The Central Bank of Nigeria (CBN) last week issued a directive to Non-Bank Financial Institutions (NBFIs) effectively barring them from using Bank Verification Number (BVN) validation services. This action was brought to the fore in an email released by Paystack.
In this article, we explore the implications of this move, the challenge presented to the sectoral players and how it could potentially affect customers and end-users.
One of the major implications of this change is that NBFIs will no longer be able to use BVN validation as part of their know your customer (KYC) and Anti-money laundering (AML) functions. All these have direct implications to the companies meeting regulatory and compliance requirements. Given this directive, the NBFIs will have to turn to other Personal Identification methods such as Government issued ID and telephone numbers. However, these standards are not as robust as the BVN in identifying and verifying a customer’s transaction history. As a result, the ability of NBFIs to onboard customers may be considerably impacted.
The Nigerian Interbank Settlement System (NIBSS) in a related development maintains that BVN use is the preserve of banks. The question is how do we then balance the place of regulation without stifling innovation? Much as the place of a regulator is to govern the industry, there is also a need to not unconsciously stifle or strangle the pace of innovation.
Innovation can drive development and financial inclusion which has the knock-on effect of improving access to financial services, credit, gender income parity, and even has the potential to increase government tax revenue as more people are captured by the formal financial system.
When regulators choose to flex their muscles without considering all the players in the industry, the end-users invariably suffer or bear the consequences. As at March 1, 2021, the National Identity Management Commission (NIMC) listed its National Identification Number (NIN) adoption numbers as standing at 48.2 million unique users. Meanwhile, as at October 2020, the BVN adoption figures stood at 44,083,732.
Also, the Nigerian Communication Commission recently listed internet users in the country at 148,1133,233, down from 154,437,623 users in November 2020. The attrition may be as a result of lines barred due to failure to register for the NIN scheme.
The above data has led to speculation that BVN may be replaced by NIN as a means of identification, given its wider reach. In all, it is hoped that the CBN will make a further statement clarifying its position. Considering the fact that Nigeria has a large population, it will always seem attractive to investors on account of the market and population to consume said services. However, investors are generally wary of uncertainty in a business environment which seriously limits their ability to plan and take advantage of opportunities, or in extreme cases could potentially end the business.
By Ogodilieze Osaji-Ugo