Channels of Banking are Opening Up.

Just as the door is shut on Crypto.

Not the channels of my spirit this time.

The channels of banking are opening up and it’s fun to see.

The CBN has released a notice recently announcing the regulatory framework for Open Banking in Nigeria. As of this morning, the Regulation remains unpublished on the CBN website. Luckily, I’ve had a look but would not be sharing a copy until it is published.* 

First off, what is Open Banking and how does it affect the world of finance and technology?

Open Banking is an industry model in Fintech which facilitates the integration of financial information and data between banks and financial institutions. Imagine how easily you can apply for a job by linking your LinkedIn profile to the job application form. Open Banking (OB) works in a quite similar but broader way, using access to your financial information as a way of providing better services. So imagine you need to access a loan on an app, instead of uploading a PDF of your account statement, you can just link your most active bank account, using what techies call an Application Programming Interface (API). If you are just getting to know what this is, you can have a start to the OB journey here.

Now, what does the new Regulation say?

An integral part of OB is financial data and access to it. This Regulation has categorized the different forms of data and services that may be rendered through OB in Nigeria into four stages namely: Product Information and Service Touchpoints (PIST), Market Insight Transactions (MIT), Personal Information and Financial Transaction (PIFT) and, lastly, Profile, Analytics, and Scoring Transaction (PAST). 

What the above means is that there are several categories of services operators in the financial sector may provide ranging from what financial apps are the best to use to access loans, to what kind of credit rating you may have as an individual. 

Another important feature of this Regulation is that it has determined a tier system that separates the forms of services that operators in the sector may give. For example, only licensed payment service providers, Other Financial Institutions, and Deposit Money Banks who are classified under Tier 2 & 3 can provide all forms of open banking services including PAST. Participants without a regulatory license will not be able to provide credit scoring services.

If you are probably wondering who in the financial market this affects. I would say potentially all operators, but more specifically startups like Okra NG, Mono Hq, among others may need to assess their services and how the new regulation impacts them. 

What I still do not understand or have not assessed is how the Open Banking Regulations affects the Credit Bureau system Nigeria already runs. I am also curious as to the implications on the use of data as against the provisions of the Nigerian Data Protection Regulations.

To the Crypto Ban… A little late on the commentary 🤦‍♂️

So the Central Bank of Nigeria directive hitting crypto-exchange transactions was earlier this month, we can say there is a lot to unpack!

Since the ban was placed on crypto transactions, I have read some good takes on the issue with my personal favourite being this analysis from Stears Business. 

Recall that the reaction of most regulators globally to cryptocurrency and decentralized financing (DeFi) is generally to urge caution on the part of the public as the regulators themselves try to understand its use cases. In fact, the CBN took the same approach in its circular to financial and non-financial institutions in 2017. 

In a  statement issued in September 2020, the Securities and Exchange Commission described crypto coins as assets, categorizing them as securities, and demanded that they be registered. A crypto asset is a digital representation of value. You can use it in digital transactions in exchange for a corresponding unit. 

On Friday 5th of February 2021, the apex bank issued another statement prohibiting and ordering banks to identify and close down accounts operating 'cryptocurrency exchanges'.

Lots of startups have built business models around the trade and exchange of virtual currencies (VCs). With startups like Buycoins, BushaHub, Bundle, among others, the adoption of VCs has been on a positive trajectory.

The implication of the CBN directive is that Crypto startups may no longer be able to operate domestically, as no banks are permitted to hold, use or even facilitate transactions in cryptocurrency. However, many (startups and the crypto-verse in Nigeria) are having a workaround the new regulations using peer-to-peer transactions. You can read more on that here: How Crypto Exchanges are responding to the CBN Ban by Tech Cabal

*Update: The Regulation has been uploaded as of 7th May 2021 when I checked the CBN Website. You can access the Regulatory Framework via this link.