Nigeria To Create Open Banking Framework Inspired By EU’s PSD2

January 19, 2023
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Nigeria has become the latest country to embrace open banking as part of the country’s new wide-ranging payment modernisation efforts, while the country also celebrates the go-live date of its domestic card scheme.

Nigeria has become the latest country to embrace open banking as part of the country’s new wide-ranging payment modernisation efforts, while the country also celebrates the go-live date of its domestic card scheme.

The Central Bank of Nigeria (CBN) has laid out an ambitious three-year plan to enhance non-cash payments in the country, building on the latest trends in the payments industry.

In the last two decades, Nigeria has taken significant steps to modernise its payment systems, including the launch of the NIBSS Instant Payments (NIP) in 2011, which has helped support growing adoption of electronic payments.

However, the Nigeria Payments System Vision 2025 (PSV2025) states that further developments are needed due to recent innovations in the payments sector.

As part of the wide-ranging plans to embrace new payment trends, the CBN proposes the development of an open banking regime, creating a request for payment (RfP) scheme, as well as building frictionless payment solutions including QR codes, contactless cards, wearables and internet of things (IoT).

The CBN said it will also review the country’s core payments infrastructure and central switching platform to ensure they can meet continuous payment demand.

“PSV2025 will no doubt strengthen Nigeria’s position as a centre for cutting edge innovative payment solutions across Africa and the world,” CBN deputy governor Aishah Ahmad said.

Open banking coming to Africa

A key element of the 2025 vision is the creation of an open banking framework, which places Nigeria among the likes of South Africa, Ghana and Kenya, which have also taken steps to embrace the concept on the continent.

Looking at the EU’s revised Payment Service Directive (PSD2) as an example, the CBN concludes that open banking has a number of benefits resulting from greater competition, including more efficiency and innovation in the payments sector.

Additionally, “a robust open banking regime will bring solutions for enhanced financial inclusion”, the bank said.

However, the central bank noted that the environment in Europe and Nigeria is different and there are a number of challenges to adopting a Nigerian PSD2.

Setting up open banking not only requires heavy investment and a carefully defined regulatory framework but, the CBN warned, an open banking environment “requires rule of law and compliance with data protection and privacy policies as well as provider ethics”.

“Currently, these are just evolving and nascent in Nigeria,” the central bank said.

In addition, Nigeria’s privacy protections are not designed to cope with issues such as breach of customer data privacy, issues around customer consent, cybersecurity risks or customer data vulnerability due to data movements among multiple parties.

“Failure to accommodate GDPR and PSD2 regulations as part of the open banking framework may expose banks to the risk of financial or reputational loss,” the CBN warned.

The central bank is also worried about local market readiness for open banking and the stability of the payments network and the uptime for 24/7 clearing of payments.

To address these concerns, the CBN will set up a working group, drawn from all sectors of the industry, to create an open banking roadmap for Nigeria and to define the regulatory environment and structure based on the EU’s PSD2 model.

Separately, the work group will also define a library of APIs that should be supported by the local market.

Meanwhile, the central bank will work to create a framework for a regulatory sandbox.

Nigeria betting on digital payments since 2006

The PSV2025 builds on the country’s PSV2020, which was first announced in 2006 and focused on enhancing the resilience of the payment infrastructure, expanding digital payment options and promoting their widespread adoption.

According to the central bank, it largely achieved the objective of “making the Nigeria payment system internationally recognised and nationally utilised”.

Indeed, cashless transactions have grown rapidly in Nigeria.

According to data from the Nigeria Inter-Bank Settlement System, electronic payments hit a record high of NGN38.9trn ($85bn) last November, a 50 percent increase compared with the year before. In the first 11 months of 2022, Nigerians moved NGN318.66tn ($702bn) on the country’s instant payment system and point-of-sale terminals.

According to the central bank, the Nigerian financial services industry has reached a stage where it does not anymore require a regulatory drive for growth, but rather a regulatory environment that encourages the industry to sustain growth.

“As we implement the PSV2025 agenda, the CBN will continue to ensure that the Nigerian payments system is widely utilised domestically, supports government’s financial inclusion objectives and meets international standards whilst contributing to overall national economic growth and development of Nigeria,” CBN governor Godwin Emefiele commented.

Africa’s first domestic card scheme goes live

As the central bank announced its future plans, it also celebrated the launch of its latest initiative. Nigeria’s domestic card scheme officially went live on January 16, becoming the first domestic card network on the continent, according to the central bank.

The new card scheme is intended to reduce costs, barriers to entry and reliance on foreign exchange. In the longer term, it could also enhance cross-border payments by enabling potential bilateral linkages with neighbouring economies.

The domestic card scheme was first announced in October with high expectations from the central bank who suggested it could become “one of the largest in the world”.

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