By Victor Aboh
As the CBN has recently approved the operational guidelines for Open banking in Nigeria1, Financial Institutions, and Fintechs require direction on their roles in this new digital ecosystem. Earlier this month, we indicated a tentative order of events that the CBN might follow in rolling out Open Banking operationally2. As we await technical implementation guidance, this article aims to present Nigerian Fintech’s roles in the Open Banking Ecosystem.
Nigeria’s Open Banking Standard outlines three prominent roles that Institutions may play in its ecosystem, namely3.
- API Providers (APs)
- API Consumers (ACs)
APs represent the core of the ecosystem and are typically account-holding Financial institutions such as Commercial or Microfinance Banks but also include non-traditional financial institutions such as Mobile Money Operators. ACs represent the service side of the ecosystem, responsible for delivering services directly or indirectly to consumers in both financial and non-financial value propositions. Finally, Customers represent the End-Users who are required to consent to release their data solely for the use of the service provided by the ACs.
Opportunities and Fortunes
Within the greater startup ecosystem in Nigeria, the fintech sector employs the most people and receives 70% of all startup funding4. By 2025, fintech sales are anticipated to increase by 8x to $30 billion4. Open banking offers Fintechs a window of opportunity to take advantage to meet their challenges and provides top-tier products to Nigerian customers. Here are some benefits that Open Banking brings to Nigerian Fintechs5:
- Increased reach and capabilities
- Increased competition and innovation
- Improved financial inclusion
- Greater efficiency
- Improved customer experience
With over 250 Fintech Startups in Nigeria6, 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.
Nigerian Fintechs as Catalysts for Financial Inclusion and Innovation
With only 27% of Nigerians being financially healthy7, Financial inclusion continues to be a challenge in Nigeria, but Fintechs are pivotal in addressing it. Through their technology-driven approach, Nigerian Fintechs 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. This newfound accessibility empowers individuals, small businesses, and entrepreneurs to participate in the formal economy, fostering economic growth and reducing inequality.
These Fintechs are also at the forefront of driving innovation and competition within the financial industry. These agile and tech-driven companies leverage digital technologies to offer innovative financial products and services. For instance, companies like Interswitch, Paga, Onepipe, and Lendsqr have revolutionized the landscape with their banking solutions, seamless digital payment platforms, and microloan offerings. These innovations enhance convenience, accessibility, and efficiency for individuals and businesses. Open Banking represents an additional source of innovation for these Fintechs to adopt in the service of their consumers.
Account Information, Payment Initiation, and more…
Traditionally, the role of API Consumers typically fall under one of two categories below:
- Account Information: API Consumers can retrieve consumer account details to provide additional value-added services securely.
- Payment Initiation: this allows consumers to make payments directly from their bank accounts after securely authenticating and authorizing the connection between their financial institution and their Service Provider.
Nigerian Fintechs can extend past these use cases to provide a wide range of innovative financial solutions that leverage Open Banking Capabilities. These include services such as personalized financial management tools that offer budgeting, expense tracking, and savings recommendations. Fintechs can also facilitate seamless integration of financial services with other sectors, such as e-commerce, enabling secure and convenient transactions. Additionally, Fintechs can offer value-added services like credit scoring and lending platforms that leverage alternative data sources to expand access to credit for individuals and small businesses. These additional services demonstrate the versatility and potential for Nigerian Fintechs to play a significant role within the Open Banking Ecosystem.
Nigerian Fintechs are poised to play a transformative role within the Open Banking ecosystem, ushering in an era of innovation and financial inclusion. Their ability to drive technological advancements, offer diverse financial solutions, and extend services to the banked and unbanked population holds immense promise for Nigeria’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.
In summary, the partnership between Nigerian Financial Institutions and Nigerian Fintechs facilitated through Open Banking can reshape the financial landscape, providing individuals and businesses with improved access to financial services, fostering economic growth, and driving Nigeria towards a more inclusive and prosperous future.