Open Bank­ing: Why it should mat­ter in 2019

Business Day (Nigeria) - - CITY FILE -

Dig­i­tal tech­nol­ogy has in many ways trans­formed the fi­nan­cial ser­vices sec­tor, cre­at­ing new op­por­tu­ni­ties, re­duc­ing cost of op­er­a­tion, ex­pand­ing the com­pet­i­tive land­scape, and mak­ing op­er­a­tors more con­sumers friendly and re­spon­si­ble. The new tech­nolo­gies have also re­de­fined the way the way the fu­ture of fi­nan­cial ser­vices is per­ceived.

As greater em­pha­sis shift to data anal­y­sis in fi­nan­cial; ser­vices, a grow­ing num­ber of ex­perts have iden­ti­fied Open Bank­ing as the fu­ture of the sec­tor and one that has a clear path­way to an in­no­va­tive data fu­ture.

Open Bank­ing seeks to cre­ate a sys­tem in which cus­tomer data can be eas­ily, yet se­curely, ac­cessed by dif­fer­ent providers. Businessday re­cently sat down with pro­fes­sion­als, Iphie Jide-ebeogu, Mu­jib Ishola, Ope Adeoye, and Ad­edeji Olowe, driv­ing the Open Bank­ing Nige­ria ini­tia­tive.

Open Bank­ing Nige­ria also known as Open Tech­nol­ogy Foun­da­tion, is a non-profit cre­ated by a group of bank­ing and fin­tech pro­fes­sion­als work­ing to­gether to build the next gen­er­a­tion of Ap­pli­ca­tion Pro­gram­ming In­ter­face (API) stan­dards. APIS al­low soft­ware at one com­pany to have ac­cess to in­for- ma­tion from an­other.

Their mem­ber­ship in­clude in­di­vid­u­als and com­pa­nies such as 2ilab, Africa’s Talk­ing, Flut­ter­wave, For­loop, Global Ac­cel­erex, Her­itage Bank, Kinexus, Net­plus, Open Vec­tor, Paystack, PWC, Teamapt, and Wal­let.ng.

Open Bank­ing traces its root to Oc­to­ber 2015 when the Euro­pean Par­lia­ment adopted a re­vised Pay­ment Ser­vices Di­rec­tive (PSD2) which among other things set out to pro­mote the devel­op­ment and use of in­no­va­tive online and mo­bile pay­ments through open bank­ing. The UK took it a step fur­ther with the ruling by the United King­dom Com­pe­ti­tion and Mar­kets Au­thor­ity (CMA) man­dat­ing the 9 big­gest banks to al­low li­censed star­tups di­rect ac­cess to their data down to the level of trans­ac­tion ac­count. The Euro­pean Union fi­nally im­ple­mented the PSD2 rules in Jan­uary 13, 2018.

In Nige­ria the move­ment is gain­ing mo­men­tum. The Cen­tral Bank of Nige­ria re­vealed in Septem­ber, 2018 that it is work­ing on an ex­po­sure draft of the frame­work on open bank­ing which it will soon unveil.

Open Bank­ing Nige­ria team told Businessday that adopt­ing open bank­ing in Nige­ria is likely to yield in­stant ben­e­fits giv­ing that the coun­try has a more su­pe­rior ap­proach to dig­i­tal pay­ments com­pared to the UK which in­ter­est­ingly leads the world in doc­u­men­ta­tion and pack­ag­ing of its fi­nan­cial sys­tems.

“We are de­vel­op­ing Open Bank­ing Nige­ria to solve our spe­cific prob­lems rather than adopt­ing a dif­fer­ent stan­dard ill-suited to our en­vi­ron­ments,” the team said. “In fact, we be­lieve that when done oth­ers would em­brace the Nige­rian stan­dard than the com­plex Bri­tish im­ple­men­ta­tion.”

That sen­ti­ment is com­ing across slowly with the banks which have the big­gest stake in the open bank­ing era. It is an era that could po­ten­tially lower the tech­no­log­i­cal and op­er­a­tional barrier that pre­vents fin­techs and banks from crack­ing the fi­nan­cial in­clu­sion chal­lenge Nige­ria cur­rently faces. Nearly 40 mil­lion Nige­ri­ans fall among the fi­nan­cial ex­cluded bracket. An in­no­va­tion that makes it eas­ier, more con­ve­nient and low­ers cost of fi­nan­cial ser­vices will in­creas­ingly at­tract this cat­e­gory of in­di­vid­u­als. Open bank­ing will also throw the door of in­no­va­tion wide open mak­ing it eas­ier for star­tups to com­pete on a global scale.

“Open Bank­ing will have the same im­pact that mo­bile tele­phony had when it was launched 18 years ago. To­day, mo­bile tele­phony con­trib­utes 9.7 per cent of the GDP of the coun­try,” Open Bank­ing team told Businessday.

Al­though Nige­rian banks may seem hes­i­tant about in­te­grat­ing the tech­nol­ogy but re­ports al­ready show that some of them have in­vested in API strate­gies and made ef­forts to in­te­grate with fin­techs. Some of the banks with API gate­ways in­clude Di­a­mond, Ac­cess, UBA, and Gt­bank.

In the UK where it has gone main­stream, data from the Open Bank­ing Im­ple­men­ta­tion En­tity (OBIE) showed the tech­nol­ogy was used 3 mil­lion times in just one month in­di­cat­ing that the num­ber of fi­nan­cial ser­vices be­gin­ning to en­gage with API in­te­gra­tion is grow­ing.

The team be­lieve Open Bank­ing does pose a threat to banks rather it presents an op­por­tu­nity for growth.

“How­ever, it is easy not to see this if you are not a big pic­ture thinker,” they added, “When Open Bank­ing started in the UK, the banks fought the reg­u­la­tors ro­bustly. How­ever, by the time they saw the ben­e­fits, they turned around to cham­pion Open Bank­ing. At a re­cent event in London, where Open Bank­ing Nige­ria spoke, the at­ten­dees from banks were in the ma­jor­ity. Open Bank­ing cre­ates what we call the net­work ef­fect.”

It is not clear when the CBN in­tends to re­lease its ex­po­sure draft on the use of the tech­nol­ogy in Nige­ria but many ex­perts have pre­dicted it is likely to hap­pen in 2019. Car­los Figueredo, CEO of Open Vec­tor – one of the part­ners of Open Bank­ing Nige­ria - in an interview with Businessday in June 2018, said Nige­ria is on course to be­com­ing the first coun­try in Africa to in­te­grate Open Bank­ing on a large scale.

“It is just a mat­ter of time be­fore our reg­u­la­tors come to the ta­ble to set out guide­lines,” the Open Bank­ing Nige­ria team said, “The same hap­pened when cards moved from magstripe to EMV; the CBN took on the ini­tia­tive very quickly, and be­fore you know it, Nige­ria was one of the first coun­tries to be­come 100 per cent EMV com­pli­ant.”

The team dis­closed that it is cur­rently test­ing a sand­box which de­vel­op­ers can start us­ing from Jan­uary 2019 to de­velop their Open Bank­ing com­pli­ant ap­pli­ca­tions.

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