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Blurb

CBN’s Open banking regulation creates opportunity to usher in the next big FinTechs

Through Open Banking regulations, FinTechs can now help you to view all your bank accounts in one central location.

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The Central Bank of Nigeria (CBN) continues to enhance the payments and financial markets infrastructure in Nigeria by facilitating innovations which produce exciting and world-leading payment services and solutions.

What exactly is Open Banking?

In its simplest forms, the objective of Open Banking is to have a payments and markets infrastructure which provides end-users with the ability to review ALL their banking and financial information in a CENTRAL location.

This is regardless of how many bank accounts they use, and which financial institution is used.

As an example, almost everyone in Nigeria has two or more accounts. You receive funds in multiple accounts and make expenditure across the same multiple accounts. When you need to track inflows, outflows, check your balances, reconcile customer payments etc., you must log into the separate banking products just to perform mundane clerical tasks.

READ: CBN approves new license categorizations for payment systems

Consequently, from an end-user perspective (think MSMEs, entrepreneurs, HNWI etc.), keeping track of your various inflows, outflows, balances, and due liabilities across all your suite of banking products is simply time-consuming.

Now imagine a product/service that allows you click on one simple dashboard and you see ALL your inflows, outflows, balances, and liabilities ACROSS ALL BANKS.

That is the aim of open banking. The implementation of Open Banking requires adoption of common standards for technology use, agreements on data sharing and regulatory guidelines.

READ: CBN orders banks to accept travel documents, refugee ID for transactions

PWC has more on the case for open banking

Who else has open banking?

Most advanced countries already have a form of open banking in place (UK, UK, Europe, Japan, Singapore, China). However, in Africa Nigeria continues to pioneer innovative payments infrastructure solutions.

Imperva has more on where else Open Banking is already in place

Benefits and Opportunities

The ability for end-users to view consolidated information about ALL their financial products across ALL authorized providers in a single location will yield productivity benefits for end-users whilst creating new opportunities for service providers.

Specifically, MSMEs; Sole-Entrepreneurs who leverage the output/solutions from Open banking will benefit from the convenience of having a consolidated view of their banking activities (i.e., balances, inflows, outflows etc.). Furthermore, the reduction of time-consuming manual and administrative efforts required during reconciliations will be a productivity benefit.

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For Service providers, financial institutions will be able to sell more products (including cross-sell opportunities) as they gain more insights into their customers and worry less about overwhelming their customers with new accounts.

READ: Investment banking fees earned in Sub-Saharan Africa hits a six-year low of $523.7 million in 2020

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Think about platforms being able to suggest what insurance products or type of savings accounts your customers qualify for given the consolidated view of customer net worth.

One interesting opportunity is the potential for credit growth. A consolidated view of a customer’s net worth should allow Financial Institutions better analyze the creditworthiness of potential clients. Thus, align CBN’s financial inclusion objectives with its desire to increase credit to the real sector.

What happens next?

For those excitedly asking what happens next, i.e. when do these products start becoming widely available and easily accessible? The answer appears to be soon, especially as the CBN has finally published a regulatory framework.

Successful implementation of Open Banking is wholly dependent on collaboration between Technology providers (FinTech), Financial Institutions and the Regulator (CBN).

  • From a Technology perspective, as mentioned before the capability already exists globally. Also from a Nigerian perspective the Open Banking Foundation of Nigeria has been a strong advocate.
  • From the Financial Institutions perspective, SOME banks already have shown willingness to partner with FinTech to deliver a “LITE” version of Open banking.

READ: US moves against misuse of cryptocurrencies, to employ new financial technologies

As an example, Banks currently send SMS text messages which applications such as REACH APP can analyze and transform for insightful expense tracking.

  • Finally, from the Banking Regulator perspective, the CBN release of a regulatory framework outlines how the CBN intends to supervise participants in this sector.

Specifically, the highlights of the open banking regulatory framework, the CBN aims to

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a) Provide standards for the safe utilization and exchange of data and services. ,

b) Define data access levels (i.e. what bank data can be shared and who can get it)

  • There are four data categories of what can be shared (PIST, MIT, PIFT, PAST)
  • Each category of data is assigned a risk rating (Low risk, moderate-risk, high and sensitive-risk data)
  • There are also four (4) groups of participants who can get your data (Tier 0, 1, 2 and Tier 3)

READ: $945 million worth of BTCs options expiring this week

c) Establish scope of financial services

  • In scope, for now, are Payments/remittance services; Collections and disbursement services; Deposit-taking; Credit; Personal Finance advisory and management; Treasury management; Credit ratings/scoring; Mortgages; Leasing/Hire-Purchase at this time.

In other words, the key stakeholders are now ready, and we simply await the collaboration necessary to deliver the desired outcome.

Why this matters

As part of its financial inclusion goals, as well as, payments system vision strategy (PSV 2020; PSV2030), CBN continues to welcome financial technology providers (FinTech) as key participants into the payments infrastructure in Nigeria.

  • Recent entrants into this Payments infrastructure include Mobile Money Operators (MMOs such as PagaTech, eTranzact), as well as Payment Solutions Service Providers (PSSPs such as Paystack, Flutterwave).
  • Each category of participants within the Payments infrastructure is preceded by the CBN releasing a regulatory framework. (as examples since 2010, we have seen Agent Banking Framework, Super Agents framework, Regulatory Framework for Mobile payments services in Nigeria amongst others).
  • So, the recent announcement of an Open Banking Regulatory Framework created a buzz as it signals new entrants and new services are in the pipeline for the average consumer of banking services.

Blurb articles are succinctly written opinions editorials from content contributors expressing their views on financial reports, macroeconomic data, and economic policies. Blurb is recommended for readers seeking 'straight to the point' information and viewpoints that can help shape better investment decisions.

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Blurb

CBN “Naira 4 Dollar Scheme” Explained

What the CBN’s Naira 4 Dollar scheme means for your money.

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CBN

In what appears to be an attempt to incentivize dollar remittances by all means possible, the Central Bank of Nigeria (CBN) released a circular to Deposit Money Banks (DMBs), International Money Transfer Operators (IMTO), and the General Public, advising that remittances paid into a bank account will attract an additional credit alert for every USD$1 received!

Yes, you read that correctly. The CBN will facilitate a special additional credit alert of N5 for every USD$1 received. In other words,

  • if someone sends you $10,000, you get an additional special credit alert for N50,000.
  • If someone sends you $100,000, you get an additional special credit alert for N500,000.

Who is eligible?

To be eligible, the diaspora remittances need to be processed and received from one of the registered IMTOs and funds received into a Bank account operated by the DMBs. (So, if you are receiving funds via Crypto sorry you are not eligible).

Additionally, the circular says this “incentive runs from Monday 8th March 2021 to Saturday 8th May 2021″. So, if you have plans to receive dollars, you can plan accordingly.

The circular is not clear how exactly the commercial banks will know which account to pay the extra special credits into. Although, that may be a question diaspora funds recipients will need to ask their DMB accounts officers to clarify for them.

How will this be funded?

The circular notes that the “CBN shall through commercial banks, pay to recipients the N5 incentive for every USD$1”. In other words, it is the CBN funding the cost of this special extra credit.

  • One would argue that given the costs of alternative incentives to attract dollars such as the special OMO window for FPI, this may be a cheaper alternative for the CBN.
  • But we will need to see the volume of expected remittance to be certain of that. Nigeria attracts about $5billion per quarter in remittances and only trails oil in terms of foreign earnings.

Why this matter to Nigerians?

Following the collapse of US Dollar inflows into the country, the CBN initially tried to balance its current account deficits and avoid an official devaluation by tackling FOREX demand (Think ban of 41 items, etc).

Finally, this short-term Naira-4-Dollar scheme will not be called an official Naira Devaluation. But a question is what do we call the new short-term price of N412.50 + N5.00? Maybe we can call it Naira Modulation.

 

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Blurb

Nigerian Breweries leveraging, but stacking cash through rising input costs

The marathon continues for Nigerian Breweries with its 2020 financials.

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Humanity might need more booze to survive the increasingly daunting intricacies of life, but Nigerian Breweries 2020 financial statement is proof that even the best can get caught up in the reality of changing business lifecycles.

Nigerian Breweries Plc had floored the market providing both alcoholic and non-alcoholic premium quality beverages across the nation. But with brands like Star lager beer launched as far back as 1949, Gulder lager beer launched in 1970, and even the family-friendly Maltina introduced as far back as 1976, it is only natural that both the old and new generation competition gives them a run for their market share.

Much like other old money companies, Nigerian Breweries has done its bit to remain relevant in the industry from creating new variants of existing favoured brands to paying dividends consistently annually for the past few years. Yet within the same period, the company’s financial statements have been a testament to its streamlined market share and reducing profits. The marathon continues with its 2020 financials. The industry giant may as well be setting itself up for a debt quagmire peradventure its projections do not match the true reality of events.

READ: How COVID-19 has changed Nigeria’s consumer goods & industrial markets –KPMG

2020 financials: A tale of higher costs & larger debts

2020’s unfavourable financial/ business environment led to the increase in the prices of raw materials and disruptions in logistics for many Nigerian-domiciled businesses including Nigerian Breweries. Raw materials and consumables witnessed a 17% increase despite the marginal growth in revenue.

While the group’s 2020 results revealed a 4.35% increase in revenue from N323 billion in the prior year to around N337 billion, these gains were curtailed by a higher-than-par increase in cost of sales which had risen by 13.9%, from the N191.8 billion expended in 2019 to N218.4 billion as its 2020 financials reveal and interest rates going way up.

READ: Flour Mills and its diverse challenges

The company’s lower operating expenses were not enough to salvage the disruption caused by the raging interest expense following increased charges paid on bank loans and overdraft facilities as well as the significant increase in overall debt. Between 2019 and 2020 alone, long term loans and borrowings increased by 974% from N4.8 billion to as much as N51.8 billion. Even trade and other long term payables increased by 35%.

In its financials, the company noted that it has revolving credit facilities with five Nigerian banks to finance its working capital. The approved limit of the loan with each of the banks range from ₦6 billion to ₦15 billion (total of ₦66 billion) and each of the agreements had been signed in 2016 with a tenor of five years. The Company had also obtained Capital and Working capital finance from the BoI in 2019.

READ: Manufacturing sector in Nigeria and the reality of a “new normal”

It is no news that the company is involved in diversified lease arrangements. Following reclassifications made in 2019 to some of its lease assets, the 2020 asset base also witnessed significant increase in Right of Use Assets which increased by 288%% from N11.1 billion to N42.9 billion. Yet, the fact that in one year, interest expense on Lease Liabilities rose from N19.7 million in 2019 and to a whopping N4.171 billion shows that the company is taking way more debt than its books require.

But what’s it using all the cash for?

Beyond rising material costs, borrowing costs have been huge and the annual interest payment by virtue of these loans make the possibility of higher profits for the company a mirage. That said, the overall increase in total liabilities might not have been such a bad idea if the funds were being used to increase revenue and profits. But having a huge chunk of all that money in cash creates a different kind of challenge. Cash and bank values in its statement of financial position significantly increased by 377% from N6.4 billion in 2019 to N30.4 billion in 2020.

Is the cash being held to mitigate possible challenges of the volatile economy or are they being used to pay dividends? Even at a share price of N52 per share, the company’s price-to-book value sits at 2.5816, testament of its dire overvaluation. Consequently, there is an ardent need for the company to come up with newer ways to attract the wider market and keep its book in the green with a little less external funding.

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