By Elue Precious
Remember when accessing financial services meant battling long queues at brick-and-mortar banks? Nigeria’s fintech revolution promised to change that, offering a wave of convenience, and inclusion. However, the Central Bank of Nigeria’s (CBN) recent directives throw a curveball. With new customer sign-ups frozen at some fintech companies, is the dream of a frictionless financial future fading?
The CBN issued a directive in April 2024 to several fintech companies, including Kuda Bank, OPay, Palmpay, and Moniepoint, halting them from onboarding new customers until further notice.
News sources report the CBN directive to be linked to allegations of illicit foreign exchange transactions perpetrated through these fintech companies, for which the Economic and Financial Crimes Commission (EFCC) have frozen accounts suspected of such activity.
Such reports also linked the CBN directive to an audit of the Know-Your-Customer (KYC) processes of the affected fintech companies. In December 2023, the CBN mandated stricter KYC rules, requiring ID cards for account creation. This appeared to contradict a 2013 rule promoting financial inclusion that allowed Nigerians to open accounts without them.
Some of the affected FinTech companies argue that a significant portion of illegal forex activity likely happens through traditional banks, raising concerns about the fairness of targeting FinTech specifically. They argue that the temporary halt in their onboarding process unfairly restricts their operations while potentially overlooking similar issues with the traditional banks.
Also, the fintechs have been proactive in implementing the KYC measures.
The impact of this directive is multifaceted. Aisha, a young entrepreneur in Lagos, dreamt of using a fintech app to oversee her business finances. But her plans were abruptly halted by the CBN’s new directive. Prospective customers just like Aisha are unable to open new accounts and access these innovative financial services.
The affected Fintech companies face potential losses in business opportunities and stifled growth. With no new customers to onboard, these fintech companies might experience a decline in revenue. This could force them to lay off employees, reduce services, or increase fees to compensate for the revenue downfall.
The recent CBN directive has heightened scrutiny of KYC compliance in the fintech sector. Fintech companies are likely to be implementing stricter KYC procedures to ensure they meet the CBN’s regulations. This could make it harder for the unbanked population to access financial services offered by fintech companies. This could be a significant setback for the CBN’s previous efforts to promote financial inclusion in Nigeria.
Payment fraud is an industry-wide challenge, and fintechs are under increased scrutiny despite banks having a majority of implicated accounts.
The extent of evidence against the accused fintech companies still remains unclear.
However, there are potential positive effects of the directives if implemented strategically. With the aim to stop money laundering and illegal forex transactions through fintech platforms, the CBN’s directives can help enhance financial security in Nigeria.
Also, CBN’s concern for the KYCs implemented by the financial institutions should act as a reminder to these fintech firms to have strong KYC procedures in place.
What is the way forward?
The CBN’s directive on onboarding new customers in Nigeria fintech is a complex issue with significant implications. Although it is important to tackle illicit financial activities, it is also essential to find a solution that is both effective and promotes a healthy and inclusive financial sector.
A collaborative approach involving the CBN, fintech companies, and relevant regulatory bodies is necessary to find a sustainable solution that safeguards financial security while fostering innovation and financial inclusion in Nigeria. Also, there should be clear communication from CBN regarding the timeline of the investigation, the criteria for lifting the freeze and future regulations.
The future of Nigerian fintech remains uncertain. Will the CBN’s directive mark a temporary setback or a more significant shift in policy? The coming months will be crucial in determining the path forward for this vital sector of the Nigerian economy.