Neobanks like OPay, Palmpay, Kuda, and Moniepoint have been prohibited by Fidelity Bank, a Nigerian commercial bank, because to worries that their KYC procedures are increasing the number of fraud cases.
According to several people with firsthand knowledge of the situation, Fidelity Bank, a commercial bank in Nigeria, is limiting customer money transfers to neobanks including Moniepoint, Kuda, OPay, and PalmPay.
A week ago, a small number of customers first noticed that these neobanks were no longer listed on the list of approved financial institutions on the Fidelity Bank app. At least five sources have now confirmed the development.
As at the time of publication, the impacted digital financial services are still not accessible for selection on the Fidelity Bank mobile app. Customers were told by the bank that the limitations were due to an app update; however, two individuals with firsthand knowledge of the situation and other sources at the impacted fintechs provided a different account.
According to sources, transfer limits were put in place at least two weeks ago due to growing worries about client verification and fraud. Customers complained that OPay was not affected by the limits, but OPay disputed it. \”They gave us a notice last week that they are upgrading their systems and will put us back after that is done,\” stated Sofia Zab, Chief Marketing Officer of Palmpay. The restriction was also confirmed by a Moniepoint source. Refusing to provide a statement for the story
Sources connected to the bank confirmed that the restrictions are related to mounting fraud losses. At least three banking industry experts said that Nigerian banks and fintech companies have suffered massive losses to cyber attacks and fraudsters since the start of the year. “The issues are due diligence and KYC,” said a bank source who asked not to be named. “Until they get their house in order, they will continue to experience issues [like being blocked] by banks.” According to two people at fintech startups, while Fidelity Bank did not share specific KYC concerns, the neobanks are working to understand the issues.
A highly placed person at a Nigerian bank told stated that before the uptick in cases of fraud, traditional banks rarely bothered with KYC for Neobanks. But that is changing with the rise in fraud; traditional banks are not only requesting to see the KYC verification of these neobank users, but they sometimes want to conduct KYC for the customers.
Per people familiar with the matter, neobanks like OPay and Moniepoint sometimes use third-party verification companies to collect and verify customer information. These providers verify customer identity remotely using digital documents and biometric verification. While this mode of verification is faster and more convenient for customers, traditional banks feel it may not always be sufficient.
“It’s just a case of a kettle calling a pot black,” one expert said. “While neobanks can be loose about their KYC, the traditional banks also don’t conduct their KYC well. They may be stringent with you when they start, but I doubt if they verify these documents, especially when you change them.”
Away from these anti-fraud systems, there are valid questions about whether a bank can unilaterally restrict transfers to another bank, and the CBN Customer Due Diligence Regulations 2023 is silent on the matter. Existing regulations state that banks should have a risk management framework in place to identify and mitigate the risks.
It is unclear whether Fidelity Bank communicated to the CBN before it began restricting accounts. Sources close to the situation say the bank likely acted without the regulator’s consent. “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.”
