With the recent news that the Central Bank of Nigeria has approved and published its Open Banking guidelines, now seems like an appropriate time to deep dive into what Open Banking is and how it can shape the world of FinTech.
Open Banking is the framework that allows customers to have greater ownership over their banking and financial data. This gives them the ability to give access to their data to third parties who in turn will be able to provide unique and tailored financial experiences to them based on this data.
The primary vehicle for granting access to this data is through APIs as this allows for seamless integration between third parties and the financial institutions that hold this data and the process usually involves creating a link between your bank account and the third-party application via a process of tokenisation.
Why is Open Banking a good initiative?
It allows for greater levels of innovation and competition in fintech. Disruptive solutions can be built by FinTech organisations to harness the power of this data which means the individual will benefit from an increased range of options and services that have been put together specifically for a particular end-user.
Examples of how Open Banking will have an impact:
- Lenders will be able to have an accurate picture of a customer by analysing their historical transaction data which in turn means they can offer hyper-tailored loans as they will better understand the risk profile of the customer.
- Account aggregation services will allow you to better understand your money across all the institutions that you use and provide insights at an aggregated level rather than going into each individual banking app on-by-one.
- Payment initiation services will allow for a more seamless checkout experience when using pay-by-bank transfers.
Are there any risks?
As with any solution that involves customer data, it is important that the correct measures are put in place to ensure that customer data is kept private and secure. Customers must feel confident when granting that third-party access as they will be exposing their personal financial information to an outside platform. Hence, it is great to see the Central Bank of Nigeria implementing a clear framework for how such processes should take place.