1.1 Introduction
The Nigerian banking sector has undergone profound transformation in the past decade, spearheaded in significant part by technological innovation and evolving regulatory landscapes. A principal driver of this change has been the Central Bank of Nigeria's (CBN) vision ahead in regulating digital financial products in a series of guidelines specifically crafted to accommodate new financial realities.1
Central Bank of Nigeria Headquarters, Abuja
1.2 Licensing & Structural Compliance
1.2.1 Licenses Enabling Digital Banking
There is no standalone "digital banking" license in Nigeria yet, but the Central Bank of Nigeria (CBN) has developed regulatory options strategically enabling digital banking through existing types of licenses. First among these are the Payment Service Bank (PSB) licenses, which were introduced to drive financial inclusion of banked and underbanked populations, and the Microfinance Bank (MFB) or Finance Company licenses, which may permit electronic operations in the event that there are certain regulatory and operational conditions met.2
Key Licensing Options
- Payment Service Bank (PSB) licenses - For financial inclusion initiatives
- Microfinance Bank (MFB) licenses - Electronic operations under specific conditions
- Finance Company licenses - Alternative pathway for digital services
1.2.2 Agent-Banking and Mobile Money Licensing
In 2021, the Central Bank of Nigeria (CBN) published Guidelines for Mobile Money Services in Nigeria to regulate and standardize the growing usage of mobile-based financial services. The guidelines offered two broad operating models: the bank-led model and the non-bank-led model. In the bank-led model, licensed deposit money banks (DMBs) individually or jointly with other institutions offer mobile money services.
Digital Banking Growth
Nigeria's fintech sector is transforming traditional banking through mobile banking, digital payments, and innovative financial services, extending access to previously underserved communities.
1.3 Open Banking & Data Governance
CBN's Operational Guidelines and Regulatory Framework impose legal standards for data sharing via APIs, risk management practices, consent models, and operation oversight.3
1.3.1 Wide participation & Registry
Organisations possessing or accessing customers' financial data—fintech organisations, payroll institutions, and other non-bank financial institutions—are now legally required to register on the Open Banking Registry (OBR) provided by the Central Bank of Nigeria (CBN) under its 2023 Operational Guidelines for Open Banking in Nigeria.4
1.3.2 Data Privacy & Consent
The providers must, in line with the Central Bank of Nigeria's (CBN) 2023 Open Banking Guidelines, adopt strict consumer data protection measures. Key among these is the creation of time-limited consent procedures that allow clients to easily grant, withdraw, or modify access to their financial data.
1.3.3 Technical Standards
In line with the Central Bank of Nigeria's (CBN) Open Banking Guidelines, every participant—banks, fintechs, and other API ecosystem players—has a statutory obligation to adhere to industry-standard technical norms for the guarantee of data safety, system security, and regulatory control. These include RESTful APIs, JSON data structure, and comprehensive security protocols.
1.4 Cybersecurity, AML & Consumer Protection
1.4.1 Cybersecurity Obligations
Through the Central Bank of Nigeria's Risk-Based Cybersecurity Framework and related circulars, digital banking operators must implement and maintain an all-inclusive, multi-layered cybersecurity infrastructure. This involves the installation of robust intrusion detection and prevention systems (IDPS), maintaining real-time monitoring, and having round-the-clock incident detection and response systems in place.5
1.4.2 AML/CFT & KYC
Nigerian virtual banks are required by law to apply robust Anti-Money Laundering and Combating the Financing of Terrorism (AML/CFT) regulations as prescribed by the Central Bank of Nigeria (CBN).
1.4.3 Consumer Protection & Redress
The Central Bank of Nigeria (CBN) regulates various consumer protection practices that must be adhered to by digital banking operators.
Key Compliance Areas
- Cybersecurity Framework - Multi-layered security infrastructure
- AML/CFT Compliance - Anti-money laundering protocols
- Consumer Protection - Redress mechanisms and transparency
1.5 Digital Lending & Virtual Assets
While not technically "digital banking," digital lenders are increasingly subject to the full regulation that they elicit from crossing over into consumer credit and fintech spaces. The Central Bank of Nigeria (CBN) issued guidelines to encompass digital lending operations in 2025, aiming to limit abusive debt collection practices and increase transparency.
1.6 Enforcement Risks & Sectoral Coordination
1.6.1 Overlapping Regulatory Mandates
Nigerian fintech and digital banking operations exist in a multitude of supervisory and legal systems to which they must conform. The banks must juggle simultaneously the mandates of no less than five regulators.
1.6.2 Regulatory Sandbox
The Central Bank of Nigeria (CBN) sandbox framework 2020 provides a structured, risk-controlled space in which fintech companies may test innovative digital banking ideas under the oversight of the regulators. The regulatory sandbox allows start-ups and other providers of financial technology businesses to test new products, services, or business models with actual customers within a pilot program, before launching at full scale.6
1.7 Practical and Legal Implications
1.7.1 Legal Certainty & Licensing
Regulated institutions wishing to operate digital banking business in Nigeria must strategically structure their legal form—either as a Payment Service Bank (PSB), Microfinance Bank (MFB), or bank-led operator—to align with regulatory definitions and avoid compliance violations.
1.7.2 Data Governance and Litigation
Organisations that process or share customer financial data in Nigeria's open banking environment are subject to a legal obligation to maintain robust consent records, comprehensive data audit trails, and timely breach notification processes.
1.7.3 Compliance with Consumer Rights
Open grievance redress mechanisms need to be established by digital banking platforms and all charges need to be disclosed transparently and exhaustively.
1.8 Case Examples & Emerging Challenges
1.8.1 USSD Charge Disputes
The 2019 Banks-vs-Telcos USSD dispute exposed regulatory ambiguities in mobile transactions channel fee allocation in Nigeria. There was disagreement on who is responsible for USSD service charges in digital banking between banks and telcos.
1.8.2 Adoption & Trust Dynamics
Study indicates that awareness and trust drive uptake of digital banking in Nigeria. South-East and South-South Nigeria, for instance, had comparatively low take-up until recent conditions—such as cash shortages across the country—forced wider acceptance of digital payment methods.
1.9 Conclusion
The Central Bank of Nigeria's new regulation of digital banking is a great leap toward revolutionizing the financial ecosystem and enhancing financial inclusion. They enact strict legal conditions on fintechs, digital banks, and service providers in the areas of licensing, data protection, cyber security, consumers' rights, and compliance with anti-money laundering regulations.
1.10 Recommendations
Key Recommendations for Digital Banking Operators
For their effective and legal operation, Nigeria's digital banking operators must adopt a multi-dimensional approach to regulatory compliance. In the first instance, they must secure the appropriate licenses—e.g., PSB, MFB, or bank-led—and meet capital, governance, and reporting requirements under CBN and BOFIA frameworks. Second, operators must register on the Open Banking Registry, take on standardized APIs, and harmonize data handling processes with the Nigeria Data Protection Regulation (NDPR).
