Five Nigerian neobanks have been restricted from onboarding new customers, a month after the restriction was linked to a directive from the National Security Adviser (NSA). The heads of those neobanks— Moniepoint, Kuda, Palmpay, Opay, and Paga— met with the NSA, the Economic Financial Crimes Commission (EFCC), and the Central Bank of Nigeria (CBN) in Abuja on Friday, April 26.
In those meetings and subsequent engagements, the fintechs were given conditions before new account openings could continue.
If those talks delay, there will be a slow growth for the venture-funded neobanks that have benefited from an explosion in online payments. It also underscores the weak lobbying power of fintech as they resume to face inspection over Know Your Customer (KYC) procedures and fraud procedure.
The neobanks have been ordered to halt crypto transactions among counterparts in alignment with the plan by the authorities to ban P2P crypto trading after the NSA classified crypto trading as a “national security issue.”
A neobank executive stated that banning P2P transactions was “impossible” as a result of the lack of means to knowing if a transaction is crypto-related. Traders have refrained from including descriptions or comments in transactions since Nigeria’s first ban on crypto.
Despite the difficulty of the request, the neobanks have alerted their customers, warning that P2P transactions will be blocked and reported to authorities.
They have also been requested to implement the reporting of customer details to banks, requiring bank verification numbers or national identity numbers for all tiered accounts in accordance with the directive developed in December 2023. This directive requires proper identification for a creation of any type of account hence enhancing the forms of identification required for KYC which were eased to increase due to the population.
Last week, Palmpay requested customers to do facial recognition verification before May 31st or risk having their account limited while Kuda informed customers that they needed to upload the proof of the house addresses before May 31st. Other affected neobanks would also request their customers to verify their information in the following weeks, a neobank official mentioned.
These circumstances will force the fintechs to improve their KYC procedures and make sure that they adhere to the CBN’s new rules on KYC, as one of the people with knowledge of the discussions stated. The conditions will also transform what the regulators interpret as a positive approach if not affirmative from the fintechs on cryptocurrencies.
It adopted a stricter policy on crypto trading in February 2024 having arrested two employees of Binance. In April, the Economic and Financial Crimes Commission froze 1,146 bank accounts it accused of engaging in “unauthorised forex dealings.”
SEC also convened another meeting in May where it requested that all exchanges remove the p2p aspect from their lists. KuCoin that is a leading cryptocurrency exchange platform decided to halt the P2P services last week.
Former CBN insiders pointed out that the fintechs and crypto players have no bargaining power in these discussions. Previous efforts to join forces and approach the government were fruitless, as one fintech executive notes that the initial idea of forming a single association and convincing industry members of its goals were met with disregard by companies.
Similarly, in 2023, the plan to bring together fintech players to fight fraud also did not come to fruition due to relevant competition indicating that competition might hinder collaboration. There is adequate cooperation shown by the traditional banks, and it has some influence with the regulators.
To the affected fintechs, the banning was painful but the joy derivable from the lifting of the ban cannot be over-emphasized.
