Open banking has been one of the goals of the Nigerian Federal government. It released the implementation guidelines earlier this year.
This move will ride the wave and improve the fintech space with various innovations and financial products. It will also bring about business ease.
What is Open Banking?
Open Banking is a concept used to describe the practice of transacting via the use of API which allows third-party access to financial data in the banking industry. It ensures seamless transactions between individuals-to-bank and Individual-individual.
It is termed “Open Banking” because it uses API, a software with a distinct function of enabling communication between two applications. This gives access to a third party when transactions are made.
Read Also: Telkom has launched Africa’s First Virtual Banking Card.
How Open Banking Works.
Your bank account holds a lot of information on how much you earn, your regular bills, and what to buy. Before it comes into play, that information would simply be held onto by your bank or sit within unopened bank statements.
It therefore now allows information to also be shared with a third party with the consent of the Bank. With your information with regulated companies, you have a clear view of your finances which can help you manage your money more confidently.
Benefits
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Customer Experience
Open Banking challenges the traditional way of banking which has opened doors for other players to enter the market. This makes it more competitive to provide higher standards for customers.
Secondly, open banking has made finance management more straightforward. Consumers can now make payments from their comfort zones using their preferred apps. It has helped in changing physical banking to online banking.
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Security
The Third Party Providers ensure they have the highest security standards to operate in the market because OP has brought more transparency to the banking industries.
Consumer Identity authentication has also been improved which helps to reduce the risk of fraud in online payment.
Also, it minimizes the size of data being shared, with open banking. You can share the minimum data necessary for the product or service you want to use through a secure digital process.
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Reduces the cost of Transaction
Open banking allows operators to connect to the banks directly without passing through any intermediary and the cost of connection to the bank would be free. So, the cost of financial inclusion will reduce.
Risk Of Open Banking
Open banking may offer benefits in the form of convenient access to financial data and services to consumers and streamlining some costs for financial institutions.
However it also potentially poses severe risks to financial privacy and the security of consumers’ finances, as well as resulting liabilities to financial institutions.
Its APIs are not without security risks. This includes the potential for a malicious third-party app to clean out a customer’s account.
This would be an extreme (and less likely) threat. Much broader concerns would simply be data breaches due to poor security, hacking, or insider threats. This has become relatively widespread in the modern era, including at financial institutions. It will most likely remain commonplace as more data becomes interconnected in more ways.
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