Sparkle COO Says Open Banking Builds Trust by Putting Consumers in Control of Their Data

After years of advocacy, open banking is now live in Nigeria, the first country in sub-Saharan Africa to adopt the regulation.

The launch marks an important milestone for the country’s payment and FinTech landscape, Samira Nwaturuocha, COO and chief risk and security officer at Lagos-based FinTech firm Sparkle, told PYMNTS in a recent interview, one that simplifies the sharing of customer data in a way that was not possible before.

“Previously, if a customer in Nigeria wanted to get credit from one financial institution [FI], they would often have to physically generate their banking transactions from another financial institution and then find a way to transfer that data between the two,” Nwaturuocha explained, adding that some FIs even required physical copies of documents.

With open banking, however, those challenges will now be exchanged for a more seamless and frictionless data-sharing process, she said, while enabling a greater level of data integration across the banking and financial services landscape.

Its impact on financial inclusion cannot be overstated either, she added, explaining how open banking will strengthen digital identity and eliminate the barriers to entry in the financial services sector, particularly for the unbanked and underbanked in rural, remote areas.

In terms of know-your-customer (KYC) management, Nwaturuocha said the ability to access user data from various institutions via open banking will help the ecosystem move beyond the standard regulatory KYC toward more of social KYC.

“This means firms will get to know customers better, not just from an identity point of view, but in terms of shopping behavior, spending patterns and lifestyle, and that’s information which they can then use to offer more personalized, tailored products and services,” she said.

Lastly, given that financial institutions looking to leverage users’ personal data cannot do so without their consent, Nwaturuocha said it will increase customer awareness and give them greater insights into the specific types of personal data and financial information that is being gathered and used.

“That is another benefit that open banking will bring in the long run — greater awareness of the power of data,” she said.

Open Banking Not Without Risks

While the opportunities open banking can create in the financial services industry are abundant, Nwaturuocha said they do not come without risks.

First of all, while less segregated and more integrated data will give providers access to a larger pool of data, it also means fraudsters will have a “larger single point of attack,” making the customer more vulnerable to phishing attacks, payment fraud and cybersecurity risks.

Data quality issues, particularly at the initial source — like the bank verification number (BVN), which enables a user to be verified across all FIs in Nigeria — can also lead to the sharing of incomplete or erroneous information among institutions and third parties.

“Sometimes there’s a false sense of safety because you think you’re getting it from a reliable source like a bank, so the verification that you end up carrying out on that data is not as strong as it would normally be,” she explained.

Apart from the classic breach of data, the heightened possibility of account takeovers cannot be overlooked, Nwaturuocha added, explaining how cybercriminals can begin to exploit vulnerabilities within a system which is now more open, more integrated and more interconnected than before.

More Data, Better Analysis, Enhanced Decisions

As regulators work hand in hand with industry stakeholders to tackle those challenges, Nwaturuocha said Sparkle is looking forward to making the most of the access the technology provides.

“As a FinTech and a digital bank, we’re big on data, especially anything that opens us up to good data for good business decision making both for the customer and for us internally. And that’s what open banking does,” she said.

Take a product category like loans, for example. She said it makes a world of difference now to be able to pull customer data and view their history and their track record with other banks. This, and the ability to assess data points from several years back, as compared to a few months’ worth of data that the customer would normally be able to provide, is what makes open banking a game changer for the FinTech sector.

“Again, this is one difference that [open banking] can make — more data to perform better analysis, and in turn make better credit decisions both for the customer and for ourselves,” Nwaturuocha said.

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