Central Bank’s new KYC rules may not curb fraud despite optimism

Effective April 2024, Nigerian financial institutions will be mandated to implement stricter Know Your Customer (KYC) measures, requiring all customers to provide their Bank Verification Number or a national identification number (NIN) for account or wallet opening. 

The rule change, made by Nigeria’s Central Bank, comes after several high-profile fraud incidents raised concerns about existing Know Your Customer (KYC) processes, but industry experts believe that it will not solve what is now described as a “fraud pandemic”. 

“The accounts used to perpetuate fraud have always had BVN and NIN,” said Adedeji Olowe, a financial industry veteran and founder of Lendsqr. Instead, he framed the problem as a “lack of rules and regulations to stop fraud”. 

Nevertheless, Olowe said the rules are welcome and wonders “why it hadn’t been done since”. Like many banking industry experts, Olowe believes neobanks will be most affected by the new rules. 

While deposit money banks offer Tier-1 accounts—bank accounts that usually require no identification—neobanks like OPay and Palmpay may have popularised these easy-to-open accounts using the narrative of aiding financial inclusion. It has allowed them to onboard customers with little friction or without a need for national identity cards, which only 30% of Nigerians have. 

Yet, industry experts have criticised these lax KYC measures. In October, TechCabal reported that Fidelity Bank, a Nigerian commercial bank that holds ₦3.1 trillion ($3.9 billion) in consumer deposits, blocked several neobanks over concerns that neobank wallets and accounts are an easy way to move monies that had been fraudulently obtained. Another major bank held similar internal discussions, TechCabal reported at the time. 

The new directive is part of efforts to promote financial system stability and strengthen the Know Your Customer procedures in all financial institutions, said Nigeria’s Central Bank.