One of the most interesting developments in the crypto space anywhere in the world has been happening in Nigeria over the last few months.
One of such developments is where the central bank abruptly issued a notification asking banks and financial institutions to restrict accounts and users who conduct cryptocurrency transactions.
However, it looks as if there are now other issues cropping up in the crypto space, as well as, the fintech space in general in the country.
Fintech platforms in Nigeria were suddenly cut off from a government service that they use to perform mandatory identity checks on customers last week.
This means that these companies are now unable to bring new customers on board without this system to verify their identities.
While this is happening since the government is installing a new service, the timing is extremely unfortunate, as more and more people have been moving towards using digital platforms in recent months due to the pandemic.
It has dealt another blow to the industry, which was already reeling under the impact of the crypto ban in the country, and will make the industry even more unattractive for foreign and domestic investors.
The government’s verification database, the Bank Verification Number (BVN), which is seven years old, is used by fintech companies to comply with the legal requirement to verify customers’ identity.
The access to this system was suspended without warning, with the government working on upgrading its network of identification systems with a better and more coherent system.
However, most people do not yet have the new national ID number, and fintech companies have not yet developed the tools and software to pull data from this new database, which means that even if this system is implemented, it will take a lot of time before it can be used at scale in the country.
Thus, if companies are not allowed to access the BVN system in the interim, it will lead to a lot of lost business.
This is yet another challenge in the ongoing struggle for fintech and crypto companies in Nigeria. The Nigerian crypto sector has been hit hard by the central bank’s ban back in February, with most users moving to P2P exchanges, where crypto can be exchanged for gift cards and other alternatives.
Given the size of Nigeria’s crypto sector, it is extremely unlikely that users will stop using crypto, they are just more likely to go to other platforms which may even be illegal, and this is a concern.
Nigerians have grown accustomed to using crypto online for various purposes, including the gambling sector. Online casinos support crypto payments to allow Nigerians to enjoy crypto gambling and play their favourite casino slots and bitcoin jackpot games at online casinos.
This ban is only going to strangle an extremely lucrative sector in the country, as well as, drive people towards platforms that may cause fraud and harm, and therefore a blanket ban is definitely not the way forward.
It is a similar scenario for fintech firms, but for a different reason.
There is no ban on fintechs in Nigeria, but the current situation regarding identity verifications will mean that they will not be able to bring new customers on board, which would be akin to a ban in many respects.
Companies may be forced to return to older and more expensive systems, which will make transactions costlier.
This will prove to be a hindrance for the fintech sector and will slow down the growth of yet another vibrant part of the economy.
The digital economy has been one of the bright spots in Nigeria’s economic growth story over the last year, but these directives by the central bank and government are throttling some very promising areas for the country.