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Fidelity Bank, a Nigerian commercial bank, has implemented measures to restrict consumer fund transfers to neobanks such as OPay, Palmpay, Kuda, and Moniepoint. This move comes in response to mounting concerns over the neobanks’ relaxed Know Your Customer (KYC) processes, which have been linked to a surge in fraudulent activities.
Recently, observant customers noticed that these neobanks were conspicuously absent from the list of approved financial institutions within the Fidelity Bank app. This development has been corroborated by multiple sources, indicating a deliberate action taken by the bank.
While Fidelity Bank initially informed its customers that these restrictions were due to an application upgrade, insiders and sources within the affected fintech companies reveal a different narrative. According to sources close to the situation, the restrictions were actually implemented over two weeks prior, driven by increasing concerns regarding fraud and customer verification.
Despite complaints from customers suggesting otherwise, OPay refutes any claims of being affected by these restrictions. Palmpay’s Chief Marketing Officer, Sofia Zab, informed Fidelity Bank that they were notified of an ongoing system upgrade and assured that they would be reinstated once it was completed.
Insiders with knowledge of the situation assert that these restrictions stem from escalating losses due to fraud. Several experts in the banking industry have highlighted the substantial financial setbacks incurred by Nigerian banks and fintech companies as a result of cyberattacks and fraudulent activities since the beginning of the year.
A source within the banking sector, requesting anonymity, emphasized the critical role of due diligence and KYC compliance. They contended that until the neobanks rectify these issues, they are likely to face continued restrictions by banks.
Furthermore, it has been noted that neobanks like OPay and Moniepoint often employ third-party verification agencies to gather and authenticate customer information. These agencies utilize remote methods, including digital documentation and biometric verification, to establish customer identities. While this approach offers speed and convenience for customers, traditional banks express reservations about its efficacy.
A prevailing sentiment is that both neobanks and traditional banks may have shortcomings in their respective KYC practices. There is skepticism regarding whether traditional banks rigorously verify documents, particularly after changes are made.
Apart from the anti-fraud measures, questions arise concerning a bank’s authority to unilaterally restrict transfers to another bank. The CBN Customer Due Diligence Regulations for 2023 do not expressly address this matter. However, existing regulations mandate banks to implement a risk management framework to identify and mitigate potential risks.
It remains unclear whether Fidelity Bank sought approval from the Central Bank of Nigeria (CBN) prior to imposing these account restrictions. Insiders suggest that the bank likely acted independently, possibly without regulatory consent. In such cases, the bank may attribute the action to technical issues if questioned by regulators.
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