Fidelity Bank, a major commercial bank in Nigeria, has recently imposed limits on financial transfers to neobanks like as OPay, Moniepoint, and Palmpay.
This decision is in reaction to worries about these neobanks’ poor KYC (Know Your Customer) practices, which have resulted in a rise in fraudulent activity, according to TechCabal.
Fidelity Bank has decided to restrict consumer fund transfers to neobanks.
This restriction affects notable neobanks like as Moniepoint, Kuda, OPay, and PalmPay.
Customers have noticed the disappearance of these neobanks from the approved financial institutions list on Fidelity Bank’s mobile app, which has been confirmed by numerous people close to the subject.
These digital banking services are currently unavailable for selection on the app.
Although Fidelity Bank stated that the restrictions were imposed as a result of an app upgrade, sources within the affected fintech companies and two persons with direct knowledge of the situation revealed a different rationale.
According to them, the transfer limitations were imposed two weeks ago primarily to address rising concerns related to fraud and customer verification.
Despite this, OPay has denied being impacted by the restrictions, despite customer complaints suggesting otherwise.
Palmpay’s Chief Marketing Officer, Sofia Zab, disclosed that Fidelity Bank notified them of an ongoing systems upgrade, and once completed, they would be reinstated.
Moniepoint also confirmed the existence of the transfer restriction.
Unfortunately, Fidelity Bank declined to comment on this particular issue.
Insiders familiar with the situation have asserted that these restrictions stem from mounting losses incurred through cyber attacks and fraudulent activities.
Several banking industry experts have attributed these losses to inadequate due diligence and KYC practices.
A bank source, wishing to remain anonymous, emphasized the need for improvements and stated that until neobanks rectify these issues, they will continue to face difficulties, including potential restrictions imposed by banks.
While Fidelity Bank did not specify the exact KYC concerns, neobanks are diligently working to address these issues.
As per insiders, neobanks like OPay and Moniepoint commonly rely on third-party verification companies to collect and verify customer information.
These providers employ digital documents and biometric verification for remote customer identity verification.
Although this method offers convenience and speed to customers, traditional banks express skepticism over its reliability and effectiveness.
One expert aptly noted, “It’s like a pot calling the kettle black. While neobanks may be less stringent with their KYC processes, traditional banks also fall short in conducting thorough verifications. Initially, they may exhibit strictness, but doubts arise when it comes to the verification of updated documents.”
Beyond the concerns related to fraud prevention, there is a debate regarding whether a bank can unilaterally impose restrictions on transfers to other banks.
The CBN Customer Due Diligence Regulations 2023 does not explicitly address this matter. Existing regulations expect banks to possess a risk management framework that identifies and mitigates risks.
It remains uncertain whether Fidelity Bank informed the Central Bank of Nigeria (CBN) before implementing these transfer restrictions.
Sources familiar with the situation suggest that the bank likely acted without regulatory consent, TechCabal hinted in their report.
An industry leader explained this approach, stating, “They can silently implement it.
When your house is about to burn down, you have to save yourself. Even if the regulators question the bank, they will deny it, citing technical issues.”
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