E-Financial
Nigerian Banks Spend Billions Annually on KYCs – KPMG
A KPMG report has revealed that Nigerian banks spend billions of naira annually to implement the Know Your Customer (KYC), which is a compulsory regulatory tool used to reduce the menace of money laundering, terrorist financing and corruption, especially in managing public finance.
The report stated that its survey showed that individual banks could spend between N50 million and N400 million per annum on KYC requirement depending on the customer base of the bank.
The report also stated that on average, between 15 to 30 per cent of customers who start the KYC process do not complete it, because the process is too manual, information required would be difficult to obtain and time consuming and could last for more than four weeks in some cases.
It also noted that the KYC requirement could also be an inhibitor to the attainment of financial inclusion policy in Nigeria that did not have centralised identity management systems.
The report, which is titled “KPMG 2021 Know Your Customer (KYC) Survey: KYC Challenges and Opportunities in Nigeria,” revealed that 85 per cent of the banks that responded to its survey stated that KYC process constituted a significant cost to their operations, with 71 per cent anticipating that the cost of KYC would continue to increase.
In addition, more than 70 per cent of the responding banks, according to the KPMG, spend about N10,000 as direct cost for identity and address verification of a customer while others spend as much as N40,000 on the KYC of a customer.
The key drivers of the continual increase in the cost, according to the report, included frequent changes in regulatory requirements, financial inclusion programs, increase in customer base, initial cost of acquiring technology needed to implement KYC, more complex ownership structures of some businesses operating bank accounts and increase in the number of employees required to administer the KYC unit in a bank.
The survey findings added: “Our analysis of the data reveals that for many banks, the direct cost of KYC is below N50 million per annum, but depending on the size of the bank it can rise to as much as N400 million per annum, which do not include the indirect cost of KYC.
“Banks also incur significant indirect cost in performing KYC that include cost incurred in staffing the compliance office/sanctions screening desk, purchasing, installing and implementing technology, storing and managing customer KYC data, cost incurred due to regulatory reporting, fines incurred as a result of failure to report, opportunity cost incurred as a result of customers who are discouraged from opening accounts due to inefficient or cumbersome KYC systems.”
KPMG also highlighted that some of the topmost challenges banks encountered while implementing KYC in Nigeria include identifying complex legal structures, verifying addresses and identities, identifying and verifying politically exposed persons (PEPs), as well as remediating rather high-volume of legacy accounts.
It added: “Due to the current manual nature of searches at the Corporate Affairs Commission (CAC) as well as continued existence of jurisdictions designated as tax/secret havens – it is difficult for banks to unravel complex legal structures, especially where these complex legal structures are employed to mask true or ultimate beneficial owners.”
The report also noted that address verification is expensive and cumbersome in Nigeria and might not be effective in ascertaining the true location of potential money launderers or terrorist financiers during investigations.
It acknowledged that the deployment of Biometric Verification Number (BVN) and the ongoing National Identification Number (NIN) registration would continue to contribute to addressing this challenge of disparate identity systems in Nigeria that made it difficult for banks to effectively and efficiently identify individuals.
Mr. Saheed Olawuyi, Partner and Head of Forensic Services, KPMG in Nigeria, explained: “It is important for regulators and banks to continuously develop ways to address the KYC challenges, while not compromising the integrity of the financial systems.”
The report recommended that banks should continue to explore technology as a way of tackling the challenges of KYC in Nigeria and create opportunities to share the cost of KYC among them by maintaining common KYC utility facilities.
The KPMG report said: “We would like to encourage more investment in the deployment and adoption of artificial intelligence, machine learning and robotics to automate certain segments of the KYC process, so as to build more efficiency, accuracy and predictive capabilities in the KYC process.”
The report also urged the CAC to further enhance its recently launched digital platform to seamlessly enable users to carry out search on the directors and shareholders of companies, in order to drive efficiency of corporate onboarding and identification of complex ownership structures.
It also called on the CBN and other relevant regulators and stakeholders to streamline the definition of PEPs and “create a collaborative environment where all parties come together and proffer solutions to common KYC issues.”
Nigerians have more trust in Bitcoin-based systems than in traditional alternatives such as banks and government, a new report by Elastos, an open-source blockchain website, has stated.
According to its inaugural BIT Index (Bitcoin; Innovation & Trust), emerging markets are driving the adoption of Bitcoin, with Nigeria and the UAE leading the charge.
The report revealed that 66 per cent of Nigerian respondents and 35 per cent from Brazil had more confidence in Bitcoin-based systems than alternatives like banks or national governments, compared to just 16 per cent in Germany and 21 per cent in the UK.
The survey also revealed that 20 per cent of Nigerian consumers use Bitcoin to conduct transactions at least once a day, while 67 per cent would have more trust in Bitcoin to protect their life savings than traditional services like banks, local governments, and cash.
According to the platform, the research was compiled from online interviews conducted with 1,407 self-defined ‘tech savvy’ respondents in Brazil, Germany, Nigeria, South Korea, the UAE, the UK, and the US.
It stated that the interviews were completed by a third party, a registered market research company, between March 30 and April 4, 2024.
“When it comes to ensuring the integrity of online transactions, emerging market respondents also revealed their relative confidence in Bitcoin compared to alternatives,” it indicated.
According to the report, 66 per cent of Nigerian respondents and 35 per cent of Brazil have more confidence in Bitcoin-based systems than alternatives, such as banks or national governments, compared to figures of just 16 per cent (Germany) and 21 per cent (UK) who feel the same.
Meanwhile, Jonathan Hargreaves, Elastos’ global head, Business Development & ESG, described the BIT Index’s inaugural findings as indicative of the role the ‘global south’ was playing in the adoption of decentralised currencies such as Bitcoin.
“The BIT Index offers a fascinating and sobering insight into the industry. The fact that over two-thirds of Nigerian consumers and a third of their counterparts from the UAE and Brazil would feel more confident entrusting their life savings to Bitcoin rather than traditional financial instruments speaks volumes about the protagonism these regions are already playing.
“In many instances, the driving factor is the absence of viable, accessible alternatives to, for instance, conduct cross-border transactions or mitigate the impact of inflation,” he said.
According to Chainalysis, a cryptocurrency research firm, Nigeria’s crypto transaction volume grew year-over-year to $56.7bn in 2023.
It stated that the country’s crypto economy continued to grow despite market turmoil in the space.
On the contrary, the government has been taking strong measures to restrict and clamp down on cryptocurrency exchanges and platforms operating in the country.
Central Bank of Nigeria (CBN) has awarded the country’s second Payment Terminal Service Aggregator (PTSA) license to Unified Payments, Nigeria’s premier financial technology company, following a rigorous and transparent process,
The move is targeted at enforcing existing requirement that all transactions from point-of-sale channels in Nigeria must go through a licensed Payment Terminal Service Aggregator (PTSA).
The CBN is enforcing the laws to clamp down on financial crimes and other market misconducts and it aligns with the CBN’s objectives to fully track all electronic transactions in Nigeria, given the propensity of using such transactions to fund insecurity, violent crimes, banditry, kidnapping as well as other vices.
According to one analyst, “By awarding a second PTSA license, the apex bank has proactively responded to industry operators who had expressed serious concerns about channelling all transactions through a single aggregator, the Nigeria Interbank Settlement System PLC (NIBBS), as has been the case for some years.
“With the new policy direction, payments service providers would henceforth route all transactions through either of the two licensed Companies.”
Other financial analysts and industry players have commended the Central Bank, affirming that “the move can be a massive step in the right direction. They also commended the open, transparent, and inclusive manner via which the selection process was managed, and the license awarded.
“The selection process, which lasted for months, began with an invitation for qualified organisations within the payment industry to submit an Expression of Interest document, alongside other requisite documentation and additional capital requirement of N1 billion.”
The new management of CBN decided not to give the license out without going through an open process – and for the first time in licensing a payment service provider – the apex bank went through a public bid process outlined in its publication of Friday, January 5, 2024, in different national newspapers. At the end of the process, Unified Payments emerged as the most preferred service provider.
Unified Payment Services Limited, also called Unified Payments or UP, is a shared service provider within Nigeria’s financial technology sector owned by a consortium of Nigerian banks. For over 26 years, the firm has provided payment technology to banks and other industry operators. The first and only non-bank entity that is a principal member and licensed acquirer of all of American Express, Mastercard, Visa, UnionPay and Payattitude. Unified Payments facilitates both local and international transactions.
Formerly known as ValuCard Nigeria Plc, Unified Payments led the way to introduce POS payments in Nigeria under its card scheme known as ValuCard which is the first payment card to be issued in Nigeria. The company later transformed into a scheme-neutral and option-neutral service provider enabling transactions under different schemes.
The company has continued to provide leading payment technologies and services, enabling different operators to leverage its capabilities and licenses, enabling prompt and seamless transactions.
Among the shareholders of Unified Payments are First Bank, Access Bank, United Bank for Africa (UBA), Guaranty Trust Bank Plc, Zenith Bank and Fidelity Bank. Other shareholders are Citibank Nigeria Limited, Ecobank of Nigeria Plc, First City Monument Bank Plc, Keystone Bank Ltd, Polaris Bank Ltd, Stanbic IBTC Bank Plc, Sterling Bank Plc and Wema Bank Plc.
Chartered Institute of Bankers of Nigeria, CIBN, has expressed support for the ongoing banking recapitalization exercise saying it will empower banks to lend more to the economy.
CIBN President, Dr. Ken Opara stated this yesterday while speaking at the annual lecture of the institute in Lagos, with the theme “Improving Availability of Credit in the Nigerian Real Economy: The Critical Importance of Liquidity.”
Okpara noted that the volume of credit to the real sector activities namely agriculture, manufacturing and services is low compared to their critical role in driving economic growth.
Consequently, he called for more credit to the real sector, saying, “I propose that we consider offering more credit to these key sectors and particularly the agriculture sector. It is for this reason that the Recapitalization exercise is a welcome development.
“The recently announced upward review of the Minimum Capital Requirements of Nigeria by the Central Bank of Nigeria would further empower banks to extend more credit to the economy’s productive sectors.”
To address these factors impeding credit to the real sector, Okpara suggested that, “The government needs to improve further the ease of doing business and infrastructural development, such as power, roads, rail networks, etc.
“Setting up industrial centres where these companies can co-habit and share common infrastructure. Harmonize and reduce the various taxes and levies, including locating them in a single hub.
“Banks need to be deliberate in de-risking these companies via Capacity building programmes, and Advisory services.
Specialised Financial Institutions can be created in addition to the Bank of Industry (BOI), especially credit guarantee agencies and risk-sharing institutions, to further facilitate the deepening of credit as practiced in countries such as China which significantly transformed its economy.
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