Fidelity Bank Blocks Neobanks Amid Fraud Concerns

Nigeria’s Fidelity Bank has imposed restrictions on consumer fund transfers to several neobanks including Moniepoint, Kuda, OPay, and PalmPay. The action follows concerns over lax Know Your Customer (KYC) procedures leading to an increase in fraud cases.

Transfer Restrictions in Effect

In recent weeks, customers of Fidelity Bank noticed that these neobanks were no longer listed as approved financial institutions on the bank’s mobile app. According to multiple sources, the restrictions began due to rising concerns over fraud and customer verification. Despite an official explanation of an ongoing app upgrade, various insiders have confirmed the true reason behind these developments.

OPay, however, has denied being affected by the restrictions, while a source from Moniepoint and Sofia Zab, PalmPay’s Chief Marketing Officer, acknowledged the restrictions. Fidelity Bank declined to comment on the matter.

Fraud-Related Losses Drive Change

Insiders at Fidelity Bank report that the restrictions stem from increasing fraud losses. Industry experts highlight that Nigerian banks and fintech companies have suffered significant losses due to cyber attacks and fraudsters since the beginning of the year.

A source from a Nigerian bank revealed that traditional banks had not previously been concerned with neobanks’ KYC procedures. However, with a rise in fraud cases, traditional banks are now demanding to see the KYC verification of neobank users, and in some cases, seeking to conduct KYC procedures themselves.

KYC Verification Practices Under Scrutiny

Neobanks such as OPay and Moniepoint often use third-party verification companies to collect and verify customer information. While this method is convenient for customers, traditional banks question its sufficiency.

Irrespective of the debate over KYC procedures, there are questions about whether a bank has the right to unilaterally restrict transfers to another bank. Existing regulations stipulate that banks should have a risk management framework to identify and mitigate risks, but the CBN Customer Due Diligence Regulations 2023 does not address the issue.

While it is unclear whether Fidelity Bank communicated with the Central Bank of Nigeria (CBN) before implementing these restrictions, sources suggest that the bank acted without the regulator’s approval.