Nigerian digital currency startups have been struggling with a ban by the country’s central bank on digital currency payments through local banks. They now have a new challenge to grapple with after the government denied them access to the national verification service.
Nigerian fintech startups, including those in the digital currency sector, have been relying on the bank verification number (BVN) as a primary know-your-customer (KYC) and anti-money laundering (AML) tool. This 11-digit number is unique to each bank customer and ties to their personal details including their addresses, phone numbers and fingerprints. The Central Bank of Nigeria implemented the BVN service to curb illegal financial transactions.
However, Nigerian regulators have cut off all non-bank entities from accessing this service. Paystack, a popular Nigerian fintech startup that Stripe acquired for $200 million in 2020, was the first to report the news. In an email to its clients, Paystack revealed that it would be suspending some of its services as a result.
What exactly is going on? pic.twitter.com/FhlPVqqIaR
— Olúwatósìn Olaseinde (@tosinolaseinde) April 8, 2021
The suspension of the service is reportedly related to a scam that defrauded hundreds of Nigerians recently, operating on Paystack. The scam promised young Nigerians a scholarship to prestigious global universities. However, they had to pay a “small fee”—in most cases about $30—for tests to certify their English proficiency.
Nigerian startups can still rely on other means of verification, but most are not as widely used, efficient or cost-effective as the BVN number system. Yele Bademosi, the founder of a local digital currency startup, believes that while the shift may be difficult at first, it will be worth it in the long run.
Innovators will innovate! That the Nigerian founders mantra…thankfully there are non-BVN KYC companies in the market! Their valuations are about to go up ☺️
Remember that BVN Level 1 was N11 and Level 2 was N50, don’t be wicked with pricing 🌚😂 https://t.co/h5GyOvSrVX
— YB 🟠 | #NestShip (@YeleBademosi) April 8, 2021
Most developers and fintech startup founders aren’t as optimistic. Danny Oyekan, the founder of a local digital currency investment firm, believes that this will be a huge blow to most startups, especially those in the digital currency space. All the other verification methods—which include counter-checking customer data with other financial institutions—are “cumbersome and impose additional costs on fintech businesses and their customers.”
This latest blow comes at a time when Nigerian digital currency startups have been forced to shut down fiat-related services following the CBN ban. With no access to banking services, these startups are now losing out on the world’s second-largest digital currency peer-to-peer market.
Additionally, the central bank has been seeking to reward mainstream remittance users in order to further combat digital currency use. As CoinGeek reported, the CBN is now awarding Nigerians with $0.13 for every $1 they receive via formal remittance channels.
See also: CoinGeek Live panel, Digital Currency & Global Compliance: Tools & Tips for Exchanges, Wallets & Other Service Providers
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