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INFLUENCE OF REGULATORY CHANGES AND OPEN BANKING FRAMEWORK ON COMPETITION AND INNOVATION IN NIGERIA’S BANKING SECTOR
Abstract
This chapter explores the influence of regulatory changes and the open banking framework on competition and innovation within Nigeria’s banking sector. Drawing on recent scholarly insights, it examines how evolving regulations by the Central Bank of Nigeria (CBN), such as the Payment System Vision (PSV) 2020 and the introduction of open banking guidelines, have fostered digital transformation, encouraged fintech collaborations, and intensified market competition. Key disruptions from technologies like AI, blockchain, and mobile banking are highlighted, alongside challenges in privacy, cybersecurity, and regulatory compliance. The discussion underscores opportunities for enhanced financial inclusion and service efficiency, while addressing the need for balanced policies to sustain innovation without compromising stability.
1.1 Background of the Study
The Nigerian banking sector has undergone significant transformation, driven by regulatory reforms and technological advancements, particularly in open banking. The Central Bank of Nigeria (CBN) has played a crucial role in this evolution through initiatives such as the Payment System Vision (PSV) 2025, which extends the earlier PSV 2020 to foster a robust digital payment ecosystem amid increasing fintech integration (Samuel-Ogbu, 2022). These measures have accelerated the adoption of artificial intelligence (AI), blockchain, and mobile banking, improving operational efficiency and broadening financial service accessibility. For instance, the implementation of the Bank Verification Number (BVN) in 2014, followed by the eNaira digital currency in 2021, has enhanced security and financial inclusion, reaching millions of previously unbanked individuals (Samuel-Ogbu, 2022).
A key milestone has been the introduction of the open banking framework, formalized by the CBN’s Regulatory Framework for Open Banking in 2021 and supplemented by Operational Guidelines in 2023. These guidelines enable secure data exchange between banks and third-party providers (TPPs) via application programming interfaces (APIs), fostering innovation and competition (Alao, 2020; Ige, 2025). By permitting fintech firms to access, open banking has democratized financial services, leading to innovations such as personalized lending, instant payments, and AI-driven financial advice. Transaction volumes in instant payments have surged dramatically, with a reported increase of over 77,000% from 2012 to 2020, a trend that continued into the mid-2020s as open banking gained traction (Samuel-Ogbu, 2022). Scholars highlight that this shift aligns with global Banking 4.0 and 5.0 paradigms, where real-time, customer-centric services prevail, fostering collaborations between traditional banks and agile fintech startups (Gaviyau & Godi, 2025).
Recent regulatory changes, including the phased implementation of open banking set for early 2026 following delays from the initial 2025 target, underscore the CBN’s commitment to stability and consumer protection while promoting ecosystem growth (Ige, 2025). This framework has encouraged partnerships, such as banks integrating blockchain for trade finance and AI for fraud detection, thereby enhancing sector resilience and competitiveness (Alao, 2020). However, the landscape is marked by fintech disruptions, where startups offer cost-effective, user-friendly alternatives, challenging incumbents and reshaping market dynamics (Gaviyau & Godi, 2025). As Nigeria approaches full open banking rollout, these changes promise greater financial inclusion but require careful navigation of emerging risks to sustain long-term innovation.
1.2 Statement of the Problem
Notwithstanding the advancements, regulatory changes and the open banking framework in Nigeria’s banking sector present multifaceted challenges that could undermine their intended benefits. While initiatives like the 2023 Operational Guidelines have promoted data sharing and innovation, they have also amplified concerns over data privacy, cybersecurity vulnerabilities, and unequal competitive landscapes (Alao, 2020; Ige, 2025). For instance, the rapid digital shift, exacerbated by the COVID-19 pandemic, has exposed outdated infrastructure in traditional banks, making it difficult for them to compete with fintechs that leverage lighter regulatory burdens for quicker market entry (Samuel-Ogbu, 2022). This regulatory arbitrage has led to market imbalances, where fintechs capture significant shares in mobile money and payments, potentially eroding consumer trust if data breaches occur (Gaviyau & Godi, 2025).
Moreover, despite serving over 60 million unbanked Nigerians through mobile banking, persistent issues such as skills gaps in digital literacy, inconsistent regulatory enforcement, and heightened risks of social predation through data misuse pose significant barriers (Ige, 2025). The delayed go-live of open banking to 2026 highlights ongoing challenges in ensuring secure API integrations and compliance with data protection laws, which could stifle innovation if not resolved (Alao, 2020). These problems necessitate a deeper examination of how regulatory frameworks influence competition and innovation, to foster a balanced ecosystem that prioritizes stability, inclusion, and ethical data practices without hindering progress.
1.3 Objectives of the Study
- Examine the role of regulatory changes in shaping Nigeria’s banking sector.
- Assess the impact of the open banking framework on market competition.
- Evaluate the effects on innovation within financial services.
1.4 Significance of the Study
This study holds substantial value for various stakeholders in Nigeria’s financial ecosystem. It provides empirical insights into how regulatory reforms and the open banking framework drive competitive dynamics and innovative practices in the banking sector, contributing to the broader discourse on digital financial transformation in emerging markets.
For policymakers and regulators, such as the Central Bank of Nigeria (CBN), the findings offer evidence-based guidance for refining open banking guidelines and related policies to balance innovation promotion with systemic stability and consumer protection. This is particularly timely amid ongoing efforts to enhance financial inclusion and digital payment ecosystems.
Bank managers and industry practitioners benefit from a clearer understanding of how to leverage regulatory-enabled collaborations (e.g., API integrations with fintechs) to improve service delivery, reduce costs, and gain competitive advantages in a market increasingly dominated by agile digital players. The study highlights pathways for traditional banks to adapt legacy systems and foster partnerships, thereby sustaining market share.
Academia and researchers gain from an updated analysis of regulatory impacts on competition and innovation, filling gaps in literature focused on Nigeria’s context post-2021 open banking rollout. It serves as a reference for future studies on fintech-bank synergies and regulatory evolution in sub-Saharan Africa.
Ultimately, enhanced competition and innovation can lead to improved financial services, greater inclusion for underserved populations, and stronger economic contributions from the banking sector, aligning with national development goals.
1.5 Scope of the Study
The study is delimited to the Nigerian banking sector, focusing primarily on deposit money banks (commercial banks) and their interactions with fintech entities under the CBN’s open banking framework. It examines regulatory changes from approximately 2018 onward, including key milestones such as the 2021 open banking guidelines, Payment System Vision updates, and related fintech licensing regimes.
Geographically, the scope centers on Nigeria, with emphasis on major urban financial hubs (e.g., Lagos, Abuja) where most banking innovation and competition occur. The analysis draws on secondary data from CBN reports, scholarly publications, and industry sources up to 2025, supplemented by conceptual evaluation of primary impacts where applicable. It excludes non-bank financial institutions (e.g., microfinance banks, insurance) and international comparative analyses beyond brief contextual references.
1.6 Limitations of the Study
While the study relies on recent scholarly and regulatory sources for robustness, limitations include potential access constraints to proprietary bank data on open banking implementations, which may restrict granular empirical depth. Rapid regulatory and technological evolution in Nigeria’s fintech space means some findings could require updates in the near future. The qualitative interpretive nature of certain impacts (e.g., innovation diffusion) introduces subjectivity, though mitigated through cross-referencing multiple sources.
1.7 Definition of Terms
- Regulatory Changes: Policy and guideline shifts by the CBN, including licensing frameworks, capital requirements, and digital banking directives aimed at modernizing the sector.
- Open Banking Framework: A regulatory model allowing third-party providers secure access to customer bank data via APIs, enabling innovative services while maintaining data protection standards (CBN, 2021 guidelines).
- Competition: Rivalry among banks and fintechs for market share, customers, and service dominance, often intensified by lower barriers and digital offerings.
- Innovation: Development and adoption of new or improved financial products, processes, or business models, such as AI-driven services, instant payments, and fintech-bank collaborations.
- Banking Sector: Comprises deposit money banks licensed by the CBN to accept deposits and provide credit and other financial services in Nigeria.
References
Alao, B. (2020). An appraisal of Fintech-induced competition in Nigerian banking industry. International Journal of Advances in Engineering and Management (IJAEM). https://ijaem.net/issue_dcp/An%20Appraisal%20of%20Fintech-Induced%20Competition%20in%20Nigerian%20Banking%20Industry.pdf
Gaviyau, W., & Godi, J. (2025). Banking sector transformation: Disruptions, challenges and opportunities. Future Transportation, 4(3), 48. https://doi.org/10.3390/futuretransp4030048
Samuel-Ogbu, I. (2022). Digital technology and the transformation of the Nigerian banking system: The operators’ perspective. Central Bank of Nigeria Research Series. https://www.cbn.gov.ng/Out/2024/RSD/Digital%20Technology%20and%20the.pdf