminals to both receive pay- ments into bank accounts and remit as well. Their ubiquitous presence enabled banks to cut down on physical branches while taking in more customers, many of whom rarely have to visit brick-and- mortar branches.

In the longer term, the monetary au- thorities still aim to explore more pos- sibilities for the deployment of blockchain financial solutions, having set the tone with the creation of a Nigerian digital currency.

The regulatory thrust now is to create a conducive regulatory environment, in collaboration with the Securities and Ex- change Commission, to facilitate the issue of crypto-based initial coin offerings. Open banking got closer to real- ity with the issue of final operational guidelines by the Central Bank in March 2023. That set the stage for the current trial run of open banking in controlled circumstances.

A major issue resolved during consultations between operators and regulators was the system of data sharing to be adopted by participat- ing organisations. An initial proposal was to have all participants connect through the Nigerian Interbank Set- tlement System (NIBSS).

This was later discarded in favour of creating API standards and a reg- istry held by NIBSS under Central Bank regulation. Data will now be exchanged using a standardised API that all partici- pants can connect to securely and con-sistently.

For authentication, a central registry will identify and authenticate access us- ing the Bank Verification Number (BVN) uniquely assigned to customers. This will enable bank customers to grant or end permission for the use of their bank data.

The authorities expect a natural pro- gression from open banking to open finance. This indicates a new realm of banking possibilities where Nigerians can be scored and rated for creditworthiness as a basis for even more financial services.

This will have further linkages with areas such as lending, insurance and in- vestment, and make the financial ser- vices industry the engine driving other economic sectors.

Winners from open banking

Nigeria, in addition to 26 deposit money banks, has 729 licensed micro-finance banks. Nine are operating at the national level, 121 at the state level and 599 are strewn across the countryside, where they are crucial to reaching the most unbanked populations of the country. All of these lenders and other ancillary participants in the financial system are expected to gain significant traction from open banking and open finance.

There are, at least, 430 fintech compa- nies active in Nigeria as of the beginning of this year, representing an almost 70% jump from the previous year. They include those in payments such as Flutterwave, Paystack and Interswitch; those in digital banking such as Kuda, Opay and Carbon; savings and wealth management firms such as PiggyVest and Cowrywise; and blockchain and cryptocurrency companies with new innovations. All stand to gain from the level playing field that open banking represents.

Some of these companies have demonstrated tremendous growth in re- cent years, driven by Nigeria’s youthful majority of early tech adopters and en- thusiasts.

Payment companies Flutterwave and Interswitch achieved unicorn status by crossing the $1bn valuation within a few years. Flutterwave currently operates in more than 20 African countries. Paystack, another of its competitors, was acquired for $200m by the US payments giant, Stripe, in 2021. Moniepoint, which focuses on agent banking, has more than 10m us- ers and processed more than $100bn last year, is also of unicorn status.

“Nigerian banks are entering a new era, one in which competition will in- tensify, service delivery will become in- creasingly digital, and market positioning will become more critical,” said Olufemi Awoyemi, the CEO of Lagos-based market research firm Proshare.

Amid the expansion of banking ser- vices, there is also an increasing diver- sification of products and even merging of roles, resulting in the blurring of lines separating traditional banks and fin- techs. The situation became even more fluid with the licensing of mobile phone companies as payment service providers.

Konga, which started as an e-com- merce website, acquired a microfinance lender to create KongaPay, the payment and savings service it is now associated with. Flutterwave, which began life as a local payments provider, has since mor- phed into an international remittance company. It also works with enterprises on various payment solutions, both online and offline, including helping to swap foreign currencies.

Interswitch, which has expanded to six other African countries, offers bill payments and disburses loans through its Quickteller website and app, in addition to global online shopping, flight bookings, event tickets and payment solutions for businesses. The company has also devel- oped a unique payment system for the health, energy and transportation sectors.

Chinese-backed Opay initially com- bined banking with delivery and ride- hailing services. Lately, it has focused more on mobile payments and remit- tances, with its custom point-of-sale terminals, bill payments and savings and investment tools.

Open banking will also likely have an impact on wealth and fund-management companies by opening new possibilities. With investment accounts linked to bank accounts, trading ideas will be more eas- ily put into practice.

Cowrywise, for instance, offers money placements as well as investments in stocks and fixed income securities, in- cluding Eurobonds. Where Eurobond in- vestors going through banks are required to buy a minimum of $200,000, those buying through Cowrywise can start with as little as $50.

PiggyVest is a savings app that pays higher returns than banks by investing in corporate debt, such as high-yielding commercial papers. Rise and Bamboo allow subscribers to make dollar-de- nominated investments in US stocks and fixed income instruments. Open banking makes it possible to automatically fund their investments by linking their bank accounts to the trading accounts.

“The fintech ecosystem is no longer a collection of startups working in si- los,” said Stanley Jacob, president of the Fintech Association of Nigeria. “It is a movement of innovators, regulators, in- vestors, and educators working together to transform Nigeria’s economy.”

Yet, even as the fintechs are moving into activities previously associated with banks, the lenders are also intruding into what may be considered the fintech do- main, offering services such as bill pay- ments, remittances and ticketing. Even as they compete, they also collaborate with the likes of Zenith Bank, for instance, embedding Quickteller in its app to pay for airline tickets.

Nigeria’s biggest mobile-phone com- pany, MTN, collaborates with Cowrywise to channel funds from its mobile-mon- ey subscribers to the investment app. Awoyemi of Proshare foresees a ‘com- plex’ relationship developing between the banks and the fintechs over time as they swing between competition and col- laboration.

“The biggest banking battles to come will be for market share and the locking in of customers and their transaction journeys,” says Awoyemi. n

What is currently unfolding is the culmination of a process that began with the surge of digital payments and fintech companies about a decade ago.

The authorities expect a natural progression from open banking to the realm of open finance.

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