Fidelity Bank Restricts Transfers To OPay, Kuda, Moniepoint, Palmpay Over KYC Issues

Fidelity Bank, a Nigerian commercial bank, has implemented restrictions on fund transfers to neobanks like OPay, Palmpay, Kuda, and Moniepoint, citing concerns about their lax Know Your Customer (KYC) processes, which have been linked to a surge in fraud cases.

Multiple sources with direct knowledge of the matter have confirmed that Fidelity Bank is now limiting consumer fund transfers to these neobanks.

Approximately a week ago, a small group of customers noticed that these neobanks were no longer included in the list of approved financial institutions on the Fidelity Bank app. This change has now been corroborated by at least five sources.

At present, Fidelity Bank’s mobile app does not allow users to select these affected digital financial services. Although the bank initially informed customers that these restrictions were due to an app upgrade, two individuals with insider information and other sources within the affected fintechs offer a different perspective.

Five individuals familiar with the situation have revealed that the transfer restrictions were implemented at least two weeks ago due to escalating concerns about fraud and customer verification. Despite complaints from customers suggesting otherwise, OPay has denied being affected by these restrictions. Sofia Zab, Chief Marketing Officer at Palmpay, stated, “They informed us last week that they are upgrading their systems and will reinstate us afterward.” A source within Moniepoint has also confirmed the restriction. Fidelity Bank declined to comment on this matter.

Sources connected to the bank have indicated that these restrictions are a response to increasing fraud losses. Since the beginning of the year, Nigerian banks and fintech companies have reportedly suffered significant losses due to cyberattacks and fraudulent activities. “The issues primarily revolve around due diligence and KYC,” stated an anonymous bank source. “Until these neobanks address these concerns, they may continue to face restrictions imposed by banks.” Although Fidelity Bank did not specify their KYC concerns, sources within fintech startups are actively working to understand and address these issues.

A high-ranking individual within a Nigerian bank revealed that before the rise in fraud cases, traditional banks seldom paid close attention to KYC for neobanks. However, in light of the increased fraud, traditional banks are not only requesting access to the KYC verification of neobank users but are also conducting their own KYC procedures on these customers.

According to individuals familiar with the situation, neobanks like OPay and Moniepoint occasionally rely on third-party verification companies to collect and validate customer information. These providers remotely verify customer identities using digital documents and biometric verification. While this method of verification is faster and more convenient for customers, traditional banks express concerns that it may not always be sufficient.

Experts have noted that both neobanks and traditional banks have their own KYC challenges. “It’s like the pot calling the kettle black,” one expert explained. “While neobanks may have lax KYC procedures, traditional banks may not always rigorously verify documents, especially when changes occur.”

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

It remains unclear whether Fidelity Bank communicated with the Central Bank of Nigeria (CBN) before implementing these account restrictions. Sources close to the situation suggest that the bank likely acted without the regulator’s consent. “They can do it quietly. When your house is about to burn down, you have to save yourself,” disclosed an industry leader. “Even if the regulators inquire, the bank may deny it, citing technical issues.”