The Evolution of Nigeria’s Aggregation-Based Open Banking

By 2025, I predict that it would be irrelevant which bank your account is domiciled in Nigeria. Nigeria will move into a new era of banking which I will call Open Banking. This banking structure will see a highly integrated system that abstracts out any specific bank where you hold your account.

With the success of the Bank Verification Number (BVN), an interface for all banks and their customer accounts have been created. Technically, what matters now is the BVN and not necessarily where the account is domiciled. If you have an account in Zenith Bank and you want a loan from Paylater, the fintech lender does not really care about the Zenith Bank element provided it can use the BVN data to pull the data it needs from Interswitch and NIBSS (Nigeria Inter-Bank Settlement System).

So, as we deepen our banking digitalization, bank accounts will become increasingly abstracted out. Even in your bank, they need the BVN more than they need the bank account you maintain with them. This is going to be a golden age for fintech (financial technology) companies as the Central Bank of Nigeria will make it easier for banks to do business with them. There will be minimal practical limitation for CBN-certified fintechs to pull data from banking institutions through BVN.

In United Kingdom, banks are now expected to share the level of current account transactions to third parties like fintech companies and other banks.

A giant change is coming for banking in the UK. Not Brexit, but Open Banking, the new directive that will require the largest UK banks to give third parties access to their data, down to the level of current account transactions. The Open Up Challenge has backed 20 teams who are building apps and services at the forefront of this change with £5M of prize money funded by a number of UK Banks,.

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Launched in February 2017, the Open Up Challenge is intended to inspire the creation of apps and tools for small businesses (SMEs). Along with cash awards, Nesta enticed fintechs by offering access to a huge trove of anonymised SME banking transactions, giving them a chance to experiment with Open Banking-style datasets in advance of the system’s launch.

The advantage for the fintech will be that they will not be responsible in the direct acquisition of these banking customers. They will just have access to them as they make products. Largely, by removing that acquisition cost, fintechs can offer services in cost-competitive formats. This will give them a huge edge over banks on pricing.

Kenya is getting there faster than Nigeria through its MPESA, a mobile money service. Today in Kenya, an MPESA account is more important than a bank account, if one is even needed. You can do all the things that matter in your life for months without a need for a bank account. Increasingly, the banking institution has been abstracted out. The bank accounts for savings and current accounts have limited values in Kenya because MPESA is the bank. Right there, what matters is the phone number.

Nigeria has not gotten there, but moving around Lagos and talking to people, I will be telling my African bank clients to begin to prepare for a future where the focus will shift from just having the bank accounts in-house to building a banking aggregation construct business that makes use of data from anywhere. In other words, aggregating data from other financial institutions to deliver better services at scale and cost-competitively.

Under the aggregation construct, the companies that control the value are not usually the ones that created them. Google News and Facebook control news distribution in Nigeria than Guardian, ThisDay and others. Because the MNCs tech firms “own” the audience and the customers, the advertisers focus on them, hoping to reach the readers through them. Just like that, the news creators have been systematically sidelined as they earn lesser and lesser from their works. But the aggregators like Facebook and Google smile to the bank. The reason why this happens is because of the abundance which Internet makes possible. Everyone has access to more users but that does not correlate to more revenue because the money goes to people that can help simplify the experiences to the users who will not prefer to be visiting all the news site to get any information they want. They go to Google and search and then Google takes them to the website in Nigeria with the information. Advertisers understand the value created is now with Google which simplifies that process.

Yes, banks must begin the transition of thinking less on how many bank customers they have to one that focuses on how they can aggregate what is out there to build a business at scale using the aggregated data. Just as Google may not care about the number of websites it owns by focusing on data it can aggregate from millions of websites to deliver better search results to people, Nigerian banks must evolve to the era of aggregation open banking. Your lending strategy has to change and as we see companies like Interswitch redesign their businesses, it will not take long for massive fragmentation that only banks built on aggregation can exploit. I see Konga and Jumia as future banks. If they get CBN certifications (Konga through Konga Pay has one), they can pull NIBSS data and offer lending services to merchants in their networks. Amazon, the global ecommerce giant makes more than $1 billion of loans yearly to merchants in its platform. If Konga and Jumia begin to make loans, banks will continue to lose customers.

All Together

Nigerian banking will change by 2025. The structure of our economy and the capacity to transfer money instantly will have many implications in the industry. For any bank to win, it will have to find a way to become a digital hub using the constructs of aggregation to compete. Your number of customers is irrelevant. What matters now is how efficiently you can curate the millions of accounts in the ecosystem under an emerging open banking framework. Building those structures must begin now because as blockchain makes itself into the banking architectures, the whole thinking of a bank brand will die.

By practically removing most banking frictions, blockchain through the web, will make every bank to have the same level of footage because there is no further efficiency to be optimized since there is zero friction to begin with. If Bank A offers the same quality of service as Bank B, the brand advantages will erode. That brings the commoditization of banking thereby facilitating the aggregated-based era of open banking. Now is the time to plan for this emerging redesign in the sector.

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