There is a major weak link in the Nigerian fintech sector. It is not electricity. It is not customer digital illiteracy, and it is neither distrust nor fraud. The weakest link is NIBSS (Nigeria Inter-Bank Settlement System). Yes, the very institution which is supposed to be the anchor and the strongest link of the evolving digital economy. NIBSS is the custodian of the Bank Verification Number (BVN) and it warehouses all financial transactions in the Nigerian banking sector. Its data is the gold standard because everything else is a subset of NIBSS dataset. From fintechs like Interswitch, Remita, e-Tranzact and Paystack to all the banks, everyone merely feeds from the NIBSS. NIBSS understands that and has effectively made the national data largely private.
The BVN was partly funded by the Nigerian people since the Central Bank of Nigeria (CBN) contributed money in support to the banks and their partners. Technically, the data collected from BVN ought to belong to the citizens. Those citizens should have major controls on what anyone does with the data. That is not the case: NIBSS treats the data as its own property and by doing so is crippling innovation in the fintech sector.
At the moment, even when a fintech is certified by CBN, NIBSS does not allow access to some critical data which can help the startups create products which the markets need. Without NIBSS data, the credit –based economy will not happen. For any fintech to offer lending services, it will need data from NIBSS but at the moment that is not happening at scale. Even when a startup wants to help customers organize their financial ecosystems by aggregating all their financial accounts in one portal, NIBSS does not provide data access to fintechs working in this sector. I do think NIBSS must change its viewpoint if the nation expects the fintech sector to evolve.
With the paucity of primary data, what is happening in the industry is the evolution of secondary data sources. Interswitch is working with about six banks and Paylater and Piggybank to drive lending services. Technically, that is a service that Interswitch could have launched across all the banking platforms if it has access to NIBSS data. What is happening here is that Interswitch is focusing on providing services to only customer data passing through its pipes which is largely a subset of NIBSS data. By doing so, customers not using Interswitch products will not optimally benefit from its lending products.
One of the most important companies in Nigeria in the area of digital banking is Interswitch. Interswitch is now taking action to take advantage of its position in the sector and lead the acceleration of what Paylater and Piggybank are doing. The Nigerian digital payment pioneer is working with six banks and three startups to begin a new era in Nigerian banking sector. The banks will provide the data while the startups will help deliver the products. Interswitch will stay at the back to make sure the data integrity is there. It will also over time build the credit score. The product is named Interswitch Lending Services (ILS). ILS is a very powerful product in the Nigerian financial sector which can bring many citizens into the sector through micro-lending and financial inclusion.
The same applies to Remita from SystemsSpecs which is partnering with Access Bank to offer some quasi –credit services by looking at customer earnings. I am not sure Remita has access to NIBSS, otherwise it would have made that service available to all the banks. So, I do think the partnership with Access Bank is to qualify customers using Remita system and then make calls if they are capable of taking credits. Remita does not do the lending, but rather, uses data in its network to provide indicators on customers’ capacities to take loans. I expect Paystack to use its own data to offer credit services in future. And just like that, we will have fragmentations. This is so because none has access to the centralized one which is kept by NIBSS. That is a Nigerian problem and it goes beyond banking: in telecom, every telco has its own data when a centralized one could have worked.
The US Model
In the United States, there is a charter that empowers three main companies (Equifax, Experian and Trans Union) to provide credit related services by using data provided by banks and other sources. These credit bureaus receive the data from the banks and using the data build profiles of American residents on their credit worthiness. Any company that applies for access to the data and passes through the regulatory requirements will have access to the data. So, fintech will have access to any of the credit bureaus and using the data they offer services to customers. And as they offer those services, they supply back data to the bureaus. This feeds a virtuous circle which is great. In Nigeria, we do not have that and that is a problem.
In U.S., even though the credit bureaus maintain the data, the customers have to authorize them before any company can access them. If you are applying for a loan or getting a new phone line, you have to offer consent to the company to check your credit. They cannot check your credit without your express permission. Today in Nigeria, there is nothing like that. That is why customers cannot ask NIBSS to make their datasets available to Remita or Paylater for examinations. That weakens the system as the customers do not have any capacity to shape how their data is used. Also, it also makes it challenging for NIBSS to have a comprehensive insights on customer datasets. So, the fragmentation continues. That is very unfortunate.
NIBSS needs to be paid. There is nothing wrong with that. I do think it needs to come out and say so. It needs to offer fair pricing. If that happens, any CBN-certified fintech will simply pay the fees and have access to the necessary data to run its business. And as it generates its data, it feeds to NIBSS and that strengthens the datasets. Over time, landlords and mortgage lenders will join the fray. Within a decade, Nigeria will have a solid credit-based economy. The fintechs with the ambitions to build businesses which are affordable and accessible to consumers will help NIBSS generate income on the data. For example, as a customer applies for a loan, that loan upon approval will come with say N50 being for credit check. If the loan is declined, the fee is voided. There are many ways this can be structured. The key is to make sure that NIBSS is paid. It can even offer yearly license or monthly subscription to partners. NIBSS has a business and must make it work for the country.
NIBSS Credit Product
I do think NIBSS has a plan to operate a credit bureau. By limiting access to the data, it does think it will remain the only company that can offer the most comprehensive data in the nation. However, its partly closed model will make it challenging for Nigeria to have a high quality credit system since a possible outcome is a fragmented ecosystem. So, if NIBSS wants to be the credit bureau, let it just do it immediately and unveil the product to the market. There is no need of wasting time. It does not want another company to do it with its privatization of data, so it falls on it. I have noted some major considerations for the nation as we build a credit bureau.
The alignment of the interests of the banks, credit bureaus and citizens will be catalytic in establishing a functioning credit ecosystem in Nigeria. This is not included in the current CBN’s guidelines for establishing credit bureaus in Nigeria. We cannot do it the way the Americans have done it. We need a system that provides a citizen element so that credit bureaus have clear incentives to deliver good services. You cannot be selling people’s data and yet have no incentives to serve the people and protect their data. With this proposed model, the oligopolistic system that runs in the credit bureau industry will be dismantled in the Nigerian model. The outcome will be a virtuoso credit bureau system that secures customers data as it serves its core customers, the banks.
Banks on Fintech
In the industry today, banks have their walls guarded from fintech. Except the basic and rudimentary transfer and payment, no fintech can easily link to any of the banks. A product like Mint.com which makes it possible to aggregate all bank, mortgage etc accounts will not be possible at scale in Nigeria. The fintech has no access to link and connect to bank customers at scale. This is something I do think needs to be sorted out for the sector to develop. We need a model that ensures that data can be shared. Banks have to find ways to monetize their data, if necessary, but they must share to certified companies under CBN watch.
At the end, I do think that the Central Bank of Nigeria must institute an open banking framework to guide the industry. That interoperability will be critical for the success of the cashless and digital societies it is driving in the nation. The whole constructs of financial inclusion will not happen without a solid credit-based system. CBN has an opportunity to make that happen by providing a framework where data sharing will enable new generation companies to emerge. Those companies will serve Nigerians which have been forgotten by the present financial system. What we have today is not working and if we do not change it, other African countries will leapfrog Nigeria in the digitalization of their financial systems.---