Nigeria will implement Open Banking system by August 2025, according to the country's Central Bank.
Open Banking in Nigeria Set to Revolutionize Lending and Financial Inclusion
Open banking, a system that allows secure, consent-based sharing of customer financial data between banks, fintechs, and third-party providers, is set to be implemented in Nigeria by 2025. This transformative move is poised to significantly impact the financial services sector, particularly lending, and deepen financial inclusion in the country.
The Central Bank of Nigeria (CBN) has been proactive in establishing a regulatory framework for this transition. The CBN's Regulatory Framework (2021) and Operational Guidelines (2023) emphasize tiered data access, strong governance, and risk management to maintain financial system stability while promoting innovation.
With open banking, lenders will have access to more accurate customer data, enabling them to build proper credit profiles and assess borrowers’ creditworthiness beyond traditional credit histories. This will reduce information asymmetry, enhance competition, and lower barriers for individuals and Small and Medium Enterprises (SMEs) to obtain loans.
Moreover, the open banking system could potentially revolutionize credit scoring practices in Nigeria. By integrating more comprehensive financial data, including transactional and payment initiation data, lenders can use alternative credit scoring models, making credit more accessible to those previously excluded due to lack of formal credit data. This supports the CBN’s goal to deepen financial inclusion and expand credit availability.
The implementation of open banking will also address the issue of risky loans and aggressive recovery tactics often associated with fintech lending. By providing more accurate customer data, open banking could potentially lead to more responsible lending practices.
Customers will have control over who has access to their data, thanks to a consent system linked to Bank Verification Numbers (BVNs). They will be able to give consent for their financial institutions to access data such as transaction history, account balances, and spending habits.
A central registry will verify the participants in the open banking system, ensuring a secure and consistent environment for data sharing. A standardized API will allow secure and consistent access to this data across all participating financial institutions.
The banking sector initially resisted centralising open banking under the Nigerian Interbank Settlement System (NIBSS). However, the CBN's response was to set up independent oversight committees composed of financial sector professionals, but without direct CBN control.
The implementation of open banking in Nigeria is a major step towards digital transformation in the country's financial sector. As the first African country to implement open banking, Nigeria is leading the way in financial data access and sharing, with the potential to launch Nigeria's first reliable credit scoring system. The open banking system is expected to start in August 2025, four years after the CBN released its regulatory framework.
In conclusion, open banking in Nigeria is set to transform lending by enabling more data-driven, customer-centric credit products, improving risk assessment, increasing competition, and expanding financial access to underserved Nigerians.
Technology will play a crucial role in the successful implementation of open banking in Nigeria, with a standardized API ensuring secure and consistent data access across all participating financial institutions.
The finance sector in Nigeria stands to benefit significantly from open banking, as lenders will have access to more accurate customer data, leading to more responsible lending practices and a potential launch of a reliable credit scoring system, deepening financial inclusion.
