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Fidelity Bank Restricts Nigerian Neobanks Over Fraud Concerns: A Deep Dive

In recent developments, Fidelity Bank, a prominent Nigerian commercial bank, has taken the significant step of restricting transactions to neobanks like OPay, Palmpay, Kuda, and Moniepoint. This move is in response to growing concerns about lax Know Your Customer (KYC) processes within these neobanks, which are believed to be contributing to an increase in fraud cases.

Several customers initially noticed the absence of these neobanks from Fidelity Bank’s list of approved financial institutions on their mobile app about a week ago. Subsequently, multiple reliable sources have confirmed that this restriction is indeed in effect.

As of now, the affected digital financial services remain inaccessible for selection on Fidelity Bank’s mobile app. While the bank has informed customers that the restrictions are due to an app upgrade, individuals with direct knowledge of the matter, as well as other sources associated with the affected fintechs, tell a different story.

Five individuals with insight into the situation have conveyed that these transfer restrictions began at least two weeks ago due to growing concerns regarding fraud and customer verification. Notably, OPay has denied being affected by these restrictions, despite customer complaints suggesting otherwise. Sofia Zab, Chief Marketing Officer at Palmpay, stated that “They gave us a notice last week that they are upgrading their systems and will put us back after that is done.” A source at Moniepoint has also confirmed the restrictions. However, Fidelity Bank declined to provide a comment on this matter.

Sources closely linked to the bank have informed us that these restrictions are directly related to the rising losses caused by fraud. In fact, several banking industry experts have noted that Nigerian banks and fintech companies have suffered significant losses due to cyber attacks and fraudulent activities since the beginning of the year. According to an anonymous source within the banking sector, these issues are primarily centered around due diligence and KYC (Know Your Customer) processes. The source further emphasized that until these neobanks strengthen their KYC procedures, they may continue to face such restrictions from banks.

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Additionally, we have learned that traditional banks, prior to the surge in fraud cases, rarely required rigorous KYC processes for neobanks. However, as fraud incidents have increased, traditional banks are now not only seeking the KYC verification of neobank users but sometimes wish to conduct KYC procedures for these customers themselves.

According to individuals familiar with the matter, neobanks like OPay and Moniepoint often utilize third-party verification companies to collect and verify customer information. These third-party providers conduct identity verification remotely using digital documents and biometric verification. While this method of verification is quicker and more convenient for customers, traditional banks question its effectiveness.

One expert in the industry aptly noted, “It’s a case of the pot calling the kettle black. While neobanks may not be stringent in their KYC, traditional banks often fall short in verifying these documents, especially when they undergo changes.”

Aside from the anti-fraud measures, questions have arisen about whether a bank can unilaterally restrict transfers to another bank. The CBN Customer Due Diligence Regulations 2023 currently do not address this issue. Existing regulations stipulate that banks should have a risk management framework in place to identify and mitigate risks.

It remains uncertain whether Fidelity Bank communicated with the CBN (Central Bank of Nigeria) before implementing these account restrictions. Sources close to the situation suggest that the bank likely acted without the regulator’s consent. An industry leader explained, “They can silently do it. If your house is about to burn down, you have to save yourself. Even if the regulators ask the bank, they would deny it and say they are having a technical issue.”

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