Fidelity bank Nigeria, has reportedly blocked neobanks such as OPay, Palmpay, Kuda, and Moniepoint due to concerns over their weak know your customer (KYC) processes, leading to an increase in fraud cases.
Multiple sources with direct knowledge of the matter have confirmed that Fidelity Bank is restricting consumer fund transfers to these neobanks, which are no longer listed on the approved financial institutions on the Fidelity Bank app.
While the bank has informed customers that the restrictions are related to an app upgrade, sources at the affected fintechs have confirmed that transfer restrictions began at least two weeks ago due to rising fraud and customer verification concerns.
OPay denied being affected by the restrictions, while Palmpay’s Chief Marketing Officer said that Fidelity Bank had given them notice of an upgrade. A source at Moniepoint also confirmed the restriction. Fidelity Bank declined to comment on the matter.
Sources have confirmed that the restrictions imposed on neobanks in Nigeria are a result of increasing fraud losses. Several experts in the banking industry have stated that Nigerian banks and fintech companies have suffered significant losses due to cyber attacks and fraud since the beginning of the year.
The main issues cited are related to due diligence and Know Your Customer (KYC) procedures. Until neobanks improve their processes, they will likely continue to face issues such as being blocked by traditional banks. While Fidelity Bank did not disclose specific KYC concerns, neobanks are actively working to address these issues.
Nigerian banks previously did not prioritize KYC for neobanks. However, with the rise in fraud cases, traditional banks are now requesting KYC verification for neobank users and sometimes even conducting their own KYC procedures.
Neobanks like OPay and Moniepoint often rely on third-party verification companies to collect and verify customer information. These providers use digital documents and biometric verification to remotely verify customer identity.
While this method is faster and more convenient for customers, traditional banks have expressed concerns about its effectiveness. One expert commented on the situation, stating that both neobanks and traditional banks have flaws in their KYC processes. While neobanks may be more lenient in their verification, traditional banks may not thoroughly verify documents, especially when they are updated or changed.
There are legitimate concerns about a bank’s ability to unilaterally limit transfers to another bank, as the Central Bank of Nigeria (CBN) Customer Due Diligence Regulations 2023 do not address this issue.
Current regulations require banks to have a risk management framework in place to identify and mitigate risks. It is unclear whether Fidelity Bank informed the CBN before implementing the account restrictions.
