On Friday, May 3rd, 2024, Nigerian actress, Shan George posted a video on Instagram where she alleged that ₦3.6 million had been moved from her Zenith Bank account into an OPay account and called on both financial institutions involved to help in recovering the funds.

In the past decade, Africa has witnessed a rise in the usage of digital financial services. This 2023 study found a positive correlation between the rise of digital financial services such as automated teller machines and agency banking and GDP growth in Nigeria.

It also points out that there has been a rise in digital fraud on web payment platforms. The growth in digital financial services has also given way to exploitation by fraudulent individuals, while lax onboarding and cybersecurity processes by financial institutions eager to speed up customer onboarding have led to customer and institutional losses.

In December 2023, Techpoint Africa reported that fraudulent entities were exploiting loopholes in the account opening processes of fintechs – OPay and PalmPay. Both startups had seen mass adoption with their quick transfers winning hearts as Nigerians battled with the fallouts of the CBN’s cashless policy.

However, their account opening processes allowed individuals to open accounts without proper identity verification. While both companies have fixed these issues, several individuals have already lost money to criminals as a result.

Identity management has always been crucial to business operations but with the increased digitisation of business processes, digital identity management has become even more important.

Chimezie Emewulu, CEO of Seamfix, a Nigerian company providing digital identity services for individuals and governments, argues that functional digital identity solutions will lay the groundwork for thriving digital economies.

According to him, having proper identification processes provides the bedrock for efficient service delivery.

“You ought not to be able to do so much in any economy without leaving your identity footprint. Today, if you enter most countries in sub-Saharan Africa, you disappear. You can go to the bank, lodge in a hotel, enter the train, yet you’ve not left a footprint for the security agencies to say ‘this person came in and this was the sequence of events.’”

Emewulu explains that proper digital identity solutions enhance trust and drive value creation for governments, individuals, and businesses.  

“I can’t think of any industry that will be able to effectively deal and deliver its services effectively and optimally without being clear on who they’re actually engaging.”

More than 850 million people globally do not have any form of identification (including digital IDs) with most of them living in sub-Saharan Africa and Asia. As a result, a third of individuals without an ID struggle to get jobs, access financial services, or government assistance programmes.

Balancing speed and compliance

With technology startups playing a vital role in African economies, startups cannot afford to ignore issues around their digital identity management practices.

Proper digital identity management practices ensure that startups mitigate security risks for themselves and customers. Startups that neglect to implement adequate security measures in their digital identity systems leave themselves vulnerable to cyberattacks and regulatory penalties.

In 2015, MTN was fined $5.2 billion for failing to deactivate more than five million SIM cards. Before the fine, the Nigerian Communications Commission had directed that all SIM cards in the country be registered. However, MTN failed to deactivate the SIM cards within the NCC’s timeline.  

Collecting and verifying customer data can often be a slow and laborious process in a continent where identity management systems are still unreliable. Consequently, startups frequently sacrifice their compliance requirements on the altar of fast growth.

Having seen first-hand the impact of lax digital identity management, Emewulu insists that startups must figure out ways to ensure they do not sacrifice compliance requirements.

“We believe identity is a right, but those people that don’t do the right things don’t guarantee that right. You can see a scenario where somebody like you would have a bank account with one of those fintechs and somebody is operating it on your behalf and you don’t even know.

“They use your real details and open those accounts and they didn’t do a thorough check and somebody uses that bank account to receive kidnap ransom and the police arrests you, not that person, because it’s your details that are on the system. How would you feel about it? I don’t think anybody deserves to have other human beings playing God over them.”

Emewulu points out that all parties involved – startups, regulators, and identity verification service providers – must work together to ensure that customers are onboarded quickly without KYC becoming a bottleneck.

As artificial intelligence forces businesses worldwide to review business processes, he points out that it creates both opportunities and threats for startups. While they can now improve the accuracy of their customer verification processes, they risk being exploited by bad actors.