The Central Bank of Nigeria (CBN) has recently issued operational guidelines for open banking, signaling a new era of innovation and competition in the country’s financial sector.
The open banking guidelines are contained in a circular released in March 2023, by the Director of the CBN’s Payments System Management Department.
The Central Bank of Nigeria issues the operational Guidelines for Open Banking in Nigeria #CBN #OpenBanking https://t.co/GWJoifh2Ew pic.twitter.com/b6XcZ9uD8m
— Central Bank of Nigeria (@cenbank) March 9, 2023
According to the circular, the objectives of the guidelines are as follows:
- Provide clear responsibilities and expectations for the various participant categories
- Ensure consistency and security across the open banking system
- Stipulate safeguards for financial system stability under an open banking regime
- Promote competition and enhances access to banking and other financial services
- Outline minimum requirements for participants
“The adoption of Open Banking in Nigeria will foster customer permissioned data between banks and third-party firms to enable the building of customer-focused products and services,” the circular indicated.
Open banking refers to a system where banks and other financial institutions share customer data and services with third-party providers (TPPs) through application programming interfaces (APIs). This allows customers to access a wider range of financial products and services, and gives TPPs the opportunity to develop innovative new offerings.
The CBN says its guidelines are aimed at ensuring that open banking is implemented safely and securely, and that customers’ data and privacy are protected. The guidelines outline the roles and responsibilities of banks, TPPs, and customers in the open banking ecosystem, and provide a framework for the management of risks associated with data sharing.
The three concerned participants by the guidelines, as indicated in the circular, are:
- API Provider (AP) – This refers to a participant that uses API to avail data or service to another participant. An API Provider can be a licensed financial institution/service provider, a fast-moving consumer goods (FMCG) company or other retailers, payroll service bureau etc.
- API Consumer (AC) – A participant that uses API released by the (API) providers to access data or service. An API Consumer can be a licensed financial institution/service provider, an FMCG or other retailers, Payroll Service Bureau etc.
- Customer – This refers to the data owner that shall be required to provide consent for release of data for the purpose of accessing financial services.
The guidelines are also coming after a long campaign by various stakeholders that includes the likes of Paystack, TeamApt, Mono, KPMG, PwC, and Ernst and Young calling for the adoption of open banking in Nigeria. This saw the unveliling of a regulatory framework for open banking in Nigeria by the CBN on February 7, 2021 which set the stage for the development of operational guidelines by an industry committee in May 2022.
It is these draft guidelines that have now been finalized and are in effect as the official regulations for bankers and fintechs under the supervision of the CBN.
The CBN also believes that the move towards open banking is part of a broader effort to promote financial inclusion and boost economic growth in Nigeria.
“Open Banking applicability includes agency banking, financial inclusion, Know your customer (KYC), credit scoring/rating etc. These guidelines are anticipated to drive competition and improve accessibility to financial and payments services,” the apex bank said.