KYC and card payment providers
KYC and card payment providers

Unmasking the Risk: Why Global Card Issuers Must Prioritize KYC


The emergence of various card issuer companies worldwide has been driven by the shift from physical payments to cards, e-wallets, and online banking. This transition has significantly disrupted the traditional banking system, providing customers convenient online transaction options. The digital payments space is witnessing remarkable growth, with a rising number of card issuer companies from Europe to Sub-Saharan Africa.

However, global card issuers need help in the dynamic digital landscape. Specifically, they require assistance meeting Know Your Customer (KYC) compliance requirements. KYC regulations are crucial in combating money laundering, terrorist financing, and other illicit activities by rigorously verifying customer identities and monitoring their transactions. However, complying with these regulations effectively becomes daunting due to the scale and complexity of global operations.

The financial technology (fintech) and card-issuing industry are persistently concerned about fraud. Criminals continually explore vulnerabilities in payment systems, making fraud prevention a top priority for card issuers. The rise of digital transactions and the widespread adoption of fintech services have opened up new opportunities for fraudsters. Card fraud, which encompasses card-present and Card-not-present (CNP) fraud, has become a significant issue. The former involves unauthorized transactions without the physical presence of the card, while the latter has gained prominence with the rapid growth of e-commerce and online transactions.

Data breaches within the financial industry are another alarming aspect of financial crime. These breaches expose sensitive customer information, including credit card numbers, addresses, and social security numbers. Consequently, data breaches often lead to an increase in fraudulent activities. Prominent incidents, such as the Equifax data breach in 2017, affecting approximately 147 million individuals, have impacted major financial institutions and retailers. In 2019, the global cost of financial crime reached an astonishing $2.9 trillion.

A growing trend in financial crime is synthetic identity fraud, wherein criminals fabricate new identities by combining natural and fake information. These synthetic identities are then utilized to establish fraudulent accounts and engage in deceitful practices like applying for credit cards or loans. Fraudsters exploit gaps in identity verification processes, contributing to the escalation of synthetic identity fraud. In one year, the estimated amount of money laundered globally is 2–5% of global GDP, or $800 billion — $2 trillion in current US dollars.

These concerning statistics highlight the magnitude of financial crime and its profound impact on the global economy. In combating such illicit activities, international card issuers assume a crucial role. They must adhere to Know Your Customer (KYC) procedures and compliance regulations to combat financial crime effectively. By doing so, they can contribute to safeguarding the financial system and maintaining the integrity of transactions.

Recently, the Nigerian fintech industry has witnessed a significant disruption caused by the shutdown of virtual card services. This development has left numerous fintechs and their customers grappling with the sudden unavailability of virtual card services. By delving into the reasons behind this shutdown, we can shed light on the challenges virtual card providers face in Nigeria and underscore the necessity for substantial investments in fraud patterns, continuous research, and robust Know Your Customer (KYC) practices.

The shutdown of Virtual Card Services

One of the key players offering virtual card services to many leading fintech in Nigeria has announced the shutdown of its card services, mirroring a similar incident involving Union 54 a few months ago. This event has prompted a closer examination of the underlying factors contributing to the disruption.

Chargebacks and Pre-authorization Challenges

According to trending conversations with affected individuals and industry insiders, two significant issues have been identified as key contributors to the shutdown of virtual card services: chargebacks and pre-authorization. These challenges have highlighted the need for more comprehensive strategies to ensure the stability and reliability of virtual card technology in the Nigerian market.

Chargebacks occur when a customer disputes a transaction made with a virtual card and requests a refund from the issuing fintech. The increasing incidence of chargebacks poses a significant risk to virtual card providers as it can lead to financial losses and undermine their operations. Consequently, the potential for fraudulent activities necessitates a robust framework to mitigate chargebacks and protect fintech and customers.

Pre-authorization refers to reserving funds on a virtual card before completing a transaction. This practice is commonly employed to ensure the availability of funds to cover potential expenses. However, inadequate pre-authorization mechanisms can result in unforeseen complications, such as declined transactions or incomplete purchases. Addressing these pre-authorization challenges is vital to enhancing the overall user experience and bolstering the reputation of virtual card services.

Why Investment in KYC and Research is Imperative

Establishing a stable and thriving virtual card ecosystem in Nigeria necessitates significant investments and continuous research. While virtual card providers have made commendable progress in leveraging technology to enhance financial services, it is imperative to prioritize local use cases and develop targeted fraud prevention strategies. By investing in robust infrastructure and fostering collaboration with industry stakeholders, virtual card providers can proactively address emerging fraud patterns and safeguard their operations.

Strengthening virtual card services in Nigeria involves deepening Know Your Customer (KYC) practices. Rigorous KYC procedures encompass comprehensive verification processes that ensure the identities of individuals using virtual cards, thus reducing the likelihood of fraudulent activities. Integrating stringent KYC protocols into the virtual card ecosystem fosters trust, confidence, and security among fintech firms, customers, and regulatory authorities.

Emphasizing the importance of prioritizing KYC, card payment issuers must ensure their operations’ integrity, security, and compliance. The issues of chargebacks and pre-authorization have underscored the urgent need for substantial investment in fraud pattern research, continuous research efforts, and a localized approach that aligns with local use cases. Furthermore, reinforcing KYC practices will play a pivotal role in establishing a secure and resilient virtual card ecosystem, promoting the growth and stability of Africa’s fintech industry.

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