Nigeria Restricts Fintech Onboarding, Target KYC-evading Crypto Investors

KEY FACT: Nigeria's Central Bank has halted the onboarding of new customers to four fintech firms Kuda Bank, Moniepoint, Opay, and Palmpay, in its stride to enforce 'Know Your Customer (KYC)" compliance in crypto and traditional investing.

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Created on Corel Paint

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The Central Bank of Nigeria (CBN) has issued a directive to four fintech companies to pause onboarding new customers, in a bid to strengthen the Apex bank's stride in enforcing Know Your Customer (KYC) compliance in crypto and traditional investing. The onboarding restriction is motivated by Nigeria's finance-related law enforcement agency, the Economic and Financial Crimes Commission (EFCC), which recently blocked 1,146 bank accounts allegedly involved in unauthorized forex dealings.

The affected fintech firms include Kuda Bank, Moniepoint, Opay, and Palmpay. The fintech firms have been linked to allegations of accounts being used for illicit foreign exchange transactions. A report from TechCabal quoted a person familiar with the situation thus:

“The CBN feels like a lot of crypto traders were leveraging the fintech platforms to disrupt the FX (Forex) market.”

On the flip side, an analysis of the 1,146 blocked bank accounts shows that 90% of the accounts implicated in the illicit forex transactions are with commercial banks, and only 10% are with fintechs. Meanwhile, existing customers' deposits and banking activities are not affected. One of the fintech startups posted a notice on their website:

“We’ve temporarily paused new signups on our platform. This means that you’ll be unable to open a new account at the moment. We apologize for any inconvenience this may cause.”

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Screenshots from some of the affected fintechs. Source: Palmpay, Opay

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Crypto enthusiasts have queried CBN labelling them to be partially targeting fintechs while ignoring the commercial banks. Commercial banks in Nigeria have indeed lost customers to the fintech startups. Reasons for this range from fast and hitch-free transactions to no or insignificant fees as compared to layers of related issues with commercial banks.

It is obvious that commercial banks also have a better relationship with the nation's financial regulator while fintechs are yet to build that type of relationship and help their perception with the CBN.

It is rather worrisome that Nigeria, after becoming the first African country to launch its central bank digital currency in October 2021, and catapulting itself to the top of the list of countries across the world with a pro-crypto outlook, is now all out to crush the bloom of cypto and related investment in its economy.

On the whole, industry experts believe that this Central Bank’s new KYC rules may not solve what is now described as a “fraud pandemic”.

This turn of events is raising questions such as:

• Will this effort by the government successfully end fraud or is it targeted at scrapping out crypto from the Nigerian economy?
• Will this make the fintech startups stronger or would they bow to pressure to give way to commercial banks?
• Will this effort by the CBN help to recover the value of the Naira?

Let's see what happens in the days ahead.

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