Non-bank organisations are currently shut out of the Bank Verification Number (BVN) system following a restriction by the Central Bank of Nigeria (CBN), the financial industry services regulator.
FinTech companies, which are among the worst hit by the decision, told BusinessDay that they were neither consulted nor warned before the apex bank took the decision.
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According to a source in CBN, the BVN service to non-bank players was suspended because it was being “abused.” However, he did not elaborate on the nature of the abuse or to what extent this was being perpetrated.
This is also not the first time the CBN is arbitrarily releasing new guidelines that significantly affect a segment of the financial system without engaging with operators within the segment. For instance, the prohibition on banks providing services to cryptocurrency businesses followed a similar playbook.
While the impact of the restriction has been weighty, operators have quickly adopted new strategies to continue their business. According to Bankole Oluwafemi, managing editor at Paystack, though the company had to suspend its BVN Resolve service, it is working with partners to find better solutions.
Esigie Aguele, co-founder and chief executive officer of VerifyMe Nigeria, identity verification and Know Your Customer (KYC) company, says the company has so far witnessed rapid growth in its National Identification Number (NIN) and Driver’s License verification services.
“Fortunately, we are one of only two companies in Nigeria with access to both the NIN and the Driver’s License national databases and we have witnessed 300 percent increase in demand for both services,” Aguele said.
However, the BVN validation ban is particularly interesting because of the involvement of the Nigerian Inter-Bank Settlement System (NIBSS).
BVN and The NIBSS Connection
BVN, which is managed by the Nigerian Inter-Bank Settlement System, is a comprehensive biometric-based database that contains all relevant information about bank account holders in the country. While it is not the only identity data-point in the country, it is the most compliant to Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) regulations.
According to Standard Operating Guidelines (SOG) recently issued by the CBN, BVN is designed “to aid the delivery of services by building a technology system for verification and secure authentication of the identity of bank customers.” It is presently the only digital identity database that is specifically designed for the financial services sector.
NIBSS, on the other hand, is co-owned by the CBN and all licensed Deposit Money Banks in the country. By virtue of its position as operators of the BVN, it is one of the most strategic stakeholders in the Nigerian financial system, second only to the CBN.
While the company’s website is silent on the exact ownership structure, inside sources allege that the CBN owns about five percent shares, deposit money banks about 35 percent, and the remaining are owned by a few private individuals.
Lillian Phido, head of Corporate Communications, NIBSS, told BusinessDay that the structure of the board of the company is spelled out in the Guidelines. However, this is not mentioned in the document.
The Regulator-Competitor Conundrum
The Guidelines also lists eligible organisations and criteria for accessing the BVN infrastructure. Tier 1 includes Deposit Money Banks, Payment Service Banks, and Mobile Money Operators.
They have unrestricted access to the database and do not need CBN approval or the customer’s permission to use it. Tier 2 companies comprise Payment Service Providers, Law Enforcement Agencies, and Credit Bureaus, and will need both CBN and customer approvals.
According to a source in the CBN, the need to put a tighter rein on access to the BVN database by third-party operators was necessitated by several factors, including the issue of abuse.
The source explained that “because BVN carries sensitive financial data, it should only be used in specific circumstances where the financial information of people is required. If there is no need for financial data, then other ID forms such as National Identity Number or Driver’s License registration should suffice. But we have a situation where some firms demand and offer BVN verification when it is not necessary.”
The source also claimed that the situation has contributed to the activities of scammers who harvest BVN details of unsuspecting bank customers in order to defraud them. On the surface, the explanation may appear logical. However, if the allegations regarding NIBBS’s ownership prove true, it heightens security concerns over why a company domiciling sensitive citizen data should have private owners, particularly where such interests are unknown to the public.
Additionally, the Guidelines mandate that Tier 2 companies must be vetted and approved by NIBSS to use the database, despite obtaining approval from the CBN. Considering that NIBSS competes against many of these companies for similar services, this curious requirement pitches the organisation as both a regulator and a competitor.
Many industry stakeholders who spoke with BusinessDay noted that most of the new CBN guidelines are necessary for financial and national security as well as regulation.
However, they want the regulator to provide a level playing field where all private companies are competitors so as not to stifle innovation and competition in the sector. This includes private companies regulated by the CBN and large institutions such as NIBSS.
The Nigerian FinTech space is a critical driver of the government’s digital economy and foreign direct investment ambitions and has gained global recognition alongside.
It is therefore imperative for the CBN to support growth in the sector with confidence-building initiatives that promote transparency and fair play.
