For an easier, faster and innovative banking system, the central bank of Nigeria has recently established the regulatory framework for open banking in Nigeria. In order to expand the range of financial products and services available to bank customers, the Nigerian regulatory framework for open banking created standard for data sharing across the banking payment systems.
Financial institutions(FIs) have been reluctant to accept the Innovation because the result of open banking is ultimately competition thus forcing regulators to be the primary driver of open banking and it’s adoption across the country.
Due to the new regulation from CBN, open banking recognizes that customers of financial and non-financial services has ownership and control of data, and their right to grant authorisation to service providers to access innovative financial products and services.
What is open banking?
Open banking is a banking system in which third-party financial service providers are given open a cess to customer banking, transaction and other financial data from banks and non-bank financial institution via application programming interface (APIs).
This includes being able to download and share information about account balances, payments, transactions and investment. We can also define open banking as allowing a third-party to initiate transactions from a customer’s account such as sending payment or withdrawing money.
What is a banking API?
Application programming interface (API) are sets of instructions and protocols that guides software components on how to interact. The apex bank said it recognized the existence of an ecosystem for API in the banking and payment system and is aware of various efforts in the Industry to develop acceptable standards among stakeholders.
APIs are now being used to issue commands to third-party providers through open banking. For the functionality of banking-as-a-service(Baas), APIs are required which is a key component of open banking. Baas is an end-to-end process which helps to connect financial tech and other third parties directly to bank system with the aid of APIs.
Why would I want to share my financial data with a third-party?
Customers may wish to share their financial data with other companies to ensure the smooth running of their services.
An online wealth management company like piggyvest etc having understood their customers assets and liabilities can be of help in providing financial advise to their customers.
Some of the challenges that prevents people from switching banks are the speed and ease of moving informations like direct debit instructions, or frequent payees among others. But now with the invention; CBN’s new open banking policy, customers can now switch banks easily.
Benefits of open banking;
Open banking can allow financial services and customers or clients to communicate their data with other financial organization through the use of APIs.
Customers are at advantage of being informed about opportunities like opening new savings account with a higher interest rate or credit cards with lower interest rate, which is determined by API analysing the customers data.
By using networked accounts, lenders can have a clear picture of customers financial status and risk level thereby providing more profitable lending terms.
Open banking will provide customer’s easier and stress-free access to their financial data which in turn reduces expenses for financial firms.
Cons of open banking
Every system has both advantages and disadvantages. The likely disadvantage or cons of open banking include;
The possibility of a hostile third-party system whipping off a customer’s account.
Data breaches owing to poor security, hacking, insider threat which has become prevalent in the modern world as more data are interconnected in more ways.
What is the international trend in open banking?
European and UK regulators have mandated that banks must allow outside companies to access customers transaction history and take payment directly from an account with customers permission.
BBVA launched it’s Baas platform, open platform in the united States in 2018.
Open platform makes use of APIs to enable customers sell financial products to customers without having to provide a full range of banking services.
In May 2018, HSBC introduced its Connected Money app in response to the UK’s open banking legislation, which aims to give people more control over their financial data. Customers may examine all of their bank accounts, as well as loans, mortgages, and credit cards, in one spot with Connected Money.
Players in today’s digital space must constantly grow by remaining innovative thereby giving easy services to new and existing customers. It’s glaring that open banking has come to stay and as such the banking industry will have to accelerate it’s payment innovation to keep up with this new development.