Exclusive: Fidelity Bank blocks transfers to OPay, Moniepoint, and Palmpay over KYC concerns

Fidelity Bank, a Nigerian commercial bank, has blocked neobanks like OPay, Palmpay, Kuda, and Moniepoint over concerns that their lax KYC processes are leading to increased fraud cases.

Nigerian commercial bank Fidelity Bank is restricting consumer fund transfers to neobanks, including Moniepoint, Kuda, OPay, and PalmPay, said multiple sources with direct knowledge of the matter. 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.

The affected digital financial services remain unavailable for selection on Fidelity Bank’s mobile app at press time. While the bank informed customers that the restrictions were related to an app upgrade, two people with direct knowledge of the matter and other sources at the affected fintechs told a different story.

Five people close to the situation told TechCabal that the transfer restrictions began at least two weeks ago over rising fraud and customer verification concerns. OPay denied being affected by the restrictions, despite complaints from customers saying otherwise. Sofia Zab, Palmpay’s Chief Marketing Officer, told TechCabal: “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 also confirmed the restriction. Fidelity Bank declined to comment for this story.

Sources connected to the bank told TechCabal 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 TechCabal 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 told TechCabal. “Even if the regulators ask the bank, they would deny it and say they are having a technical issue. ”