Open banking in the Republic of Nigeria still has a long way to go before it reaches full maturity. As a rule, parties to an open banking agreement in Nigeria include a consumer, consumer bank & 3rd party financial providers. Regulation wise, the provision of financial services in Nigeria is regulated by the Central Bank of Nigeria (CBN).
Being quite attractive, the concept of open banking in Nigeria has the potential of arousing interest of new market players, such as:
- providers of payment services;
- providers of mobile money services;
- accounting firms, banks, providers of payment terminal services, etc;
- utility providers seeking to expand the provision of their services by using data analysis accessible through open banking.
Although open banking is capable of revolutionizing the banking industry in Nigeria, some of the vital infrastructure necessary for its full-fledged development is still missing. For example, the banking industry has yet to endorse unified API standards, which is why 3rd party providers may need to establish connection to specific banking institutions separately. Unlike a genuinely open API framework, this process is rather costly and may require a lot of time & effort.
Registration of a Financial Company in Nigeria
As far as rules & regulations are concerned, Nigeria doesn’t have any regulator mechanisms in place governing provision of open banking services. However, there are certain regulations that financial services providers are expected to abide by, including those established by the CBN, NCC and NITDA.
In 2018, Nigeria’s Open Technology Foundation launched a project aimed at developing & implementing open API standards in Nigeria. Apart from that, in 2019, the CBN issued an RFI document stating its vision of the development of the country’s payment systems until the year 2030. In it, Nigeria’s financial regulator gives priority to open banking. The CBN is now concentrating its efforts on developing guidelines on open banking in Nigeria, and it is expected that the document will provide the industry with a much needed sense of direction. Meant to foster the development of the banking industry in the country, the guidelines are also likely to arouse the interest of potential investors seeking to register a financial company & conduct financial activities in Nigeria.
Financial companies operating in Nigeria must receive proper documentary confirmation of their identification. It may be submitted in electronic form, as required by the relevant KYC requirements & regulations.
The rules stipulate that in cases of non-personal identification, there should be
an additional measure or audit to ensure that the applicant is what they claim they are. The measures used should also ensure the provision of sufficient documentary or electronic evidence to confirm the address and personal identity of the client.
Banking Regulation in Nigeria
Open banking can lead to potentially harmful consequences unless effective management of potential pitfalls is not undertaken from the very beginning. Risks associated with open banking services include, among others, a breach of confidentiality, cybercrime & fraud.
A potential pitfall of banking in Nigeria is the likelihood that banks and financial institutions will technically exclude low credit quality customers. Therefore, to manage the risk of financial exclusion, financial services providers are recommended to develop dynamic products that serve all customers with different credit ratings.
The banking sector in Nigeria still has a long way to go to before it reaches full maturity. It is, therefore, hoped that the introduction of the open banking concept will be the first stepping stone towards that goal.
Looking for a consultation on regulation of financial activities in Nigeria? ID Decision UK is at your service.