Nigeria has taken a significant step in revolutionizing its financial services sector by becoming the first African country to launch open banking. The Central Bank of Nigeria (CBN) has approved the initiative, which will enable customers to share their data with other financial institutions, starting from August 2025. This move is expected to have a profound impact on the country's financial landscape, particularly in the areas of lending and credit access.

With open banking, customers will be able to consent to sharing their data, including account balances, transaction histories, and spending patterns, with regulated financial institutions. This data will be shared through a standardized API, ensuring secure and consistent access. A central registry will identify and authenticate all participants, while a consent management framework tied to customers' Bank Verification Numbers (BVNs) will ensure that customers remain in control of who can access their data and for what purpose.

The CBN's revised approach to open banking follows pushback from the banking industry against centralizing control under the Nigerian Interbank Settlement System (NIBSS). Instead, independent committees led by bankers and employees of financial institutions will oversee open banking, without direct CBN control. This move is seen as a significant step towards promoting innovation and competition in the financial sector.

The implications of open banking are far-reaching. By accessing years of data on Nigeria's 120 million bank customers, financial institutions can use this data to offer new services to Nigerians. One of the most significant benefits is expected to be in the area of lending. Currently, bank-led lending has resulted in low credit penetration, with as much as 70% of bank account holders locked out from accessible credit. Fintechs have entered the credit market to fix this, but with limited data, leading to a mixed bag of subprime loans and predatory collection methods.

With open banking, lending fintechs will receive data from banks to assess creditworthiness and create a much-needed credit score for Nigerians. Financial institutions can also create new types of personalized financial products backed by data. This is expected to lead to increased credit access and more competitive financial services, ultimately benefiting the Nigerian economy.

The launch of open banking in Nigeria is a significant milestone in the country's financial sector development. It demonstrates the CBN's commitment to promoting innovation and financial inclusion, and sets a precedent for other African countries to follow. As the financial sector continues to evolve, it will be interesting to see how open banking shapes the future of financial services in Nigeria and beyond.