Nigeria

Nigeria Legislative Body Requests Pause on Social Media KYC Requirement

The House of Representatives, one of the two Chambers that make up the Bicameral Legislature of Nigeria, has requested the central bank to halt the implementation of a new directive mandating financial institutions to collect additional customer information, including social media handles, for know-your-customer (KYC) purposes. The decision was made during a plenary session on July 11, 2023 after a motion backed by nine lawmakers was approved, Nairametrics reported last month.

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During the debate, state legislator Kelechi Nwogu argued that the new regulation infringes upon principles in the Nigerian Constitution that safeguard privacy rights.

He stated that financial institutions in the country already have access to sufficient customer identification information including names, telephone numbers, passport photographs, emails, national identification numbers and biometric verification numbers, to conduct KYC properly.

Nwogu stated that more effective methods for monitoring money laundering and terrorism exist, noting that banks could utilize the Nigeria Police Force, Nigeria Financial Intelligence Unit, the Economic and Financial Crimes Commission, intelligence agencies, and crime tracking agencies.

He further argued that if the new regulation were to be implemented, millions of Nigerians would be excluded from the formal banking system, noting that a lot of consumers, especially the illiterate or semi-literate ones, as well as those living in villages and rural areas, do not have social media handles to pass KYC requirements.

Despite significant growth in social media usage in Nigeria over the past decade, German online market data and analytics platform Statista estimates that out of the country’s population of over 220 million citizens, only approximately 34 million (about 15%) individuals are connected to social media platforms.

Legislators also stressed the need to revisit and halt the directive to reduce the hardship faced by Nigerians in accessing financial services, and mandated the Committee on Banking and Currency to investigate the matter and report back within three weeks for further legislative action, Tribute Online reported.

Nigeria’s new KYC rules

The Central Bank of Nigeria (CBN) issued new regulations on June 20, 2023, mandating for all financial institutions in the country to collect and verify social media handles for KYC purposes.

The new rules, part of the CBN’s Customer Due Diligence Regulations 2023, aim to strengthen the identification process within the banking system, enhance customer due diligence and allow financial institutions to conduct more effective assessment of potential risks associated with money laundering, terrorism financing and proliferation financing.

In particular, the regulations require financial institutions under the CBN’s regulatory oversight to identify their customers, whether they are permanent or occasional, natural persons or legal entities, or legal arrangements.

Required information for individuals includes legal name and any other names used, permanent address, residential address, telephone number, email address, social media handle, date and place of birth, bank verification number, tax identification number, nationality, occupation, public position held, and name of employer.

Individuals must also provide an unexpired passport, national identification card, residence permit, social security records, or driver’s license as proof of identification.

Failure to undertake these measures on customers can lead to a penalty ranging from a minimum of NGN ‎200,000 (US$260) per customer for deposit money banks and NGN 100,000 (US$130) per customer for payment service banks.

Enhanced customer experience and risk assessment

Social media isn’t typically used by financial institutions for KYC verification due to various reasons such as data privacy laws, the potential for misinformation, and lack of standardized data. That said, several banks and financial institutions have leveraged social media platform to enhance customer experience.

Commonwealth Bank of Australia, for example, launched more than a decade ago a social banking app that connects to Facebook, allowing users to make payments to friends, fund events and handle everyday banking transactions.

Similarly, in India, ICICI Bank has introduced services that allow users to check their balance, pay their friend, research their prepaid mobile phones and even split groups expenses via social media platforms Facebook and Twitter.

Some fintech companies and new-age digital banks are utilizing non-traditional data, including social media information, for credit scoring and risk assessment. This is the case for Lenddo, a Singaporean fintech company focusing on unbanked consumers in emerging markets; Kabbage, a US-based company which provides funding directly to small businesses; and FriendlyScore, a UK-based company that uses social media data for credit scoring.

Featured image credit: Edited from freepik