Central Bank of Nigeria guidelines for open banking

The Central Bank of Nigeria (CBN) on the 7th of March, 2023 released operational guidelines for open banking in the country. Open banking enables third-party developers to build applications and services around financial institutions, particularly banks that hold customer data. The CBN developed the guidelines in collaboration with industry stakeholders and aims to foster customer-allowed data between banks and third-party firms. The adoption of open banking in Nigeria is expected to enhance efficiency, competition, and access to financial services by Nigerians.

A review of the CBN Guidelines on open banking 

The guidelines specify the responsibilities of all players participating in the open banking industry, as well as the processes involved in the exchange of data. All players in the industry are expected to provide strong adherence with the CBN open banking guidelines.

Entities participating in open banking are categorized based on their roles in the process. An API provider (AP) refers to stakeholders using API to ensure access of data or banking information to another player in the industry. API providers act as middelmen in the open banking industry and can either be a financial institution or service provider licensed by an authority in the country, a company in the Fast-Moving Consumer Goods (FMCG) industry, other retailers, Payroll Service Bureau, etc. 

An API consumer (AC), on the other hand, refers to players patronizing data provided by the API providers. Just as an API Provider, an API consumer can also be a a financial institution or service provider licensed by an authority in the country, a company in the Fast-Moving Consumer Goods (FMCG) industry, other retailers, Payroll Service Bureau, etc.  The last participant is the customer, who is the data owner that is required to give consent on the release of his data to ensure access to the varying open banking services offered.

In addition, the CBN intends to also create and allow an open banking registry (OBR) for the industry. All significant details of registered players would be stored on the OBR and would in turn act as a regulatory guide for stakeholders and ensure transparency in the open banking industry. The CBN reinstated that only players registered and having their details contained in the OBR shall be eligible to participate in the open banking industry and every player shall be identified by their registration number (RC) from the  Corporate Affairs Commission (CAC) registration, the players RC shall also serve as the unique code across the OBR database for the participant.

What is open banking and how does it work?

Open banking is a concept that allows third-party developers to create applications and services around financial institutions, particularly banks, that hold customer data. The aim is to provide customers with better and more innovative financial services by allowing them to share their financial information electronically and securely, but only under conditions they approve of. This means that customers can choose to share their banking data with third-party providers who can use that data to create services and products that are tailored to their needs.

Open banking is made possible through the use of Application Programming Interfaces (APIs), which allow different software applications to communicate with each other. APIs act as a bridge between different software applications, enabling them to share data and functionality.

In the context of open banking, banks act as data custodians, providing APIs that enable third-party developers to access customer data securely. This allows third-party developers to create new financial products and services that meet specific customer needs. For example, a third-party provider could use a customer’s banking data to create a budgeting app that provides personalized financial advice based on the customer’s spending patterns.

Open banking is expected to bring a range of benefits to customers, including greater access to financial services, improved convenience, and increased competition. It also has the potential to improve financial inclusion by providing customers with a greater range of financial options, particularly in areas where traditional banking services may be limited.

Open Banking Registry

The Open Banking Registry (OBR), which will act as a public repository for data on registered participants, will be established by the Central Bank of Nigeria (CBN). The OBR will ensure the possibility for regulators to monitor the actions of players in the open banking ecosystem and guarantee that business practices are transparent. By guaranteeing that only organizations that have registered with it may function in the open banking environment, the registry will also aid in preventing unauthorised access to financial data.

Each open banking participant is required by the CBN to provide the CAC company registration number, which acts as a distinct identity across the OBR system. The principal method by which API providers handle the registration of their API customers will be through the OBR’s application programming interface (API), which is highly described within the CBN’s operating guidelines.

The CBN intends to encourage the use of open banking in Nigeria by creating a safe and open environment that safeguards users’ financial information. To that end, it maintains a central registration for open banking participants.

Customer Consent

Under the operational guidelines for open banking by the CBN, customers are mandated to provide clear and explicit consent before their financial data can be shared with third-party developers. Furthermore, the guidelines require that customers are informed about the purpose of their data usage and the identity of the third-party developer accessing it.

By mandating explicit customer consent, the CBN seeks to ensure that customers’ financial data is protected and that they have control over how it is used. This is in line with global best practices for open banking, which prioritize customer data privacy and control.

Compliance and Monitoring

The operational guidelines for open banking by the CBN necessitates that all stakeholders guarantee absolute adherence to the guidelines and all other regulations. Furthermore, the CBN will maintain oversight of progress in the open banking ecosystem and provide direction when necessary.

By mandating compliance and monitoring, the CBN seeks to promote transparency and accountability in the open banking ecosystem. This will help to build trust between stakeholders and ensure that the system operates safely and securely.

Participants in the open banking system are also urged to cooperate with the CBN in guaranteeing adherence and oversight. This will aid in ensuring that the guidelines are efficient in promoting customer-centric products and services and augmenting efficiency, competition, and access to financial services in Nigeria.

Conclusion

The CBN’s release of operational guidelines for open banking in Nigeria marks a significant stride in fostering competition and innovation in the financial industry. Open banking enables third-party developers to build applications and services around financial institutions by securely sharing customers’ financial information with their consent.

The guidelines aim to build trust among stakeholders and ensure the secure and safe operation of the system. By continuously monitoring developments in the open banking ecosystem and issuing relevant guidance, the CBN seeks to promote transparency and accountability. These guidelines will contribute to the development of customer-centric products and services, improved efficiency, and access to financial services in Nigeria.