Nigeria is on the cusp of a significant financial transformation, driven by its carefully crafted Open Banking ecosystem. A critical analysis of the Central Bank of Nigeria’s (CBN) “Regulatory Framework for Open Banking in Nigeria” and “Operational Guidelines for Open Banking in Nigeria”, alongside broader industry discussions, reveals a strategic, yet complex, journey toward a more inclusive and innovative financial landscape.
Open Banking in Nigeria is a transformative initiative driven by the Central Bank of Nigeria (CBN) to enhance financial system stability, deepen financial inclusion, and foster innovation within the financial services sector. It enables the secure sharing and leveraging of customer-permissioned financial data between banks, fintechs, and other third-party firms through Application Programming Interfaces (APIs).
Regulatory Framework and Operational Guidelines
The foundation of Open Banking in Nigeria is laid out in two key documents issued by the CBN:
Regulatory Framework for Open Banking in Nigeria (February 17, 2021): This framework establishes principles for data sharing, defines data and API access requirements, and outlines specifications for API, data, technical design, and information security. Its core objectives include providing an enabling regulatory environment for innovative financial services, defining risk-based data access levels, outlining baseline requirements for data exchange, offering risk management guidance, and promoting competition and access to financial services. The scope covers banking and related financial services like payments, credit, and personal finance management.
Operational Guidelines for Open Banking in Nigeria (March 7, 2023): These guidelines complement the regulatory framework by providing comprehensive rules for participants. They detail activities and responsibilities, stipulate requirements for data and API access, provide a framework for dispute resolution, establish risk management guidelines, and implement a robust Open Banking Registry (OBR).
Key Components and How it Works
Open Banking in Nigeria operates through several key components:
- Standardized APIs: A standardized API framework is central to Open Banking, allowing for secure, consistent access to financial data across all participating institutions. This standard is designed by the industry, for the industry, making it practical, adaptable, and tailored to local needs while building on global best practices like RESTful API architecture. It covers a broad range of financial transactions including direct debit, virtual accounts, and card management.
- Customer Consent Model: The framework emphasizes a strict customer consent model, ensuring individuals have full control over who accesses their financial information. Consent must be explicit, informed, in the customer’s preferred language and form, and re-validated annually or if the service hasn’t been used for 180 days.
- Open Banking Registry (OBR): The CBN established the OBR, a centralized platform managed by the Nigeria Inter-Bank Settlement System (NIBSS), which serves as a public repository for participants, registers and de-registers them, and facilitates trust and confidence in the ecosystem. Participants must register on the OBR before offering or consuming Open Banking services.
- Consent Management System (OBCMS): Managed by NIBSS, the OBCMS ensures customer data protection and manages consent for data sharing in line with the Nigeria Data Protection Regulation (NDPR). This system, potentially leveraging the Bank Verification Number (BVN) system, provides a centralized authentication mechanism, where NIBSS prompts the customer for login and generates a secure token for authorized data access.
Data and Service Categories
The framework categorizes data and corresponding API services based on risk levels:
- Product Information and Service Touchpoints (PIST): Low risk, providing information on products and service access points.
- Market Insight Transactions (MIT): Moderate risk, involving aggregated statistical data.
- Personal Information and Financial Transaction (PIFT): High risk, encompassing individual customer and transaction data.
- Profile, Analytics and Scoring Transaction (PAST): High & Sensitive risk, including credit scores and income ratings.
Access levels are guided by the risk management maturity of participants, ranging from Tier 0 (without regulatory license) to Tier 3 (Deposit Money Banks), each with specific data and API access requirements.
Roles and Responsibilities of Stakeholders
Various stakeholders play crucial roles in Nigeria’s Open Banking ecosystem:
- Central Bank of Nigeria (CBN): The chief architect, responsible for issuing regulations, oversight, enforcement, dispute arbitration, and facilitating enablers like the common Banking Industry API Standard and the OBR.
- Nigeria Inter-Bank Settlement System (NIBSS): Tasked with operationalizing the OBR and managing the Open Banking Consent Management System (OBCMS).
- Traditional Financial Institutions (API Providers): Key funders and providers of APIs, allowing fintechs and other third-party providers (TPPs) to access customer data with consent. They are responsible for publishing APIs, defining accessible data, complying with the framework, conducting “Know Your Partner” (KYP) due diligence, and sharing liability for customer loss.
- Fintechs (API Consumers): Leverage open APIs to develop tailored financial products and services, fostering competition and financial inclusion. They are responsible for executing agreements, adhering to guidelines, obtaining end-user consent, and complying with data privacy laws.
- Open Technology Foundation (Open Banking Nigeria): A non-profit organization that has worked directly with the CBN and other regulators to drive industry advocacy, develop and document API standards, and promote consumer education.
- Developer Community: Develops APIs based on requirements, employing secure coding standards and avoiding direct interaction with production servers.
- Other Notable Stakeholders: Include the Committee of Banking Heads in Nigeria (CeBIH) and the West African Bankers Association (WABA), who promote digital banking and advocate for standardized cross-border policies.
Impact and Benefits
Open Banking is expected to have a significant impact on Nigeria’s financial services:
- For Consumers: It offers control and choice over their financial data, enabling access to more tailored financial products, increased access to credit, personalized services, and fairer pricing. Examples include personal finance management apps, streamlined mortgage applications, and easier tracking of pensions and investments.
- For Banks: It shifts the focus to earning customer loyalty through better products, competitive rates, and superior customer service.
- For Fintechs: It removes roadblocks to accessing banking data, allowing startups to build and scale financial products faster, fostering innovation and competition.
- Financial Inclusion: By providing access to rich banking data from Nigeria’s millions of account holders, Open Banking can transform financial services, especially lending, by enabling more accurate credit scoring and reaching underserved segments.
Security and Data Protection
Open Banking in Nigeria places a strong emphasis on data privacy and security:
- Nigeria Data Protection Regulation (NDPR): Sets clear guidelines for handling financial data, ensuring that only authorized institutions can access it with explicit customer permission.
- Financial-grade API (FAPI): Nigeria is expected to adopt FAPI, a security framework that builds on OAuth 2.0 but introduces stricter security measures tailored for financial applications, ensuring secure data exchange, robust authentication, and limited data exposure.
Challenges and What Comes Next
While Open Banking in Nigeria is gaining momentum with a committed nationwide go-live in 2025, several challenges and future considerations remain:
- Operationalisation Adoption and Operationalisation: Open Banking itself must first be fully adopted and operational across the ecosystem before the broader concept of Open Finance can become a reality.
- Cross-Regulatory Coordination: The CBN alone cannot drive Open Finance; unified, cross-agency policies involving other financial regulators like SEC, PenCom, and NAICOM are essential.
- Data Standardisation Across Sectors: Similar consistency in data standards applied across pensions, insurance, investments, and tax systems is crucial for interoperability.
- Clear Legal Backing: A law or regulation explicitly giving consumers the right to control and share their financial data while mandating providers to comply is needed for enforceability.
- Security and Trust: Strong rules around consent, data storage, usage limits, and liability must be strictly enforced to build trust.
- Public Awareness: Nigerians need to understand the benefits and implications of Open Finance to encourage participation.
Relationship with ISO 20022 and OCEN
- ISO 20022: The CBN has mandated ISO 20022 for banks, but its role in Open Banking remains undecided. While it offers benefits like standardized products, real-time payments, and enhanced security, its complexity and cost of implementation for Nigerian financial institutions are concerns. The debate continues on whether to fully align with this global standard or prioritize a system tailored to Nigeria’s unique financial realities.
- Open Credit Enablement Network (OCEN): OCEN, an Indian initiative to democratize credit access, is gaining momentum in Nigeria as a potential solution to the credit access problem. If integrated with Open Banking, OCEN could provide a data layer for credit decisions, lowering borrower acquisition costs, enabling more accurate credit scoring, and embedding credit directly into everyday services. However, challenges include technical integration, regulatory hurdles (especially for non-bank entities), cultural skepticism, and the need for robust data privacy and financial literacy. While OCEN is not a magic bullet, it could be a significant part of Nigeria’s credit infrastructure solution if implemented correctly alongside other necessary reforms.
Here are the key takeaways:
1. A Proactive Regulatory Stance with Phased Implementation
Unlike many jurisdictions where Open Banking emerged organically before regulation, Nigeria’s CBN has taken a proactive, top-down approach. The initial Regulatory Framework established the foundational principles and objectives, followed by the detailed Operational Guidelines. This phased approach, from framework to operational rules, demonstrates a commitment to structured growth and minimizing regulatory arbitrage, ensuring stability as innovation unfolds. It’s an interesting model to observe how a developing economy is attempting to leapfrog some of the challenges faced by mature Open Banking markets.
2. Emphasis on Tiered Data Access and Robust Governance
The CBN’s framework introduces a risk-based categorization of data and services (PIST, MIT, PIFT, PAST), with corresponding tiered access levels based on participants’ risk management maturity (Tier 0 to Tier 3). This nuanced approach acknowledges varying capabilities among financial players, from unregulated entities to Deposit Money Banks, ensuring that highly sensitive data (PIFT, PAST) is handled by more mature and regulated institutions. This structured governance model is crucial for managing systemic risks in a rapidly evolving ecosystem.
3. Joint Liability and Strong Consumer Protection
A standout feature is the joint responsibility and liability of both API Providers (e.g., banks) and API Consumers (e.g., fintechs) for any loss to the customer, unless willful negligence or fraudulent act by the customer is proven. This provision, coupled with strict customer consent requirements (explicit, informed, annual re-validation) and adherence to the Nigeria Data Protection Regulation (NDPR), places consumer protection at the core. This is particularly educative, as it sets a high bar for accountability and fosters trust, which is essential for mass adoption.
4. The Critical Role of NIBSS and the Open Banking Registry
The establishment of the Open Banking Registry (OBR), managed by the Nigeria Inter-Bank Settlement System (NIBSS), is pivotal. It acts as a central repository for registering and verifying participants, fostering transparency and confidence. Furthermore, NIBSS’s role in managing the Open Banking Consent Management System (OBCMS), potentially leveraging the BVN, offers a centralized and secure mechanism for authentication and consent. This centralization aims to standardize the consent experience and streamline operations across the ecosystem.
5. Industry-Led API Standardization: A Practical Approach
The commitment to developing a common Banking Industry API standard driven by the industry itself (“by the industry, for the industry”) is highly practical. This approach, which allows for adaptable, relevant standards, stands in contrast to some global models where standards are imposed. While the framework mentions international standards like ISO 20022, the internal discussion within Nigeria about the complexities and costs of fully aligning with it, versus a more tailored solution, highlights a pragmatic approach to adopting global best practices while considering local realities.
6. Open Banking as a Stepping Stone to Open Finance and Credit Democratization
The documents and related discussions clearly position Open Banking as the foundation for the broader concept of Open Finance, which would encompass sharing a wider range of financial data (insurance, pensions, investments). This forward-looking vision is compelling. More immediately, Open Banking’s potential to democratize credit access through more accurate credit scoring, using rich banking data, is a game-changer. The mention of the Open Credit Enablement Network (OCEN), an Indian initiative, suggests Nigeria is actively exploring innovative models to address its credit gap, moving beyond the often-problematic limited-data lending practices of the past.
7. Navigating Challenges: A Realistic Outlook
The analysis also sheds light on the inherent challenges. These include the need for cross-regulatory coordination beyond the CBN, ensuring consistent data standardization across diverse financial sectors, establishing robust legal backing for data rights, maintaining stringent security measures, and driving widespread public awareness. The acknowledgment of initial resistance to centralizing Open Banking under NIBSS, leading to the formation of independent oversight committees, underscores the collaborative and adaptive nature of the implementation process.
Conclusion
Open Banking in Nigeria is a strategic move towards a more inclusive, efficient, and innovative financial ecosystem. While the regulatory framework and operational guidelines are in place, the successful implementation hinges on continued collaboration, robust infrastructure, and addressing the unique challenges of the Nigerian market.
Nigeria’s Open Banking journey, with its 2025 full adoption target, is a testament to its ambition to leverage technology for financial inclusion and economic growth. By carefully balancing innovation with regulation, prioritizing consumer trust, and fostering industry collaboration, Nigeria is setting a fascinating precedent for how developing economies can build a resilient and dynamic digital financial ecosystem.
SOURCES
1. Regulatory Framework for Open Banking in Nigeria (CBN February 17, 2021)
2. Operational Guidelines for Open Banking in Nigeria (CBN March 7, 2023)
