With a booming fintech sector, the Nigerian government and regulators are now setting the foundation for open banking, releasing regulatory frameworks for the safe and efficient transmission of data with hopes that subsequently new, innovative financial solutions will emerge and help improve financial inclusion.
The Central Bank of Nigeria (CBN) issued the Regulatory Framework for Open Banking in Nigeria on February 17, 2021, establishing principles for data sharing across the banking and payment ecosystem.
The framework, which addresses issues including data and API access requirements, principles for APIs, data, technical design, and information security specifications, is aimed at promoting innovation, broadening the range of financial services and products, and deepening financial inclusion.
The framework was unveiled less than a year after the release of the new Data Protection Bill 2020. Built on the Nigerian Data Protection Regulation (NDPR), implemented in January 2019, the new bill aims to ensure that data processing in the country conforms to international standards and safeguards personal information.
The legislation bears close resemblance to the European Union’s General Data Protection Regulation (EU GDPR) and marked the first formal step by Nigeria towards open banking.
In the private sector, bankers and fintech experts have come together and launched in 2018 Open Banking Nigeria, an initiative aimed at building open source non-profit API standards designed to be used by banks and other financial institutions in Nigeria for free. More than 40 local and international partners are supporting the initiative, including digital banks Kuda Bank and Rubies, incumbent banks First City Monument Bank and Heritage Bank, and tech providers Pngme and TrueLayer.
Experts and industry observers have praised these developments, arguing that fintech innovation and open banking could lead to the improvement in the delivery of financial services in Nigeria and accelerate financial inclusion.
In 2016, 58.4% of Nigeria’s 96.4 million adults were financially included comprising 38.3% banked, 10.3% served by other formal institutions and 9.8% served by informal service providers, according to data from the CBN.
By allowing a wide range of market participants, including fintechs, to access customer data locked inside banks and other financial institutions, open banking regimes are meant to encourage the development of innovative financial products and services that are lower cost and better suited to the needs of consumers.
Nigeria: Africa’s most active fintech ecosystem
Nigeria’s open banking ecosystem is growing on the back of a booming fintech sector. Nigeria, Africa’s largest economy, is home to an active fintech community, which, according to McKinsey, comprises over 200 standalone fintech companies, in addition to the fintech solutions offered by banks and mobile network operators as part of their product portfolio.
Nigeria has so far produced three tech unicorns among which two paytech companies, Interswitch and Flutterwave. Online marketplace Jumia, which was originally created in Nigeria before moving its headquarters to Germany, was valued at more than US$1 billion ahead of its initial public offering in New York in April 2019.
In addition to payments, other fintech segments represented in the Nigerian fintech industry include digital banking, savings and investing, blockchain, and micro-financing. Notable startups include Aella Credit, a provider of instant credit solutions, Carbon, a mobile-only digital bank, and Kudi, a bank agent network.
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