The Founder and Chief Executive Officer of Lendsqr, Adedeji Olowe, has said that Nigerian banks and fintechs are ready to provide easy access to loans at lower interest once open banking comes on stream.
Olowe, who stated this during a fireside chat at the Moonshot 2024 organized by TechCabal in Lagos said the new banking system for which the Central Bank of Nigeria released guidelines in 2023, would reduce the risks of lending for banks and fintechs, thereby allowing them to push out more loans at lower interest rates.
He noted that some banks have already invested in the technology to power the system which will leverage the Bank Verification Number (BVN) and the Nigeria Inter-Bank Settlement Systems (NIBSS) platform to provide data.
According to him, with the final nod being expected from the CBN, open banking is anticipated to kick off in Nigeria in the first half of 2025.
Removing lending risks
According to Olowe, lenders factor in the high risk of delinquency when setting loan rates, but with open banking, the risk of lending decreases, prompting investors to offer capital at more favorable rates.
“Lenders want assurance that they are giving money to the right people. The first assurance comes from good-quality data. Open banking will enable them to verify borrowers’ financial claims. When the risk starts going down, investors will start giving their money at a lower rate, and the economy will grow,” Olowe stated.
Olowe also addressed how open banking will streamline financial management for consumers. With many Nigerians holding an average of three bank accounts, managing finances across multiple banking apps can be cumbersome.
- According to him, open banking will allow consumers to consolidate their financial data into one platform, making it easier to budget, plan, and give lenders a more comprehensive view of their income streams.
- He drew a parallel between the evolution of the telecommunications industry and what open banking could achieve in Nigeria’s financial sector.
“Instead of carrying multiple phones with different SIM cards, you can now carry one phone with multiple SIM cards. The same will happen with bank accounts — open banking will allow you to consolidate them into one app,” Olowe explained.
- Olowe emphasized that while this may sound like a novel concept in Nigeria, it is already common in places like Europe, where banks and fintech companies allow customers to manage all their accounts from a single platform.
- He cited the example of Monzo in the UK, which enables users to connect various bank accounts and manage them seamlessly from one app.
What you should know
Nigeria became the first African country to establish an open banking regime after the CBN released its open banking operational guidelines on 7 March 2023, outlining rules on how banks and other financial institutions will access and handle customer data.
- Open Banking enables the sharing of customer-permissioned data between banks and third-party firms. This system allows banks to securely share their customer data with third-party companies, such as fintech and other financial service providers, with the consent of their customers.
- This sharing of data is done through Application Programming Interfaces (APIs), which act as a bridge between the bank’s systems and those of the third-party firms.
- Once a customer gives their consent for their data to be shared, the third-party firm can access their data through the bank’s APIs.
- This data includes information about the customer’s transactions, account balances, and other relevant information. The third-party firm can then use this data to develop innovative products and services that are tailored to the customer’s needs.