The integration of personal data with bank details seems to be the issue in Nigeria’s financial system, but ANOZIE EGOLE writes that a more serious issue is reaching millions of the unbanked population
One of the biggest challenges facing Nigeria as a country is the proliferation of fragmented information and multiplicity of data due to poor data management and integration. Inadequate data integration at various levels affects many sectors, not taking exception of the banking sector.
Data integration can be defined as consolidating data from disparate sources into a single dataset, with the ultimate goal of providing users with consistent access and delivery of data across the spectrum of subjects and structure types, and to meet the information needs of all applications and business processes.
In 2015, the National Identity Management Commission integrated the Bank Verification Number in the national identity database. Former Director-General of NIMC, Mr Chris Onyemenam, while disclosing the move, said the integration was borne out of the need to obey a presidential directive to harmonise various databases in the country.
Meanwhile, findings by Financial Street reveal that for the number of unbanked customers to reduce, there is need to make the processes less cumbersome and more attractive.
“I know so many people who prefer to make use of their piggy boxes than going to the bank to make deposit. When the cashless policy is trying to gather momentum and make more meaning, the financial sector is indirectly ripping people off with their numerous charges.
“I won’t blame anybody who choose to keep the money at home than going to the bank. If you keep, for instance, N10, 000 in the bank and wants to go collect it in next one year, the money won’t be compete again due to one charge to another,” she said.
Destiny Allen, a car dealer, prefers to save his money elsewhere than going to the bank, adding banks waste a lot of time trying to get the data of customers.
“So, as a businessman, I prefer to keep my money to myself instead of going to the bank,” he added.
To provide enabling regulatory environment for innovative and customer-centric financial services, the Central Bank of Nigeria issued the Regulatory Framework for Open Banking in Nigeria on February 17, 2021.
Previously, banks operated in a closed ecosystem, with exclusivity of access to customer information, locking out innovators and forcing customers to rely solely on the digital channel offerings of their respective banks. With the Framework, the financial services space in Nigeria will experience the simplification and integration of multiple and complicated financial services.
With the growing need to integrate banks and other financial institutions with innovators and customers in the financial services space and the increasing adoption of Application Programming Interface-based integrations in the industry, the Framework has become fundamental to filling this gap and driving innovations in the financial services sector.
The purpose of the framework is to enhance financial inclusion, foster the sharing of data with third party financial services firms to build solutions and services for efficiency, greater financial transparency, synchronisation and options for account holders across Nigeria.
Unbanked population in Nigeria
Research by Financial Street shows that as at year 2020, Nigeria’s financial exclusion rate of almost 40 per cent, one of the highest in Africa, mirrors the country’s poor economic growth.
In the last five years, the economy of Africa’s most populous country has been growing at a pace lower than its population growth rate. In need of an economic catalyst to lift more than 200 million of its population from poverty, Nigeria was listed among the top seven unbanked countries by a July report by BNP Paribas, a French international banking group, in ‘Fintech in Emerging Markets’.
The Head of Research, First Securities Discount House Limited, Merchant Bank, Ayo Akinwumi, was quoted as saying that financial inclusion could ease Nigeria’s poverty rate.
“When people and small businesses are financially included, they can access credit to enable them expand operations, employ more people, and achieve what they would have not been able to achieve when they were not financially included,” he explained.
Though Nigeria’s population is 2.6 per cent of the world’s population, the World Bank Global Findex Report 2017 estimates that 47,345,495 (3.4 per cent) of Nigerians are among the global 1.7 billion adults who are unbanked and financially excluded.
Experts in the banking sector have advised that for the sector to reintegrate the rising unbanked population, there is need to embrace open banking. They added that the system would create a new stream of revenue for banks and drive the over 40 million unbanked population into the formal banking system.
A financial expert, Kenneth Ojelo, maintained that open banking would foster inclusion and provide the needed foundation – regulatory framework, database among others.
The Acting National Executive Director, Chartered Institute of Logistics and Transport, Paul Ndibe, stressed the need for a distinction between information economy and information literacy.
“Nigeria, as a country, has not done much on information literacy in terms of government-designed approach. The much that have been done in Nigeria had essential been public sector-based; hence information literacy is still low.
“There should be something on information literacy campaign, so that you can bring a larger community of people into this umbrella. Driving Nigeria through information economy is also good, but who are the people to bring on board,” he queried.
Despite the huge importance of data integration, it is still faced with lots of challenges. The most prominent is to incorporate the heterogeneity associated with the data.
Another major issues with the data collection is the cumbersome method through which these data are collected.
Experts and economists are of the opinion that the mode of these data collection is the reason why there is rising number of unbanked customers.
With the rapidly evolving banking sector, open banking, which seeks to achieve greater bank data availability and help drive innovation, is set to positively transform the mode of operations of business in Nigeria.
An economist, who pleaded anonymity, told our Financial Street that lack of incentives for people to come into the bank was the reason for rising population of the unbanked in Nigeria. He explained that a lot of people were moving from then formal sector to an informal sector due to the challenges.
“The major challenges causing the increment on unbanked customers are lack of incentives for them to come into the major banking environment. There are so many charges associated with bank transactions.
“The business environment also discourages businesses to move from informality to formality. Some businesses are busy moving from formal to informal because of these challenges. So, by and large, the unbanked population is just a mirror of the structure of the Nigerian economy where over 60 per cent remains informal. But leveraging the telephone and the incoming digital currency that CBN is planning to launch, I think people may not have option than to come into the bank,” he said.
Former Director-General of the Lagos Chamber of Commerce and Industry, Muda Yusuf, said there is need for financial institutions to facilitate documentation.
“Challenges of financial inclusion are that a lot of people don’t come into the institution. The way to facilitate financial inclusion is to facilitate documentation. They should ease documentation, reduce the cost of transactions and increase access to all that.
“Look at all these guys that are doing POS; they are everywhere making money. It is easier for you to go them than going to the bank. Many people don’t bother going to the Automated Teller Machine to queue up. Their charges are very reasonable. They are readily available, no documentation, stories and the cost of transaction is cheap. So, if you talking of financial inclusion, banks have to reduce cost and documentation,” he said.
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