Open banking at its basic level refers to parties sharing financial data — between banks and FinTechs or other third parties — through digital means with the account holders’ explicit consent. Third-party providers access customers’ financial information from a bank through the utilization of application programming interfaces (APIs). The myriad of opportunities this provides to all parties is immense. Consumers will be able to access and link different bank accounts via a single service. Fintechs will leverage consumer information enabling them to provide intuitive financial services to their customers. Banks will no longer need to communicate over closed payment networks with one another. This will make banks offer valuable financial services.
Why Open banking
Many Nigerian adults are underbanked, unbanked and financially excluded. Data from the Nigerian Inter-Bank Settlement System (NIBSS) shows the number of Nigerian adults with a bank verification number (BVN) stands at 47,762,475 as of April 25, 2021. Live data for the adult population in Nigeria is around 101 million. Around 54 million Nigerian adults (~53%) are unbanked.
As of 2019, Grid3 reported that 60 million Nigerian adults were unbanked and a further 19 million were underbanked. This shows that 6 million adults have been registered by NIBSS since 2019 and they have gained access to formal banking services.
According to a report by the Central Bank of Nigeria (CBN), the financial exclusion rate in Nigeria dropped to 36.8% of the adult population as of 2018. Still, Nigeria has one of the highest number of financially excluded globally. World Bank Global Findex’s report shows that; Nigeria has the fifth largest unbanked population in the world and the largest in Africa. Adults who are financially excluded lack opportunities to maximize their incomes and expand their businesses. Financial service providers should develop innovative products and services that suit the needs of the underbanked, unbanked and financially excluded. Agency banking for instance, enhances financial inclusion by taking formal financial services to places they are unavailable.
Banks and Fintechs as key players in open banking adoption in Nigeria
Banks are traditionally not built to be open. They have guarded consumers’ data throughout history. With open banking, banks can maximize their data trove when authorized to share their customers’ data with other financial service providers. Open banking presents a tremendous opportunity to build new models and financial products and services while increasing opportunity for revenue growth. Open banking adoption can help banks monetize existing digital assets, develop and cross-sell product and services offerings and gain market share.
Banks can also continue to focus on their core services and in the process do not deprive their customers of wider offerings. They can earn commissions from reselling third-party products and services. Banks can create targeted, personalized solutions to customers with massive customer data and open banking. This will help retain customers. Banks can be a platform provider by enabling sharing of data by opening up the infrastructure and APIs to those who are willing to collaborate and build innovative products. They can monetize their data by selling to the ecosystem players. This will allow financial service players to roll out products seamlessly and faster. Banks will need to identify the positives, challenges and risks in adopting open banking and also understand the data they are sitting on and proceed to use in a customer-centric way.
Access to financial data will help fintechs create novel and intuitive solutions for their customers. Open banking presents a tremendous opportunity for fintechs to increase customer and revenue growth from innovative financial products and services offering. There will be increased competition between the financial services players offering various products and services in the ecosystem.
Fintechs and banks should work together to make the infrastructure more accessible while prioritizing the elimination of security threats and data-privacy concerns with open banking.
One of the best use cases for open banking in Nigeria is lending. Open banking personalization presents huge opportunities for small and medium-sized enterprises. Nigeria suffers from around N617.3 billion annual financing gap for SMEs according to a 2020 PwC SMEs survey. Many small and medium-sized enterprises are unable to access the credit services they need. Based on analysis of data from the CBN annual statistical bulletin, small businesses accounted for less than 1% of total commercial banking credit in 2018. According to the National Bureau of Statistics (NBS), less than 5% of SMEs have been able to access adequate finance for working capital and for funding business growth/expansion. Yet, SMEs still contribute a huge 48% to GDP. Open banking will ensure credit facilities will be readily accessible and competitive. This will have a huge effect on closing Nigeria credit gap for consumers and SMEs which will rapidly increase financial inclusion and economic growth.
By first empowering customers with the right to share their data, then utilizing better and cheaper architectural solutions, and providing the right incentives for both fintechs and financial service providers, this will tremendously actualize the goal of open banking in Nigeria.
OnePipe – fostering embedded financial services in Nigeria through open banking
OnePipe facilitates access to robust APIs from banks and other financial service providers. OnePipe does not serve fintechs alone, innovative businesses from other industries can leverage APIs and infrastructure from partner banks to provide financial services penetration within their industries. As an embedded finance provider, OnePipe is different from other API fintechs because it aggregates APIs from banks and other financial service providers via a gateway to create new propositions. The collaboration between OnePipe and partners (banks and financial services providers) results in the availability of robust APIs to value creators, this is significantly different from the third-party data scraping methods that a number of API fintechs globally deploy, essentially, OnePipe facilitates a mutually beneficial, direct relationship between the incumbents providing the digital assets and the innovators consuming the APIs.
OnePipe’s suite of products is a one-stop digital toolkit which businesses can leverage to build pretty much any financial use case they can imagine while significantly reducing resources typically spent on complex integrations and endless negotiations. The underlying objective is to make it easier for companies and their customers to transact seamlessly thereby supercharging financial inclusion. On the other hand, startups will be able to launch faster, existing financial services institutions will be able to introduce new products quickly and concurrently monetize existing digital infrastructure thereby transforming IT from a cost-centre to a revenue generating division.