Neobanks such as OPay, Palmpay, Kuda, and Moniepoint have been prohibited by Fidelity Bank, a commercial bank in Nigeria, due to concerns that the neobanks’ lax know-your-customer (KYC) procedures are leading to an increase in the number of fraudulent instances.
According to various sources with firsthand knowledge of the situation, the Nigerian commercial bank Fidelity Bank is placing restrictions on customer financial transfers to neobanks such as Moniepoint, Kuda, OPay, and PalmPay. A select few of Fidelity Bank’s customers were the ones who were the first to realise, exactly one week ago, that these neobanks were no longer included on the list of approved financial institutions that are displayed within the app. At this point, at least five different sources have validated the development.
At the time of this publication, the affected digital financial services could not be selected from within the mobile app offered by Fidelity Bank. However, two persons who have direct knowledge of the situation, as well as other sources inside the affected fintechs, offered a different narrative. The bank told its customers that the limits were connected to an app upgrade.
According to five persons with knowledge of the matter, the transfer limits were put into place at least two weeks ago due to escalating concerns regarding client verification and fraud. OPay denied that it was affected by the limits, despite reports from consumers stating that this was not the case. “They gave us a notice last week that they are upgrading their systems and will put us back after that is done.” said Sofia Zab, Chief Marketing Officer for Palmpay. Additionally, the restriction was validated by a source within the Moniepoint organisation. In response to this story’s enquiry, Fidelity Bank declined to comment.
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Why Fidelity Bank blocked transfers to neobanks
According to sources with ties to the bank, the restrictions were put in place because of the increasing number of fraudulent losses. At least three banking sector experts have stated that cyber assaults and fraudsters have caused substantial losses to Nigerian banks and fintech companies since the beginning of the year. “the issues are due diligence and KYC,” said a bank insider who requested their anonymity in order to speak freely about the matter. They won’t stop having problems [such as being blocked] by banks until they get their house in order, so they might as well get used to it. Despite the fact that Fidelity Bank did not offer any specific KYC concerns, two persons working at fintech firms have reported that neobanks are making efforts to grasp the problems better.
Before the recent rise in the number of fraudulent activities, traditional banks in Nigeria reportedly didn’t put much effort into conducting KYC procedures for new financial institutions (Neobanks). This, however, is beginning to change as a result of the growth in fraudulent activity; conventional banks not only want to view the KYC verification of these neobank users, but they also occasionally want to undertake KYC for the clients.
Neobanks such as OPay and Moniepoint, according to individuals with knowledge of the situation, will occasionally engage third-party verification businesses in order to collect and validate consumer information. These providers validate the identification of their customers remotely through the use of digital documents and biometric verification. Traditional financial institutions are of the opinion that this kind of verification, albeit quicker and more convenient for their consumers, may not always be adequate.
While it’s true that some neobanks have lax policies regarding know-your-customer checks, it’s also true that many regular banks don’t do a very good job of checking customers’ identities. One specialist stated that although they might be strict with you at first, he has his reservations about whether or not they verify these documents, particularly when you make changes to them.
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Is CBN aware of this?
Aside from these anti-fraud measures, there are legitimate doubts over whether or not a bank can unilaterally prohibit transfers to another bank, and the CBN Customer Due Diligence Regulations 2023 are quiet on the subject. According to the regulations that are now in existence, banks are required to establish a risk management framework that can identify potential threats and take action to eliminate or reduce those threats.
It is not apparent whether Fidelity Bank engaged with the CBN prior to beginning the process of barring account access. According to those familiar with the matter, the bank most certainly operated without the authorisation of the regulator. “They can silently do it. If your house is about to burn down, you have to save yourself,” an industry leader said. “Even if the regulators ask the bank, they would deny it and say they are having a technical issue.” he added.
