According to an article by PWC, “Open Banking is a blanket financial services (FS) term used to describe the use of open technologies by third-party providers (TPPs) to build services and applications around financial institutions.”
Read more about Finance
On 17 February 2021, the Central Bank of Nigeria (CBN) fully legalized open banking in Nigeria by issuing the Regulatory Framework. The framework was set in motion for payments and remittance purposes, deposits, leasing, hire purchase and treasury management amongst others.
With the growth of
FinTech and other alternative financial service providers, it has become pertinent to make use of the open banking system. This will ensure the provision of seamless financial services since the system makes use of data and application programming interface (API).
There are certain positive impacts which the introduction of open banking has on the financial and banking system of the country. They include:
This is easily the most important impact of the open banking system. Due to the introduction of this new system, customers of financial institutions do not have to stand in long queues, fill lengthy forms and go through rigorous banking processes. This is because
customers can regulate their financial transactions from one centralized location. Onboarding of new customers is also made flexible as it reduces the required paper works.
Times are changing, and with the invention of technologies and systems, there is an increased desire to always step up one’s game. Companies are continually searching out ways to do better and serve their customers more effectively. This breeds innovation. To a very high extent, this also encourages competition amongst FinTech companies who are striving to be at the forefront of quality service provision. Loan services and other services are being optimized to create a better user experience for the customers. This creates an enabling environment for favourable competition amongst FinTechs while enhancing innovation.
Sign up to the Connect Nigeria daily newsletter
-
Effective Risk Management
Unlike in traditional banking where the risk is often borne by one party, the open banking system, with the introduction of APIs have made risk management effective. The risks involved are now borne by all the participants in the entire process, as they share liability. A chief risk officer who is in charge of monitoring internal control is usually employed to ensure the appropriate steps are taken. Since the API has information technology security policies, risk management is made easy, or at least, more organized. The customers’ rights are also put into consideration since their consent must be revalidated annually.
Cybercrime is one of the major crimes in our society today, as fraudulent individuals take advantage of loopholes in the traditional banking system to defraud people. In the open banking system, there is an emphasis on data policy, where the customers’ consent is paramount before any banking process begins. However, there are concerns about scams, data breaches and hacking, with the introduction of this new system.
Nonetheless, measures are being put in place to ensure secure data sharing and utilization of the APIs. This led to the establishment of the Nigeria Data Protection Regulation (NDPR), which is similar to the European Union General Data Protection Regulation (GDPR).
Despite the concerns on data sharing and other subtle loopholes, the open banking system can work and serve Nigerians efficiently. It is certainly a welcome development by the CBN, which will in no little way revolutionize the banking system in Nigeria.
Featured Image Source: The Guardian NG
Got a suggestion? Contact us: editor@connectnigeria.com
