How Open Banking Can Leverage Digital Identity


Customer verification is one of the most important requirements that every financial institution puts in place. Prior to 2014, opening a bank account in Nigeria required customers to submit physical means of identification like a copy of their national ID card, voter card, passport and even utility bills. utilities (such as electricity receipts). This meant that customers had to repeat this process at each bank they wanted to open an account with.

However, as technological innovations began to drive global digital transformation and the financial landscape underwent a sea change, the way financial institutions approached customer identification began to change.

In a bid to meet customer digital identification requirements for financial services, the Central Bank of Nigeria (CBN), through the Committee of Bankers and in collaboration with all banks in Nigeria, launched on February 14 2014 a centralized biometric identification system for the banking sector labeled Bank Verification Number (BVN). As expected, the BVN would become the most important means of identification when onboarding people into the Nigerian financial ecosystem. With the BVN, customers can now open a bank account or digital wallet without having to show multiple physical IDs each time.

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Today, open banking, a banking system where third-party providers enjoy open access to consumer banking services, transactions, and other financial data from banks and non-bank financial institutions (NBFIs), through to the use of Application Programming Interface (API), is one of the latest and hottest innovations in the financial industry.

The CBN, again, in 2019, released the Regulatory Framework for Open Banking in Nigeria regulate the transmission of financial data between banks and third-party financial service providers in the country. This decision indicates that the apex bank supports the success of this innovation and ensures that user data is handled correctly.

So there’s open banking and there’s digital identity. What is their relationship with each other and their common challenges; and what should be done to maximize their promise?

For the 4th edition of Digital Identity Matters, which took place on April 22, TechCabal hosted a panel with Ope Adeoye, Founder and CEO of OnePipe; Adedeji Olowe, Founder and CEO of Lendsqr and Director of Open Banking Nigeria; and Esigie Aguele, co-founder and CEO of VerifyMe. The discussion was moderated by Tosin Olaseinde, Founder and CEO of The Money Africa.

The challenges of open banking and digital identity

According to Olowe, the biggest problem facing open banking and digital identity is the lack of synergy between players on the ground, which has turned into a failure to standardize processes.

“Providing a general standard for digital identity providers is as important as the identity itself,” Olowe said. “African suppliers do not use the same standard. This means that a company cannot switch identity providers without rewriting almost every line of code. Thus, time and context will be lost during this period. »

Until there is synchronization, he said, there will be no standardization, and without that the whole concept of digital identity will continue to struggle with seamless integration into the infrastructure. open bank.

Building Blocks of a Robust Digital Identity System

It has been established that for any digital financial institution to function properly, it must have a robust identity verification system. But without a robust identity system, this cannot happen.

“The first thing to have a robust digital identity system, I would say, is to get a lot of people scanning; and we still have a long way to go in this area,” said Aguele. “Then we can talk about continuous regulation, strong infrastructure, open banking, and system interoperability that allows, for example, A’s data to be understood by B.”

Aguele also thought that regulations that communicate proper standardization are needed.

How far has Africa gone in open banking and digital ID?

Olowe thought Africa was doing really badly on the open banking and digital ID front. Adeoye agreed but with a caveat, explaining that the poor performance is due to the fact that “the whole concept is still nascent, and we haven’t really taken over.”

How can stakeholders drive adoption of open banking?

Adeoye said that of all the stakeholders involved, the private sector is the best bet to massively drive the adoption of open banking. Olowe supported Adeoye’s submission.

“I think it starts from a proposal. And I think most of the time proposals are better led by the private sector, simply because the proposals that are going to be sustainable have to have some kind of source, monetary gain or value for the organization that is trying,” said Adeoye. “Number two then is to create frameworks that allow citizens to find their way back to the grassroots.”

Olowe said the speed with which the private sector makes decisions makes it the best driver of open banking. “Regulators are slow, and when they finally show up, they stuff their ideas down everyone’s throats, and some people choke and die.”

You can watch the entire conversation here:

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