The recent ease in payments using your traditional Automated Teller Machine (ATM) cards in third-party merchant payment options is seen by many as a game-changing option. Cast your mind back a few months to the 2023 general election and the issue of naira redenomination and colour change that plagued that period; you will appreciate the advent of an open banking system.
“Today in Nigeria, open banking concurrently underpins and propels an expanding ecosystem of both financial and non-financial institutions to access consumer financial data within a regulated environment, enabling the provision of new financial products based on consumer preferences and consent.”
As of 2023, there was no readily available specific data on the exact number of users of open banking-enabled apps in Nigeria. However, considering the growing adoption of fintech in the country and the recent rise in open banking users globally, it is likely that the number is significant but still developing compared with more advanced markets; further research into recent reports from the Nigerian Inter-Bank Settlement System (NIBSS) or Open Banking Nigeria (OBN) provides a more accurate estimate.
As we can recall, Nigeria’s banking system has for many years been dominated by the traditional banks, who dictate their customers’ banking information and related financial data—including the record of how much we spend, save, and borrow—from bill and mortgage payments to essential goods and services.
However, since the advent of open banking, with the potential to unlock diverse digital financial innovations, it has not been the same again in the Nigerian banking ecosystem.
This is a system for sharing financial products and services that allows non-banks to offer banking functionality by enabling them to exchange information and/or data with traditional banks efficiently and safely. With open banking, trusted applications run by third-party providers can access a banking customer’s information by permission.
This all happens within a secured and standardised framework, using a technology called open banking Application Programming Interface (API). Open banking has proven globally to be game-changing for encouraging innovation and enhancing competitiveness in the financial services industry. Nigeria’s consumers of financial services have also become beneficiaries of the growing competition in the financial technology (fintech) space.
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With many people online today and the re-denomination of the naira before the 2023 general election, individual consumers and small and medium-sized enterprises became much more open to fintech apps and other non-traditional financial products.
In July 2024, Open Banking Limited announced that there were now 10 million consumers and small businesses regularly benefiting from using open banking technology, and the number has continued to rise.
Open banking is growing in both the US and the UK, but the adoption rates and regulatory frameworks differ. In the US in 2021, 81 percent of adults linked their bank accounts to third-party apps, a growth believed to be driven by consumer demand for more personalised financial services. While in the UK, as of December 2024, the number of active open banking users surged to 12 million, up from approximately 8 million at the end of 2023.
Although the rate of adoption varies between nations, in Nigeria, open banking is growing with the Central Bank of Nigeria (CBN) leading the way in regulation. The CBN’s Regulatory Framework for Open Banking in Nigeria regulates the activities of the participants in the ecosystem as well as specifies the guidelines for the APIs.
The framework was issued due to the growing integration of banks and other financial institutions with innovators in the financial services space and the increasing adoption of API-based integrations in the industry.
Today in Nigeria, open banking concurrently underpins and propels an expanding ecosystem of both financial and non-financial institutions to access consumer financial data within a regulated environment, enabling the provision of new financial products based on consumer preferences and consent.
Notably, for fintech startups, it opens up opportunities to offer competitive banking products and solutions to a wider market. Fintech innovators can design customised, user-friendly products and solutions, bringing speed, lower costs, and greater convenience to consumers.
Additionally, it is helping consumers access their multiple accounts from a single app and monitor their savings and spending. It enables and encourages greater transparency, flexibility, and competition, allowing banks to offer regulated open access to their core banking services through third-party channels via APIs. It saves time, as customers no longer have the need to visit banking halls for transactions.
Also today, with the open banking system, customers can easily open an account and access other basic banking services, providing customers with additional flexibility in the way financial products and services are provided.
Globally, the open banking ecosystem has changed the financial services market, the participants, and the customers in just a few years, and what every society needs is the right regulation to govern it.
