Efforts by fintech companies, commercial banks, and the Central Bank of Nigeria (CBN) have been instrumental to the rising awareness of financial inclusion in Nigeria. Several products,solutions, and regulations have driven this buzz. One of such is the Central Bank of Nigeria making it compulsory for players in the agency banking sector to prioritise banking in rural areas to be awarded operational licences. These places must have had the minimal presence of banks and banking activities.
Commercial banks have responded to these affordable and easily accessible products by fintechs, not willing to lose ground in the financial sector, to the delight of customers who are spoilt for choice. The recent flag-off of fintech sandboxes and open banking initiatives could spell good news for financial inclusion if their objectives are realised.
In 2018, the Open Technology Foundation launched Open Banking Nigeria to open up access to financial services via the harmonisation of Application Programming Interfaces (APIs) of Nigerian banks. The launch will integrate all innovations by third party providers to build financial solutions. The development of customised solutions will result from the seamless sharing of customer-permitted data.
The first innovation sandbox the financial technology industry has seen in Nigeria was launched in December 2019 by Financial Services Innovators (FSI) in collaboration with the CBN and the Nigerian Inter-Bank Settlement System (NIBSS). One feature of the launch was a release of the NIBSS’ API in. One of the objectives of this sandbox was to create a safe testing environment for innovative ideas whilst gaining knowledge of industry licences and regulations.
Ecobank recently launched a similar product as part of its efforts to foster financial innovation. The pan-African sandbox, which will feature Kenya’s “Africa’s Talking” and Nigeria’s Flutterwave will flag-off in 33 African countries.
Financial Inclusion: A case for its relevance and sustenance.
According to reports, open banking is not expected to become widely known outside the financial sector but its work will benefit the consumer a great deal. Open banking will allow for seamless connection of a customer’s bank account with regulated third parties that could build up their credit ratings, offer automatic savings, discounts, and other products/services.
Damola Yusef, Technology Advisory partner with PriceWaterCoopers (PWC) in Nigeria and Adedeji Olowe, Trustee at the Open Technology Foundation, and the CEO of Trium networks suggest in their study that sharing of data and standardised APIs with third parties will enable financial institutions to reach underserved markets with a wider array of products than currently exist. Olowe opines that just as the establishment of a framework for card payments brought about the use of ATMs the world over, the creation of an API standard for all banks will usher a similar revolution in Nigeria.
Ameya Upadhyay, CEO of Investments at Flourish, believes that sandboxes can go a step further from lowering the barrier of entry for fintech companies to saving them a lot in time and cost of developing new products. He believes that some startups fail because of how much time and money goes into developing and conveying your product to the market, and ensuring they are well received by the market. “For example, the know-your-customer or KYC process is a huge problem for many fintech companies in Nigeria. Even though the bank verification number exists, to access the data behind the BVN of any customer, I need a licence, but if I’m a young startup, and I’m building a solution that requires KYC, I won’t have the money to get the licence, and most investor demand a startup has such a licence before putting in funds, but with a sandbox, startups can access existing APIs of established bodies and reduce the cost and time it will take to purchase a KYC licence” he adds.
According to the United Nations, studies show that there are still some reservations despite the obvious benefits. A Special Advocate for Inclusive Finance and Development to the United Nations Secretary-General, Her Majesty, Queen Máxima of Netherlands, in a study of over 50 countries (Nigeria included), pointed out that although a sandbox has its merits, one could not ignore the cost and complexity that comes along with their usage. According to the report, sandboxes may not be as invaluable as they have been touted to be and may be insufficient to deepen financial inclusion not to mention the fact that there might be cheaper unexplored alternatives.
A market survey carried out by a fintech in Kenya revealed that if a simple hotline, or an innovation office that is readily accessible is set up by the regulator, this could provide solutions to a lot of regulatory questions that a lot of startups encounter. Another report suggests that comparative or risk-based licensing systems and regulations could help reduce the costs fintech startups incur to comply with regulations.
The story remains different for fintech startups in Nigeria as they grapple with insufficient financial firepower and the barrier of entry has remained high.
Olowe, in his 2020 forecast, predicts that CBN will kickoff open banking. His financial predictions leave us with this question: will the regulators’ catch-up game with innovation work apace with the sandbox to extend the current boundaries of financial inclusion that exist today?