On May 3, 2024, Nigerian actress Shan George shared on Instagram that ₦3.6 million had been illicitly transferred from her Zenith Bank account to an OPay account. She appealed to both institutions for assistance in recovering the funds.
Over the last decade, Africa has seen a significant uptick in the use of digital financial services, including ATMs and agency banking. A 2023 study highlighted the positive impact of these services on Nigeria’s GDP but also noted a rise in online fraud targeting digital payment platforms.
The rapid growth of digital financial services has left room for exploitation by fraudsters. In some cases, financial institutions have prioritized speed over rigorous onboarding and cybersecurity measures, leading to substantial losses for customers and businesses alike.
In late 2023, reports surfaced about fraudsters exploiting weaknesses in the account setup processes of fintech companies like OPay and PalmPay. While both platforms gained popularity for their swift transactions amid the CBN’s cashless policy, inadequate identity verification processes exposed users to fraud. Although these loopholes have since been addressed, many users experienced financial losses before changes were implemented.
The Role of Digital Identity
With increased digitization of business processes, managing digital identities has become a critical factor for success. Chimezie Emewulu, CEO of Seamfix, emphasized that robust digital identity solutions are essential for building trust, ensuring security, and fostering economic growth.
“A functional digital identity framework is the foundation of an efficient and thriving digital economy,” Emewulu explained. “In many sub-Saharan African countries, individuals can engage in numerous activities—banking, lodging, or using public transport—without leaving an identifiable digital footprint, which creates gaps in security and accountability.”
He further underscored the importance of accurate identity verification for governments, businesses, and individuals, noting that no industry can operate optimally without clear identification processes.
Globally, over 850 million people lack any form of identification, with the majority residing in sub-Saharan Africa and Asia. This lack of identity restricts access to employment, financial services, and government programs, underscoring the urgency of reliable digital identity systems.
Balancing Speed with Compliance
In the race for rapid growth, many African startups face challenges in balancing swift onboarding with strict compliance measures. Weak identity management practices can expose businesses to security breaches and regulatory penalties.
One prominent example occurred in 2015 when telecommunications giant MTN faced a $5.2 billion fine for failing to deactivate millions of unregistered SIM cards, as required by the Nigerian Communications Commission. The incident highlighted the risks of neglecting identity verification processes.
For startups, achieving compliance often clashes with the desire for rapid scaling. However, Emewulu stressed the importance of prioritizing robust Know Your Customer (KYC) processes to prevent security lapses.
“We believe identity is a right, but poor practices jeopardize that right,” Emewulu said. “Imagine someone opening a bank account using your real details without thorough verification. If that account is used for criminal activities, you would bear the consequences, not the perpetrator. This is unacceptable and underscores the need for comprehensive checks.”
The Role of Collaboration and AI
Emewulu advocates for collaboration between startups, regulators, and identity verification providers to streamline KYC processes without compromising security. He also noted that advancements in artificial intelligence (AI) offer opportunities to enhance customer verification accuracy. However, AI also introduces new vulnerabilities that bad actors could exploit.
By adopting robust identity management solutions, startups can ensure customer safety while building trust in the digital ecosystem. Emewulu concluded by emphasizing the shared responsibility of all stakeholders in fostering a secure and inclusive digital economy.
