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Why Nigeria needs to pass a Data Protection Bill

The Nigerian banking system was for many years dominated by the brick and mortar banking system, commonly referred to as traditional banks, which dictated customer banking information and related financial data.

This includes recording how much we spend, save and borrow – from bill and mortgage payments to essential goods and services.

By law, banks in Nigeria are required to protect customers against unauthorized disclosure and access to their data. To fulfill this responsibility, banks and their staff typically isolate their customers’ data from others by withholding it.

Fintech innovators can design personalized, user-friendly products and solutions that bring speed, lower costs and more convenience to consumers

However, for about five years now that open banking has entered the scene, with the potential to unlock a wave of digital financial innovation and even disruption, it has not been the same.

Open banking refers to a system for sharing financial products and services. It enables non-banks to offer banking functionality by enabling them to exchange information and/or data with traditional banks in an efficient and secure manner.

With open banking, trusted applications (apps) operated by third-party vendors can access a banking customer’s information, with the customer’s permission.

All of this happens in a secure and standardized framework, using a technology called open banking application programming interface (API). Open banking has proven to be a global game-changer by driving innovation and improving competitiveness in the financial services industry. Nigerian consumers of financial services are also set to become the beneficiaries of the emerging competition in financial technology (fintech).

With so much of people’s lives spent online during the Covid-19 pandemic, individual consumers and small and medium enterprises (SMEs) have become much more open to fintech apps and other financial products and services. non-traditional.

It was reported that in the first six months of 2020, the number of users of open banking-enabled apps or products in the UK doubled from one million to two million and rose to more than three million in February 2021. In the United States, almost one in two consumers now use fintech solutions, mainly peer-to-peer payment solutions and non-bank money transfers.

The pace at which countries adopt open banking will obviously vary depending on their particular circumstances. In Nigeria, open banking is growing with the Central Bank of Nigeria (CBN) leads the way in regulation.

The CBN published the Regulatory Framework for Open Banking in Nigeria in February 2021 to regulate the activities of participants in the ecosystem as well as clarify the guidelines for APIs. Some time ago, the CBN further issued the operational guidelines for open banking in accordance with the provisions of the regulatory framework.

This structure was issued due to the increasing integration of banks and other financial institutions with financial services innovators and the growing adoption of API-based integrations in the industry.

Open banking simultaneously underpins and propels an expanding ecosystem of financial and non-financial institutions to access consumer financial data in a regulated environment. This will enable the delivery of new financial products and services, based on consumer preferences and consent.

For fintech startups, this opens up opportunities to offer competitive banking products and solutions to a wider market. Fintech innovators can design custom, user-friendly products and solutions that bring speed, lower costs, and more convenience to consumers.

It can also help financial service consumers access their multiple accounts from a single app and monitor their savings and spending. Allowing banks to offer regulated open access to their core banking services through third-party channels via APIs would enable and encourage greater transparency, flexibility and competition.

Also Read: How Lack Of Central Data System Is Crippling Nigeria’s Aviation Sector – Finchglow GMD

A few years ago, Nigerians had to go to bank tellers and spend precious time waiting their turn to open an account. This is different from what has been achieved since the introduction of open banking.

Today, with an open banking system, account holders can easily open an account and access other basic banking services. In addition, open banking offers customers additional flexibility in the way financial products and services are provided and interact with each other.

In this more complex and competitive environment, Nigeria would do well to study changing global trends in legislation and regulation to guard against potential open banking risks, such as breaches of data, fraud and cybercrime – for example in the European Union (EU), the United Kingdom, Australia and India, where governments have, through legislation and regulation, mandated open banking in the purpose of stimulating competition.

In the United States and China, it is a market-led movement, with companies establishing open banking relationships with each other. Singapore adopts a mixture of the two models.

Open banking has transformed the financial services market, players and customers in just a few years. Just as the internet started out somewhat unusual but later revolutionized modern reality, open banking has the potential to reinvent modern financial services.

It will be exciting to see the many innovative banking products and solutions that open banking will bring to the Nigerian financial services industry in the years to come.

Therefore, we urge that to enable open banking to achieve the desired goal, the National Assembly should, as a matter of urgency and in line with global standards, pass the Data Protection Bill.