Commendations on how savvy and up to date Nigeria’s banking and fintech space is flooding local and international media; yet the issue surrounding financial inclusion and the large number of the unbanked Nigerian population has remained for decades. Whilst the government, financial system regulators and key sector players are not relenting on policies and efforts, a paramount initiative that will help in achieving the inclusion drive is ‘Open Banking’, says Carlos Figueredo, the Chief Executive Officer of Open Vector Limited, adding that the United Kingdom is the first country in the world to go live with open banking. Figueredo, a key driver of the initiative in the United Kingdom was in Lagos, Nigeria recently, and invited business a.m. to a meeting to share this initiative, which is now being taken forward in Nigeria. He spoke with business a.m.’s STEVE OMANUFEME and ADESOLA AFOLABI on what open banking means, what it would do for Nigeria’s financial and social inclusion advocacy, the challenges he faced with the implementation of ‘open banking’ in the U.K, and the next steps to take as a nation towards using the initiative in actualizing some of the nation’s financial dreams. Excerpts:
Let’s start with the concept of open banking; what does it mean and what would it offer Nigerians?
There is something important and exciting in this country, and it’s that open banking initiative has already started in Nigeria. There is already an open banking Nigeria movement, a non-for-profit organisation headed by Adedeji Olowe. Together with his team, he realized the opportunities of open banking and how it started in the UK and the potential it has for social and financial inclusion, which is the very important aspect of it.
So, the open banking initiative is already here in Nigeria. Open Vector signed a key partnership with Open Banking Nigeria some time back and are here as part of the Lord Mayor of London’s delegation to speak about Fintech in London but primarily to speak about open bankiong. Through this partnership, Open Vector will bring our experience and credibility and help them push the initiative forward.
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Open banking is not a product; it’s not a debit card. It’s a movement of innovation that has a couple of key components to it that then creates the social and financial inclusion. It has a key aspect of legal and regulatory framework, which we would work very closely with the regulators and with the government to provide. By having this legal and regulatory framework, the banks together with the fintechs can work on innovation of new products and services to further social and financial inclusion.
So, open banking would bring about collaboration or competition between fintechs and the banks?
It’s not about competition between fintechs, but about creating competition between the banks, which is positive for the consumers. This is all about the consumers. Open banking is not about the banks, or the fintechs, it’s about us the consumers. It’s creating the possibility for consumers to have access to financial goods and services. By having a legal and regulatory framework, the first thing open banking does is that it aligns banks to standardize and share data. Those are the very key elements. By sharing data (which is the new oil of the world) in a standardized and legal format, the fintechs can now come in, pull that data and create new product and services that we otherwise would have never been able to do. Let me give an example so that you understand how that could be important. If the banks are regulated and standardised to share data, I could have an app on my phone through open banking (remember open banking is a movement not a product), that gives me instant access in one place to let’s say, my three bank accounts with three different banks in Nigeria. Without open banking I would have to log in to each bank to check my balance. But with open banking, because that data is standardized and now made available to fintechs to create an app for me that I can go into one app and show all of my balances for all my accounts in one place. Now isn’t that dangerous, is there a risk? Well, the good thing about open banking is that it has a component called GDPR. GDPR is a security element and a movement that is currently in place in Europe, and what it does is provide a consent mechanism to protect the consumer of how the data is to be used. So the power goes back to the consumer. The consumer will be able to dictate how the data is to be used, and what someone can do with the data. So in this particular case, what you will be able to do is to give consent to say someone or a fintech to only view the balance of your account. That’s all they can do. They can’t debit your account, they can’t credit your account, and they can’t do anything because it’s for the purpose of creating an aggregation to data. So ideally, it’s a movement on the provision of an enabling environment for innovation and technology for both consumer and provider of service to have an open platform where you can do most of your transactions based on the consumers consent.
Can you imagine the power of banks and fintechs working together in ways that they haven’t worked before through a standardized open data format under a legal and regulatory framework that protects everyone, including the banks from the fintechs, the fintechs from the banks and most importantly the consumers, and how much innovation we can do, and how we can reach not only the banked but the unbanked?
Now you would wonder why will the banks want to reach out to the unbanked. These are poverty level people, that don’t have money, they are high risk because they have nothing to offer, there is nothing from the equity perspective, so traditionally banks are not interested in the unbanked because there is no market there and there are no margins to be made. But if we find innovative ways through fintech, there could be a real change.
In an example I gave during a presentation in South Africa, banks consider the unbanked to not having any potential gain as there would be no money to be made. But the telecoms operators were able to get 10 million cell phones out to people in poverty levels. So how did that happen, how can it be that those people who are considered to be poor, have cell phones? That’s because mobile payments and other innovation came in to where people in those poverty levels have been able to embrace phones as a mechanism of gaining access to product and services to benefit them, and that is the movement of open banking. If the mobile sector can do it, why couldn’t banks and fintechs do the same thing? Today people in the poverty level have to go shopping, they have to buy things to meet their needs. What would happen if retailers, fintechs and banks came together to create a mechanism that benefits the consumer but yet has the financial opportunity for all the players. For example, if the likes of a Shoprite created a card, I think I saw here that Spar has a membership card. Taking that a bit further, what will happen if say the likes of Spar and Shoprite created a membership card that for every time someone purchased their needs there, they will then gain a certain amount, which would be credited to a bank account instead of the points staying within the consumer card account. So, a bank account is opened for a consumer, like a savings account of where minimum monies like that could be saved and such consumer has the choice of using those values accumulated in ways that they would not have been able to use before. With this, there is no risk to the banks as they are receiving monies from the retailers that otherwise they would not have been able to receive. On the other hand, the retailers are gaining access to a market now that there is a membership element to it, and for the consumer they are benefiting from the potential services that can come out of it. And the fintechs are creating the apps and the technology behind the scenes that can make all of this work seamlessly. So this is just an example of how, if we all come together to create those goods and services, we can benefit the community.
Nigeria is a peculiar country, and things are still done pretty much traditionally, particularly around data sharing, how will our conservative banks who feel the risks are much more than the gains be convinced to come on board with such an initiative?
The interesting thing is the banks are open to the idea. I thought that was the mentality when I was coming over to Nigeria. I thought that was going to be the bottleneck. I am actually incredibly surprised in my various conversation with various banks here in Nigeria, which have shown not only the willingness to open banking movement, but are already doing innovative things with fintechs. They are already doing things that allow for open banking. The banks welcome it and want the opportunity to look at the innovation element in this, to challenge and to raise the bar on innovation in creating new products and services. But most importantly, there are two key things that they welcomed strongly, and that was a single standardized playing field for all the banks, they welcomed that tremendously and also a legal and regulatory framework, so that everyone understands what the rules of engagement are. Those were the two key points that the banks strongly supported. There will always be a bank that will be a bit more hesitant, but at the end of the day, the only bank that I had a conversation with that was a bit more hesitant, all they said was, at the end of the day, if the community moves in the direction, we will welcome it, because we think it’s the right thing to do.
So, I went from that, which was like the most negative comment (I thought was a good positive comment) all the way to where do we start, how quickly can we do this? So, I leave Nigeria incredibly impressed not only because of the open minds of the banks, but the innovation of the fintech community and how they are already embracing that work with banks, I will say it is even more advanced than what we have today in the UK.
Does Open Vector have any role in driving the pace of implementing the regulatory and legal framework that this open banking movement is expected to ride on?
Our role as Open Vector will specifically be to come and help the regulators and the government to not necessarily create, because it will mean that there was nothing on ground, but to do a deep dive and look at the current legal and regulatory framework and help them to restructure it to embrace innovation.
We would look at how we can present a new framework that will drive all innovation going forward and we will like to do that as soon as possible. The next step for us as Open Vector is to come back in the next couple of weeks to start to have more serious and educational conversations in the sense that we will do a more formal presentation to the central bank, the ministers, other regulators etc.
Is Open Vector coming to establish here in Nigeria or will you be working primarily with Adedeji’s Open Banking Nigeria team?
For us at Open Vector, it is not about coming in and taking away jobs from Nigeria. We want to create jobs for Nigerians and because you already have a movement, through the Open Banking Nigeria team, that is very exciting. Adedeji is an incredible person, so we are very happy to work with him. We come as a consultancy team that will help Adedeji to bring and move open banking forward and be able to structure and create a team on the ground that will work with us, then we leave behind a legacy of a Nigerian open banking relationship that can then move on its own and continue the path for years to come. We are not here to stay permanently because that is not our role. We are not here to take jobs away but to work closely with the government and regulators in creating the legal structure and bring in our knowledge around data standards, strategic stakeholder management (which is the most difficult part). Once we have established those elements and it’s started, we are happy to walk away.
What is so exciting about open banking is that, the initiative in itself will create products and services that we are yet to create. Let’s just imagine there was an app created called easybuy, that if you install it, anytime there is a product or a service that we talk about on any of our media or chatting channels and I am interested in it, this app finds it, offers it and you can buy it immediately. So we could be talking on WhatsApp about some shoes you got that I love and would want to get for my wife, I would trigger easybuy, show me the shoes, where to buy, the price it goes for and ask if it’s on sale, while we are on our chat screen. So, if I decide to purchase I will give easybuy the consent to go and debit my account.
We can be very technological savvy here in Nigeria, and we know hacking is on the rise. How does open banking protect the consumer from fraud and loss of monies?
You should be proud of your technology and fintech community here; it is really good, but with open banking GDPR is the way to go. GDPR is a safety component that protects the consumer through consent. It gives the consumer the power of its data protection rights. What it means is that through GDPR, a fintech signs up to the movement of open banking with GDPR as a safety component. The fintechs and the banks may be held liable for anything that you have not given consent to depending on how the legal framework is structured. So if you tell, say, easybuy to go and purchase those shoes and next thing you know, easybuy issues a debit on gift wrapping, or something else that you never gave consent to, the banks and or the fintech could be held accountable. Potentially the liability will be on whoever does not uphold the consent, because if the fintech is going out in trying to get money for the gift wrap, the bank (and I am not saying that this is the way it could happen, its potentially) the bank could track back and find that there is no consent check from the consumer for a gift wrapping service and then decide to hold, reject or potentially report the fintech. So there are ways that we can come up with protection elements to protect the consumer.
But that is about consumers with the bank accounts. How about the unbanked?
That’s also what is really exciting about open banking. Can you imagine how we can get to the people in the North, how can we get to farmers and how we can create products and services that will help make their lives better? How can we incentivize people in those areas that are rural where there are no fintechs and there is very little access to technology, how can we create those products to get to people that need social inclusion? That is what gets me gets me more excited about doing this. It’s not about the money, but about the challenge of how do we reach out to create more social and financial inclusion.
How many countries have you been in Africa, Why Nigeria?
Because the Open Banking Nigeria movement started before any other African country, and it wasn’t because we did, you did it! People here in Nigeria started open banking, and when we connected it was such a great surprise to see that it was done by someone here. It was started by Nigerians who visualised the opportunity. So, that is really exciting, as Nigeria would become the first country in Africa to embrace open banking. There is another element, and it is that Nigeria could become the hub for the financial sector as other surrounding countries can leverage the innovation and potentially attract new investors.
If you embrace open banking, it means that the government the regulators have looked into and have adopted a legal and regulatory framework that protects everyone. Innovation is great, but imagine that we went to a country where there were no cars and no transportation, then we brought cars to the country, everyone will be so excited to drive and all of a sudden people are buying all sorts of cars, but there are no street signs, there is no driver’s license, no laws, what happens?
Everyone is happy, but there will be lots of confusion (now I am not saying that this is what happens in Nigeria) but what open banking does is that it creates that structure that regulates driving. With that the government feels happy because they have all the compliance issues taken care of, the car dealers are happy, because now they know they are selling cars in a legal and regulated manner. So by having that legal framework, it tells the world that, Nigeria now has a legal and regulatory framework for innovation and create credibility in the financial sector globally. So you could go from everyone thinking you are this volatile country of high risk to now adopting a structure or a framework that will lower corruption, and diminishes some of the challenges that you can have.
Is technology the major driver of this initiative? If it is, how can the unbanked and those in high poverty regions where access to technology is very low, benefit from open banking?
Yes, technology is the main driver for open banking. But the potential opportunities for collaboration are endless. A perfect collaboration scenario may be a situation where the telcos, fintechs and banks create a set of services and products that will give every person in the North a free cell phone and through the products and services, they can do transactions or things that otherwise they would never have access to. This thus mean that they can now afford to have the technology that the banks, fintechs and telcos can work together to create new products and services that by them having their phones so far away, it empowers them to be able to do XYZ. Those are some examples of the exciting things that could happen. If we don’t create and standardize the legal and regulatory framework, the banks are going to continue to be banks, and the fintechs will continue to bang their head, trying to create technology because they don’t have the relationship, and the telcos will continue to do what they do. Open banking brings everyone together and makes them interact through competition, where it will still allow banks to make a profit but also serve more consumers better. It also creates a level playing field, where the small banks can compete favourably, because they have access to the same information as all information would be standardised.
What other challenges did you face in implementing open banking aside capturing the unbanked and how can we navigate against such challenges?
One of the challenges we faced in the U.K initially was that the banks naturally pushed back at times to co-operate and collaborate in this open banking initiative. Let’s not forget that it was the first globally and was mandated by the regulators and not by the banks themselves wanting to do open banking. The second challenge is the education around the legal and regulatory framework to make everyone understand how it works, and I think lastly, and the most important challenge is to educate the consumer.
One thing we did not do well in the U.K especially because of the way things happened and the timing that it took, we did not do anything to proactively reach out to consumers before the launch. So I think we have learnt from that mistake and now as Open Vector we are ensuring that other countries educate consumers ahead of time, get them excited, make the banks, potentially with maybe the fintechs or the government find a communication scheme, bring in the media, get them excited about what the opportunity means and give them trust. Open banking is about one key word, which is trust in the financial sector; it’s about showing them how this is going to benefit them which is very important.
The consumer has to believe that this is the way forward and they have to be shown how. Nobody forced me to have all the apps I have on my phone, but I have them because I found an opportunity in them and I saw what it could offer me and that’s what we need to convince the consumer about. Again, the Nigerian market has been pleasantly surprising, I have been amazed at how the banks think and how the innovation has been embraced by Nigeria and how innovative, forward thinking and advanced your fintech is.
The other thing is your central bank, your ministers and government are incredibly open to listening to looking at how this can work. They understand this is the future and they want to do something about it. Things still have to be explained and brought forward, but there is an openness to want something and that is very positive.
In your short stay and given your great commendations, what is your view/outlook for open banking in Nigeria in the near term?
The immediate need is for us to come back and together with the Open Banking Nigeria team have very critical meetings with the central bank and various regulators to explain how the initiative will work, how we will bring it forward and what the road map will be. We are working closely with Adedeji and his team on how we will bring this initiative forward and what it will mean to them. If we then get the buy in and the go ahead from the CBN, things will move very quickly in establishing the legal and regulatory framework, while we work in the back ground with banks and fintechs to understand their needs, explain open banking as to the benefits and where we start working together on what needs to happen next. So for now there has been no official buy-in yet, but there has been a positive reception to it.
We met with your vice president and out of all the conversations, he was very interested in fintech. Your ministers of finance and trade, especially Kemi was very receptive. She understands that you need open banking, she wants us to come back and explain it to her. Same with the CBN who were very receptive.
So when all regulatory framework is done, what kind of capital formation can open banking generate in a year or two?
We will be spending considerable time on the legal and regulatory framework in ensuring that the structure is in place and everyone underneath it feels comfortable with what it means. Then after that, the technology and the implementation as we move forward will be quicker once the banks and the fintechs are all on board. But putting a figure to the kind of capital formation that will be generated will be a difficult thing to do. I can’t put a number.
What would it cost to implement the initiative?
I’m going back tonight and I need to sit down with my team and with Open Banking Nigeria to discuss our plan of action for the next couple of weeks. The positive thing about it, is that the impact financially to the banks will be minimal, because they are already embracing innovative programmes, for the fintechs, there is no cost, if anything its creation of jobs because it will further enhance the fintechs, for the government, it’s about the consultancy services and the elements to help them with the legal and regulatory framework, but it is not a major capital investment at all, compared to some of your other initiatives like the USSD, the BVN, this would be a much less costly proposition with a huge outcome to current and future consumers
Comparing what we may have to go through, how easy was it to implement open banking in the UK?
You cannot compare apples with oranges. In the UK, the Competition and Market Authourity (CMA) realised that the banks were not competing enough for consumers business.
So the CMA created the open banking implementation entity, which is similar to your Open Banking Nigeria team. They hired me as the head of data standards, they provided us a rule book. We looked at it and realised we needed to make changes to it. The banks were challenging us on the rulebook, because they needed clarification. So, the pressure was immense. Basically, the CMA told the banks that not only were they going to do it, they were required to pay for it as well.
Having said that, I was hired in November, and we went live with open banking in March.
In four months we went live, and as a payment ISO SME, it takes 2 years to implement a standard in any environment. But we implemented, tested and went live with the standard in the UK in four months. That’s unheard of. But was that the right thing to do? Looking back now, no, it wasn’t. It was too fast, and it was mandated.
The opportunity in Nigeria is that the banks are already innovating. They want the structure, they want standardization, they want ISO. You are already miles ahead, so when we come in with open banking, the banks are going to go “oh great now we’ve got the legal and regulatory framework, that you guys are dealing with, you are going to help us with the standards that can make us work even more with the fintechs”, which makes it a much easier playing field, and we can take our time to do it right, you don’t want it rushed or mandated.
So when the regulators say we have now officially embraced open banking in Nigeria and hands the rulebook, the banks can advance in the initiative.
Where the CBN and regulators come in is when one of the banks want to go rogue, they bring it bank in line. Or one of the banks all of a sudden say, we are going to halt things, because they realize this is creating competition, it’s for the regulators to step in and say this is about competition, it’s about the consumer, so you are going to move forward because this is for the good of the people. That is why implementing in Nigeria is going to take more time because we are going to do it right.