Nigerian fintech startups could spend over $1 million on KYC

June 10, 2024

19 5 minutes read

June might have started on a rough note for many Nigerians, but there are a few reasons to be optimistic.

First, there are two public holidays this month, and DStv/GOtv subscribers might get one month of free subscription based on a recent Tribunal ruling on MultiChoice Nigeria.

The freebie isn’t cast in stone yet, as the company has announced its intention to appeal the ruling, citing a breach of its right to a fair hearing. This case is one to keep an eye on, considering the incessant murmurs about subscription fees on these platforms, especially for football lovers.

In this letter, we explore:

Rwanda to launch its own CBDC in two years
New KYC requirements could cost Nigerian fintech startups over $1 million
Copia Global lays off its remaining staff

We also curated updates on startup funding in Africa, other noteworthy information, and several opportunities.

The big three!

#1 Rwanda to Launch its Digital Currency by 2026

Image Credit: The New Times

Rwanda plans to launch its Central Bank Digital Currency (CBDC) within two years. This digital currency aims to provide Rwandans with a secure, convenient alternative to physical cash and boost financial inclusion.

Context: The National Bank of Rwanda (BNR) initiated the CBDC project in November 2023. In May 2024, a feasibility study was introduced to explore the potential benefits, risks, and practicalities of implementing the digital currency. The BNR further conducted public consultations to address concerns regarding data privacy, the potential for financial system disruption, and overall user adoption.

While the final design of the Rwandan CBDC is still under discussion, the BNR is leaning towards a retail model distributed through commercial banks. This approach would allow for easier integration with existing financial infrastructure. Recognising the challenges of limited internet and smartphone penetration in some areas, Rwandan authorities are also exploring innovative solutions to ensure offline access to the CBDC.

Zoom In: Following the completion of public consultations within the next four weeks, the BNR plans to initiate a proof-of-concept phase. This pilot will test the CBDC’s functionality, design, and transaction speed on a small scale. Additionally, a six-month international pilot will assess the CBDC’s viability for cross-border payments.

Rwanda’s adoption of a CBDC reflects a growing trend across Africa. Neighbouring countries like Nigeria, Ghana, and South Africa are already exploring or implementing digital currencies.

#2 Nigerian Fintechs Face Millions in Costs to Meet New KYC Requirements

Nigerian fintech startups are grappling with significant expenses due to stricter Know Your Customer (KYC) requirements mandated by the Central Bank of Nigeria (CBN). These new regulations require physical address verification for both Point-of-Sale (POS) agents and all customers.

Context: The Central Bank of Nigeria (CBN) ended a six-week freeze on new customer onboarding for fintech companies on June 3, 2024. These companies include Paga, OPay, Kuda, Palmpay, and Moniepoint. The freeze, implemented on April 29th, 2024, was lifted after the CBN outlined specific requirements for the fintechs to resume operations. These requirements, announced on May 20th, 2024, included prohibiting peer-to-peer (P2P) cryptocurrency transfers and mandating physical address verification for all customer tiers and Point-of-Sale (POS) agents offering agency banking services.

Why it Matters: The physical verification process carries a hefty price tag. Estimates suggest a cost of up to ₦1000 ($0.40) per POS agent verification. Leading fintech companies with vast agent networks could face millions of naira in verification costs.

Based on publicly available data on registered agents, OPay is estimated to incur a cost of at least ₦563 million ($376,000) for address verification. Similarly, PalmPay’s bill could reach ₦500 million ($333,883), and Moniepoint could be looking at a cost of ₦304 million ($196,000)

Industry experts predict the total cost for verifying Nigeria’s estimated 1.5 million POS agents could reach ₦1.5 billion($1 million), with the actual figure potentially higher due to the undisclosed cost of paying the verifiers.

Zoom Out: The CBN’s stricter KYC requirements are a response to concerns about inadequate verification processes that facilitated fraudulent activities, particularly through POS transactions. According to the Financial Institutions Training Centre (FITC), POS fraud accounted for a staggering 8.8% of total fraud losses in the fourth quarter of 2023. The new regulations aim to reduce the vulnerabilities exploited by bad actors within the financial system.

#3 Kenyan E-commerce Startup Copia Global Lays Off Remaining Staff

Image source: Copia

off its remaining 1,500 employees. This follows a period of significant financial struggles and a series of earlier layoffs.

Context: Copia has been facing financial difficulties for some time. The company exited the Ugandan market in April 2024 and laid off 400 staff in Kenya in 2023. These challenges are attributed to fundraising difficulties. Despite securing $123 million across eight funding rounds, Copia announced on May 24th that it was entering into administration. The firm hired Makenzi Muthusi and Julius Ngonga of consultancy firm KPMG to lead the administration process.

Copia had already significantly scaled back its operations in a desperate attempt to cut costs. The company suspended services in six Kenyan locations and placed staff in those areas on leave.

Zoom In: Copia experienced delays in paying May salaries. The company attributed these delays to administrative issues; however, this raised serious concerns about Copia’s ability to meet its financial obligations to its laid-off employees, including severance pay and accrued unpaid leave benefits.

While Copia’s administrators are reportedly working on a cost-cutting plan to achieve profitability, the company’s lack of a workforce casts serious doubt on its future prospects.

💰 State of Funding in Africa

Here’s a roundup of African startups that secured funding last week:

Egypt-based prop-tech has secured an undisclosed round of pre-Series A funding. Investors include Beltone Venture Capital and CI Venture Capital.
Ivory Coast cloud communication startup LAfricaMobile raised $4.6m in Series A funding. The round was led by Janngo Capital and included French footballers Aurélien Tchouaméni and Jules Koundé. Expensya founders Karim Jouni and Jihed Othmani also invested, as did VC firms SouthBridge Investments and Ciwara Capital.
Zambian construction e-commerce startup Bosso raised $400k in pre-seed funding. Investors include Leonard by Vinci, Launch Africa Ventures, Renew Capital, Change-Com, and various angel investors.

📚 Noteworthy

Here are other important stories in the media:

Binance becomes poster child for Nigeria’s protracted crypto war: The conflict between the Nigerian government and Binance.
Are you a micro-scale business in Africa looking to simplify your payment processes, get access to credits and leverage unique customer insights to gain competitive advantage in your market? Apply now to join a 4-week intensive virtual programme offered by Velvpay. Application deadline: June 20th
Why this struggling YC-backed startup is not giving up: YC-backed Flux is not giving up despite its struggle due to regulatory challenges.
How can Africa create more angel investors? A look into the state of Angel investing in Africa.
Starting in war-torn Sudan, YC-backed Elevate now provides fintech to freelancers globally: Elevate secures funding to expand into markets like Indonesia, South Africa and Turkey.