FinTech

Data Security Concerns Rise as Fintechs Push for Open Banking

Aconite Technology

Financial institutions leveraging technology to make payments and credit facilities available to Nigerians are clamouring for open banking in Nigeria’s financial ecosystem.

The open banking system, which is expected to be dominant in the next five years, provides a user with a network of financial institutions’ data through the use of application programming interfaces.

However, stakeholders raised concerns regarding the data protection and privacy as open banking helps financial services customers to share their financial data with other financial institutions.

Speaking at the Open Banking Masterclass in Lagos, the Chief Executive Officer, Open Vector, Mr Carlos Figueredo, explained that the open banking initiative would empower fintechs in the industry to expand their operations and add value to bank customers.

According to him, the initiative will create a level-playing ground for both the financial institutions and technology companies operating in the industry.

He said, “It is about the small fintechs being able to compete with the larger fintechs. Open banking provides that opportunity for them. It means through this new collaboration and innovation, young fintechs can now create products and services, and can sell them to large institutions where otherwise they wouldn’t have.

“The fintechs and financial institutions have not yet understood the commercial opportunities of reaching out to the villages and other people outside the city. There is the perception that there is no income to be made from the rural communities. For me, it is the other way around. I think there is a huge opportunity in investing in those areas by creating those products and services that will incentivise people to want to consume those products.  It is an amazing commercial market we haven’t yet touched.”

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The President, ISPON, Yele Okeremi, explained that data security risks could not be wished away as they were unavoidable with innovations.

According to him, the security concerns linked to open banking have to do with giving consent to service providers to access customers’ data, which when done properly, will not lead to data breaches.

“One of the important things about open banking is that proper perimeters are drawn between the public and the ultimate data. There will be data breaches which happen from time to time, but that is not sufficient reason for us to say open banking is not good. Not only is open banking good, it has come to stay,” Okeremi said.

He added that not all factors slowing down the progress of financial inclusion in the country could be addressed with technology as some were social problems.

Okeremi added, “The most important criteria to financial inclusion is financial capacity. First, we need to ensure people are enabled to participate financially. We have people living on less than $2 a day. What we need to do is to ensure there is financial empowerment and then we begin to look at how we need to include them in the ecosystem.”

Speaking on the security concerns associated with open banking, Figueredo stated that stakeholders were working with the regulator to educate Nigerians about the risks and how they could secure their data.

“We are working very hard to mitigate Information Technology security risks by educating people. The risks are really in the lack of education. If you are educated and completely understand how you do what you do, things will be more secured. Today, in the way we use our passwords for banking, if you are not educated on how to use it, you put yourself at risk.

For open banking to work in Nigeria, the Open Vector CEO said the Central Bank of Nigeria would have to create a consent mechanism that would empower bank customers to give consent to data sharing.

“The consent regulation needs to be put in place and should be solid enough to protect the consumer. The consent mechanism should allow the consumer to make decisions to what they consent to and how far third-party providers and payment service providers can access their data and what they can do with it,” he added.

The Chief Digital Officer, Alat by WEMA, Mr Dele Adeyinka, said banks had expressed their readiness to collaborate with fintechs to implement the open banking initiative, adding that the industry regulator would provide standards and framework for operations.

“It has to be collaborative in nature and we are going to leverage technology. Technology is a level-playing ground. The journey is just starting, it is a marathon and we will get to our destination,” he added