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Nigeria has approved final operating guidelines for open banking, becoming the first country in Africa to do so, as experts tell VIXIO that participants will need to embrace the opportunity to succeed.
Earlier in March, the Central Bank of Nigeria (CBN) released operating guidelines, setting out minimum standards and requirements for open banking participants. The framework also includes data and customer protection rules and regulates which data can be shared.
With the release of the guidelines, Nigeria is the first country in Africa to adopt open banking regulations.
“Open banking would usher in a new age of financial inclusion and financial innovation cementing Nigeria’s lead as a global pioneer in payments and financial services,” industry group Open Banking Nigeria said.
The final guidelines are the result of six years of work, which started in 2017 when industry participants came together and formed an open banking working group.
Later in 2021, the CBN released the regulatory framework for open banking, laying down the groundwork for the issuance of operating guidelines.
Although the specific details of how financial data sharing should work were not regulated until recently, a significant segment of the country's banks had signed up to the Open Banking Nigeria standard and the final guidelines are now expected to catalyse further actions.
Focus on data sharing
The guidelines establish two types of ecosystem participants, API providers and API consumers, and regulate data sharing between them.
The document does not specifically discuss payment initiation, but it leaves the door open to interpretation and potential bilateral agreements, according to Lauren Jones, director of market development at Open Banking Exchange, a global industry body.
Additionally, the framework enables an API consumer, depending on their licensing arrangements, to become an indirect participant in the central payments infrastructure and initiate their own payments independently, Jones added.
The open banking framework also builds on the Nigeria Data Protection Regulation 2019 (NDPR) and will also rely on further protections introduced in a draft Federal Data Protection Bill last October.
The upcoming legislation would establish the Nigerian Data Protection Commission and regulate data retention, international data transfers and data breaches.
This will provide “a solid foundation for data protection”, according to Jones.
More work needs to be done
In a January report on Nigeria’s payment system vision, the CBN praised the EU’s revised Payment Services Directive (PSD2) and indicated that it may create a regulatory environment based on the European model and localised to the Nigerian market.
At that point, the central bank raised concerns about the state of the compliance culture in the country, local market readiness, the stability of the payments network and the uptime for 24/7 clearing of payments. Separately, Nigeria was also placed on the Financial Action Task Force's (FATF) greylist in February.
The operational guidelines are now “a good step, but further community building needs to happen”, Jones said.
Nigeria has a strong real-time payments system that can enable 24/7 payments but “as with any major infrastructure, a strong picture of the availability and elasticity of the system is required to better understand the impact of higher payments demand”.
“The guidelines alone will not address that,” she added.
According to Brendan Jones, CCO of Konsentus, for the full potential of open banking to materialise, participants need to be able to identify and trust each other.
“As with any new service, trust is paramount,” he told VIXIO. “All participants need to be registered with the central authorities and be aware of the roles and responsibilities each can perform.
“Interaction between participants must happen seamlessly without introducing any friction in the customer experience.”
According to Brendan Jones, businesses need to understand the benefits: “Whether that is reduced risk, being able to access a richer pool of data or simply being able to speed up the decision-making processes.
“Unless businesses understand the benefits, they won’t embrace the opportunities.”
