Open Banking is an initiative that is aimed at addressing the challenge confronting many bank customers, especially those with multiple bank accounts. For these customers, they would have to visit the branches of each bank, or use their different mobile apps before they can access or use their money in any of the different bank accounts.
But Open Banking seeks to addresses this challenge by creating an arrangement that gives the customer the opportunity to share the details in different financial institutions with approved third parties, hence making it possible to access and utilise those details through third party apps. In a sense, the approved third party harmonises these accounts and create a single app that enables transactions in all of the accounts.
Under the Open Banking scheme, financial institutions open up their Application Programming Interfaces (APIs), to allow third parties to access financial information needed to develop the new apps and services.
This provides account holders greater financial transparency options. APIs are a set of codes and protocols that decide how different software components should interact. They essentially allow different applications to communicate with one another.
According to PwC Nigeria, “Open Banking means that no matter how many accounts and financial products a customer has, they can be viewed and managed from a centralised location. Open Banking lets customers have increased control over their data, while supporting the innovation everyone yearns to see more of”.But for the Committee of E-Business Heads, (CeBIH), Open Banking has emerged a critical factor in its quest to boost electronic payment (e-payment) growth through collaboration and innovation.
CeBIH comprises of the upper echelon of electronic business industry practitioners in all banks, with the objective of promoting e-banking services in line with global best practices, while driving adoption through right policies, standards, technologies and public awareness.“As industry practitioners, we have identified digital partnerships and open architecture as a major recipe for accelerating growth in payments”, CeBIH Chairman, Stanley Jacob, said.He stressed that the group believes that with Open Banking, the industry will “merge to surge”, there will be free flow of data following best practices and the cost-to-serve will be considerably lowered for the customer.
“We are working closely with the Trustees of Open Banking Nigeria. We are also advocating that the regulators continue to create an enabling environment for this to thrive. The overall objective is to create more value around the payment lifestyle of the customer and build an ecosystem driven by a healthy competition”, he added.
In line with this mission to drive Open Banking in Nigeria, the recently concluded CeBIH yearly retreat, with the theme: “Payment 2020plus: The Next Frontiers of Payments”, featured a session on Open Banking, which discussed the prospects and requirements of the scheme in Nigeria, as well as benefits for customers and service providers in the e-payment ecosystem.
Driving the global trends towards Open Banking is more about the way it empowers bank customers to get better deals and the accompanied opportunities for collaboration and innovation among industry players.The Chief Digital Officer, Sterling Bank, Olayinka Oni, while speaking at the CeBIH retreat, said: “Open Banking is a collaborative way in which you have to share your data. The sharing of the data is at the discretion of the customer not necessarily anybody else.
“So, the customer is the one saying I want to share my data with this particular person and I am able to enjoy whatever service that person is offering.“So, whether I bank with Bank A or Bank C, I want a situation where I am able to ask for all of my information that sits in these several banks and even match that data into a single point. The customer is really in control and it is basically ensuring that the customers can to control their destiny.
“Open Banking will drive new iteration of services, as well as enable all kind of faster payment and easy payment. Customers will then be able to provide their accounts data and make it fluid and available as required. It means I can share my personal data and basically use it to drive authentication services.”Speaking further, he said, with Open Banking customers will be able to communicate with the banks through Google, Alexa and other internet-based cognitive services.
Open Banking, according to a Trustee of Open Technology, Ope Adeoye, will facilitate the partnership needed to drive innovation in the e-payment space, especially partnership between Fintechs and banks.“In trying to do partnership with banks, it is so hard to execute a partnership with Bank A and think you can do the same with Bank B equally easily. You probably have to go through a painful process from bank to bank.
“By the time you do that with 23 banks, it will probably take you four to five years to get your product or initiative to the market. The thinking then is that if such common standards existed, then innovation can move faster, and this pain is not just on the Fintech side, even the banks as well.
“As a bank you will like to partner with a vendor, and when you think of the fear of backing it internally, IT, operations, those things just slow you down as a bank.“So, my thinking is that if we have Open Banking in Nigeria as well, a lot of the innovations that we thought were not possible within the time that you have, you can now free your mind as an organisation to explore those things,” he explained at the retreat.
Speaking on benefits of Open Banking and its impact on financial inclusion, Oni of Sterling Bank said: “The customer’s needs are diverse and often times as banks we cannot create all of these solutions as it were but though Open Banking I can definitely serve my customers a lot more.
“For example, in UK, where every bank is expected to sign on to open banking, no matter where the need of the customer demand will come from, there would be somebody solving that problem in the market and because, maybe, I am Barclays Bank, and I have joined Open Banking, then my customers will be a lot more potentially satisfied.
“With Open Banking, banks would then be able to then explore market opportunities, which we may not have potentially exploited. This can truly help us extend ecosystem players potentially. We would actually increase the pie.“Right now, we are all fishing within this old over-banked customers, but I think if we really use this to drive our financial inclusion agenda, what will happen is that we would increase the pie as it were, and obviously all of us will be bigger. Ultimately it will drive revenue stream”
Nigeria Open Banking
A major barrier to achieving Open Banking in Nigeria is misconception about its meaning, especially among banks.Speaking on how Open Banking Nigeria (OBN) is addressing the challenge, Ope Adeoye, said: “While there is a misconception that Open Banking equals forcing everyone to open up and partner with anyone who come knocking down the door.
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“We think we can define some standards, some trust-based rule that says every bank is independent, every bank is just connecting to a set of standards and every bank can chose who they partner with, rule under which they partner with those people and the commercial terms under which they partner with those people. This is so that whenever the regulation comes, it will be hard for such regulation to misconstrued.”
Also speaking in this regard, Oni said: “We have to do a lot of engagement. The OBN has been doing a lot of advocacy, and a lot of that, with partnerships with several other quarters including deposit money banks, will then only form the efficiency around some of these things.”
Open Banking started in United Kingdom in 2016, when the United Kingdom Competition and Markets Authority (CMA) directed the nine biggest UK banks to allow qualified third-party providers access to customer-permitted data.The directive came into effect on January 13, 2018, with implementation based on the use of standards and systems created by Open Banking Limited, a non-profit created especially for the task.
Presently there are 202 regulated providers, who are enrolled in Open Banking in the UK. Many of them provide financial apps that help manage finances and also consumer credit firms who use Open Banking to access account information for affordability checks and verification. Following the example of the UK, about 47 countries have also launched Open Banking initiatives, either through collaborative efforts or through legislation.These include Nigeria, where Open Banking Nigeria, a not-for-profit group was formed to drive the development and adoption of Open Banking standards in the country.