How Open Banking will transform Credit in Nigeria

On May 29, 2025, Lendsqr hosted an illuminating webinar titled “How Open Banking will transform Credit in Nigeria.” With over 100 attendees from Nigeria’s fintech, banking, and consulting sectors, this session brought together two global experts: Chris Michael, CEO of Ozone API and current lead on several open finance initiatives, and Ladi Asuni, Partner & Head of Technology Platforms at KPMG Nigeria to explore how the imminent launch of open banking by the Central Bank of Nigeria (CBN) will reshape the country’s credit landscape. Over the course of sixty minutes, Grace Effiom (Head of Enterprise, Lendsqr) guided the discussion through definitions, real-world comparisons (UK, UAE, India), and practical Q&A. Here is a detailed recap of the insights shared and implications for lenders, fintechs, regulators, and consumers.

Setting the stage: The state of Credit in Nigeria

Grace Effiom kicked off the session by framing why open banking matters for Nigeria’s credit ecosystem. Key takeaways included:

• Low Credit Penetration: Nigeria’s retail and MSME credit penetration hovers around 5%, compared to as high as 30–50% in markets like Kenya or South Africa. With over 220 million people yet fewer than 3 million receiving formal credit, there is both a massive unmet demand and, simultaneously, a significant risk profile that lenders must manage.
• High Infrastructure Cost for Lenders: Traditional lending requires banks or fintechs to build and continually maintain technology stacks (SMS providers, payment distributors, credit bureau integrations, Core Banking Architecture (CBA), etc.). These costs and operational complexities impede small lenders from scaling.
• Lendsqr’s Value Proposition: As Grace emphasized, Lendsqr is positioning itself as a “Shopify for lenders.” By offering a turnkey lending technology platform complete with SMS, disbursement, repayment, and credit bureau integrations, Lendsqr enables lenders to focus on credit strategy and underwriting, rather than building and staffing an entirely in-house solution.

With open banking set to go live by August 2025 (per CBN guidelines), Grace argued that Nigeria stands at a “mobile-internet-moment” for finance akin to how affordable SIM cards once democratized mobile usage. Open banking, she explained, could be “as big as mobile phones and the internet” in terms of financial inclusion and innovation.

Defining Open Banking: More than just APIs

To lay a common foundation, Ladi Asuni invited Chris Michael to explain “What is open banking, and why is it so transformative?” Chris provided a concise, three-pronged definition:

1. API-Based Access: Open banking relies on secure, standardized APIs—replacing insecure methods such as screen scraping (where fintechs require customers’ usernames and passwords) and manual CSV/PDF uploads.
2. Common Open Standard: Unlike ad-hoc “bank-specific APIs,” true open banking hinges on a single, open technical specification (often deriving from the UK’s Open Banking Standard). This standard dictates how data is structured, how consent is captured, and how requests are authenticated.
3. Regulatory Framework: In many mature open banking markets (UK, EU), regulators either mandate or explicitly authorize third parties (fintechs) to access customer account data subject to strict security and customer consent requirements. This governance layer ensures trustworthy participation, mitigates fraud, and protects consumers.

Chris’s cautionary note: “Open banking is a terrible term for end customers because it can imply, ‘My bank is open to everyone!’ In reality, every data access request is gated by customer consent, strict security protocols, and regulated accreditation of fintechs.”

From screen scraping to Open APIs

Before open banking, many fintechs in Nigeria (and globally) resorted to one of two methods for customer data:

• Manual Extraction: Customers download statements as CSV/PDF and email them to the fintech.
• Screen Scraping / Credential Sharing: Customers share internet banking credentials; fintechs log in on their behalf.

Both methods pose significant operational and security risks. Chris emphasized that open banking’s API-first approach not only streamlines data flow but also drastically reduces fraud vectors, since credentials never change hands and every API call is cryptographically signed and verified.

Barriers to Credit, and How Open Banking Helps

Nigeria’s credit gap stems from multiple structural barriers. Chris and Ladi unpacked these challenges and the ways open banking can help overcome them:

Barrier: Fragmented, Incomplete Data

• Issue: Many Nigerian consumers and small businesses operate primarily in cash or rely on informal savings/credit groups. Banks (and even digital lenders) only see a very narrow slice of an individual’s financial profile, if they are bankable at all.
• Open Banking Solution: By granting fintechs (with customer permission) access to bank transaction histories, open banking can enhance credit underwriting models. Instead of relying on generic credit bureau scores which are often incomplete or outdated, lenders can see real-time income and expense patterns, spot career/SMEs with seasonal business, and make more nuanced risk assessments.

Chris: “Open banking data doesn’t replace credit bureaus; it supplements them. For example, if a customer has repaid a loan in full, their open banking record shows that repayment immediately whereas a credit bureau update may lag by weeks or months. This real-time visibility helps lenders extend more responsible credit with fewer defaults.”

Barrier: Lengthy, Costly Onboarding (Know-Your-Customer)

• Issue: Traditional KYC/KYB (Know-Your-Business) processes require manual document collection such as government IDs, utility bills, bank statements which are often in triplicate. For MSMEs without formal accounting, this is a time-consuming hurdle.
• Open Banking Solution: A bank is by definition a regulated KYC entity. Through open APIs, a fintech can confirm a customer’s identity and address (e.g., via account metadata or previously verified KYC records) in minutes. If the customer gives one consent, the fintech instantly verifies their bank account and KYC status, drastically reducing onboarding friction.

Ladi: “If you can reduce onboarding from weeks to minutes, you will see a significant jump in adoption, especially among smaller businesses that cannot afford to wait.”

Barrier: Limited Product Innovation

• Issue: Nigerian banks, particularly Tier-1 institutions, are often risk-averse. They focus on traditional salary lending or collateralized lending, leaving a large swath of self-employed or gig-earning customers underserved.
• Open Banking Solution: Fintechs can design new product structures that were previously impossible:
  • Drip-Feed Loans: Instead of disbursing ₦500,000 up-front, a lender can approve a ₦500,000 line of credit and release ₦125,000 monthly based on the borrower’s ongoing transaction data and cash flow signals. This reduces interest burden and aligns repayment with actual need.
  • Variable Recurring Payments (VRP): By combining open banking with dynamic payment rules, a consumer could allow a fintech to debit only what they can afford each week say, 10% of weekly net inflow rather than a fixed monthly installment. If their income dips, the repayment amount automatically adjusts, lowering default risk.
  • Real-Time Lending Marketplace: A fintech aggregator can simultaneously access multiple lenders’ APIs to shop for the best interest rate for a borrower. Once the customer picks the offer, funding is instant. In some markets (UK, UAE, India), these multi-lender marketplaces have cut customer acquisition costs by 30–40%.

Chris: “Open banking’s real genius isn’t just giving a snapshot of historical transactions; it’s enabling ongoing, real-time validation of a borrower’s cash flow. That ability is a game-changer for product innovation.”

Infrastructure, Governance, and Consent: Getting the details right

Critical Market Infrastructure

For open banking to flourish, certain foundational pieces must be in place:

1. Real-Time Payments Rail: Already, Nigeria’s NIBSS Instant Payments (NIP) and NQR initiatives provide a strong foundation. Chris emphasized that, provided a payments rail supports real-time settlement, open banking can sit on top without requiring further changes to the core switch. The important point is that banks must implement robust APIs to interface with NIP/NQR.
2. Secure, Standardized API Framework: A single, unified technical specification (JSON schemas, OAuth 2.0 for authentication, mutual TLS/TLS 1.3 for transport security, message-signing with PKI) ensures that every bank and every fintech speaks the same language.
3. Centralized Trust Framework (Optional but Helpful): In the UK, the Open Banking Directory serves as a central registry of all accredited fintechs (TPPs) and participating banks, complete with public certificates. In the UAE, LADI and his team went further, building a central hub that not only stores consent tokens but also dynamically routes API calls. This central “hub-and-spoke” approach significantly reduces time-to-market and integration costs for banks.

Key Insight: While a central “hub” is not absolutely required to get started, banks can build their own API endpoints and map them in a directory—having a single source of truth for fintech accreditation, certificates, and endpoint URLs accelerates adoption and reduces friction.

Licensing & Accreditation of Fintechs (TPPs)

• Regulatory Bar: Not every small garage startup should be allowed to access millions of Nigerians’ bank data. Chris stressed the importance of rigorous licensing which requires fintechs to demonstrate minimum capital requirements, cyber-insurance coverage, and airtight security policies.
• Sanctions & Background Checks: Management teams should be vetted against international sanctions lists, Nigeria’s Anti-Money Laundering (AML) registers, and track records.
• Periodic Audits & Strong Governance: Once approved, a fintech must submit to regular penetration testing, source-code reviews (if required), and third-party audit reports to keep their license active.

Avoiding Pitfalls: In some markets, regulators launched open banking with minimal TPP oversight, leading to a proliferation of “one-person fintechs” that couldn’t scale or secure customer data. Nigeria’s CBN guidelines already include basic licensing prerequisites; however, it will be critical to enforce them.

Consent management: Putting customers in control

David vs Goliath: Customers often worry that open banking means “everyone can see my bank account.” In reality, every data request is bound by two principles:

1. Explicit, Granular Consent
   • A customer must explicitly choose which bank accounts (and even which sub-accounts, e.g., checking vs. savings) a fintech can access.
   • Consent can be scoped by data type (transaction history only, not payment initiation; or payment initiation only; or both).
   • Consent can be time-limited (e.g., 90 days, after which the fintech must ask the customer to reauthorize).
2. Immutable Consent Records: Every fintech sends a signed consent request (using PKI certificates) to the bank. The bank stores this consent record and validates each incoming API call against it. If the fintech tries to access data beyond the consented scope (e.g., older than 90 days), the bank rejects the request.

Consent Dashboards:

• At the Fintech: Licensed TPPs must display a “Consent Dashboard” inside their app or portal, showing customers a list of all connected bank accounts, when consent expires, and an easy “Revoke” button.
• At the Bank: Each Nigerian bank will include an “Open Banking” section in its internet or mobile banking app, where customers can view (and withdraw) any fintech connections at any time.
• Centralized Consent Registry (Future State): Lendsqr plans to explore building a central, bank-agnostic consent registry (akin to the Open Banking Directory in the UK). This would allow customers to see, in real time, “Which fintechs have access to my accounts, across every bank?” and to revoke multiple consents from a single portal.

Expanding beyond banking: The road to Open Finance & Open Data

Both Chris and Ladi made it clear that open banking is just the first step toward a broader open finance (and eventually open data) ecosystem in Nigeria:

• Open Finance: Once regulators and the market build trust in the banking rails, data from non-deposit institutions (e.g., insurance companies, pension funds, investment firms) can be brought under the same API-and-consent umbrella. A customer could allow an aggregator to see their brokerage transactions, insurance premiums, or pension contributions—all of which feed into a more holistic credit score.
• Open Data: Beyond financial data, consent-driven APIs could extend to utilities (electricity, water), telecommunications (prepaid airtime usage), and even government revenue streams (tax filings). With each new data source, lenders gain a more nuanced view of a customer’s “financial DNA”, from spending behavior at the local market to frequency of mobile top-ups.

Chris’s Vision:
“Imagine a small business in Lagos. Right now, a bank sees maybe two months of deposit history, which could be seasonal. But if we layer in “utility bill payment history,” “MTN/Safaricom data usage,” “POS merchant sales volume,” and “investment account performance,” suddenly that small business’s risk profile becomes clearer. That is where open data truly unlocks financial inclusion.”

Lessons from other markets: UK, UAE, and India

United Kingdom (Birthplace of “Open Banking”)

• Regulatory Driver: In 2016, the UK’s Competition and Markets Authority (CMA) mandated the nine largest banks to open their APIs by January 2018.
• Two API Types:
  • Account Information Service (AIS): Read-only access to balances and transactions.
  • Payment Initiation Service (PIS): Real-time, direct debit-style payments that bypass card rails.
• Key Outcomes:
  • Fintech Innovation: Over 300 fintechs have been accredited by the UK’s Financial Conduct Authority (FCA).
  • Marketplace Lending: Platforms like Funding Circle, Revolut, and Monzo leveraged open data to launch sophisticated lending products.
  • Challenges: Early on, banks built bare-bones APIs just to meet compliance; this resulted in performance issues (timeouts, inconsistent endpoints) and frustrated fintechs. Over time, as commercial models matured, API quality improved.

Takeaway for Nigeria: Mandating without incentives can lead banks to view open banking as a “one-off compliance project.” Nigeria should couple regulatory deadlines with clear commercial guidelines—e.g., banks can charge fintechs standardized, transparent fees for heavy API usage (especially Payment Initiation), but must provide raw AIS data for free or at minimal cost.

United Arab Emirates (UAE: Open Finance & Beyond)

• Holistic Scope: The UAE’s Central Bank (CBUAE) launched not only open banking but a broader open finance standard in late 2024. This standard encompasses:
  • Retail & Corporate Banking
  • Insurance
  • Investments & Brokerages
  • Pension & Endowment Funds
  • Telecom & Utilities (Phase 2)
• Centralized Infrastructure:
  • Trust Registry: A single repository of all licensed Financial Service Providers (FSPs) and the exact permission set each holds. Fintechs, insurers, and banks all register here.
  • Consent Hub: Stores cryptographically signed consent tokens. Does not host user data; rather, it facilitates consent verification at query time.
  • API Gateway (optional): Banks can either connect directly to the CBUAE’s API gateway or host their own endpoints and simply register metadata (hostname, certificate, supported scopes) in the central directory.
• Commercial Model:
  • All AIS (account information) calls are free for TPPs.
  • Payment Initiation calls have a transparent, tiered fee structure where fees decrease with higher monthly volume.
  • Over 50 FSPs accredited in the first six months, including local banks (Emirates NBD, FAB), regional banks (HSBC, Standard Chartered), and global insurers (AXA, MetLife).

Early Impact: While still in the first quarter of live operations, UAE’s open finance registry has seen over 1.2 million daily API calls (across banking, insurance, and investments). Insurers have already launched “premium financing” products: customers can use open banking data to automatically adjust insurance premiums based on real-time telematics (auto insurance) or health data (via wearables).

India (Account Aggregator Model)

• Unique “Account Aggregator” (AA) Framework:
  • India’s Personal Data Protection Bill (PDPB) and the RBI’s Account Aggregator guidelines (2016) created a permissioned “data exchange network.”
  • Account Aggregators (NAB, CAMS AA, Cookiejar, etc.) serve as intermediaries between data providers (banks, mutual funds, insurance companies) and data users (lenders, personal finance apps).
  • A five-party trust model (Customer ↔ AA ↔ Data Provider ↔ AA ↔ Data User) uses encrypted, tokenized data transmission.
• Success Stories:
  • Over 1.1 billion data consent requests processed in 2024 (year-to-date), primarily for lending.
  • Many digital lenders (BharatPe, KreditBee) rely on AA network to instantly fetch customers’ credit card statements, mutual fund portfolios, and insurance premiums.
  • The RBI has identified mutual funds and insurance data as high-value for credit underwriting, leading to risk-adjusted loan pricing for customers with robust investment portfolios.

Key Differences for Nigeria:

• India’s AA model relies heavily on trusted intermediaries. In Nigeria, Ladi and Chris both agreed that “end-to-end open banking APIs (bank ↔ fintech) are a more direct, lower-cost model” if banks cooperate.
• However, if interoperability among Nigerian banks falters, an “aggregator” model (where a neutral third party builds and maintains all bank connectors) could be a short-term bridge to full open banking.

Key Takeaways & Future Outlook

Indicators of Success (3–5 Year Horizon)

When asked to imagine Nigeria’s credit market in three to five years if open banking is done correctly, Chris highlighted three lenses:

1. Fintech Ecosystem Growth
   • Hundreds of Nigerian fintechs offering new credit products, some even exporting their solutions to other African markets.
   • A vibrant “lending marketplace” where borrowers compare rates across dozens of digital banks and non-bank lenders in real time.
2. Banking Transformation
   • Traditional banks evolve into “digital orchestrators,” seamlessly partnering with fintechs for data analytics, AI-driven underwriting, and dynamic payment models.
   • Overall cost of credit declines as banks can underwrite more accurately, reducing default rates and insurance reserves.
3. Consumer & SME Impact
   • Substantial increase in credit penetration: from ~5% today to 20–25% within five years.
   • Tangible rise in new bank account openings, because customers see immediate value whether it’s due to a better loan interest rate, easier KYC, or a personal financial dashboard.

Potential Pitfalls & How to avoid them

Encourage the banks themselves to highlight “Secure Connections” badges in their apps when a customer consents to share data.

Audience Q&A

Ladi and Chris also fielded live questions from attendees. Check here to view all questions asked and the responses.

Conclusion: A Call to Action

By the end of the one-hour webinar, one theme rang clear: Open banking is not a “nice to have,” but an essential catalyst to close Nigeria’s massive credit gap. The CBN’s August 2025 target is both ambitious and eminently achievable, provided all stakeholders collaborate:

• Banks must allocate dedicated teams to build, test, and maintain robust APIs, while also participating in a centralized trust framework (directory, consent registry).
• Fintechs must invest in top-tier security practices (PKI, TLS, ongoing audits) and craft user experiences that demystify consent flows for everyday Nigerians.
• Regulators & Industry Associations must continuously monitor open banking implementations, enforce robust TPP licensing, and launch consumer education campaigns—emphasizing “Your Consent, Your Control.”
• Investors & VCs should seek out early-stage fintechs building next-generation credit products (drip-feed loans, real-time risk monitoring, marketplace lending) that leverage open banking APIs.

As Chris Michael concluded, “Open banking is not an endpoint, it’s the foundation for an entire open finance and open data universe. The institutions that grasp this first—viewing open banking as their API-powered superhighway for innovation will lead Africa’s digital credit revolution.”

With the clock ticking toward August, Nigerian lenders, fintechs, and regulators have less than three months to finalize policies, build integrations, and roll out pilot programs. But the stakes could not be higher: By unlocking secure, consent-driven access to real-time financial data, open banking has the potential to tear down barriers that have kept millions of Nigerians credit-invisible. If done right, it can help Nigeria leapfrog conventional credit systems, democratize lending, and set a blueprint for the rest of Africa.

If you have questions or want to learn more about how to integrate open banking into your lending strategy, reach out to the Lendsqr team at [email protected].