Four months after losing $24 million to illegal transfers, Flutterwave is set to recover the funds

A Nigerian fintech startup, Flutterwave, has been granted a Mareva injunction following a High Court ruling on February 1. This order, also known as a freezing order, enables the company to initiate the process of recovering $24 million (₦19 billion), which was lost due to unauthorized transactions carried out by PoS merchants on its platform.

The court order allows Flutterwave to attempt to recover these funds and assets even if they may have been withdrawn. This decision came about after multiple PoS device merchants performed illegal transfers on the company’s platform in October 2023 due to a technical glitch.

Following the discovery of these unauthorized transfers, the company, in its capacity as a payment service provider, temporarily froze accounts that were involved in these illegal transfers. The company assures the public that no customer funds have been lost and that it is actively working with the respective authorities to understand and resolve the issue.

Furthermore, court documents show that Flutterwave had previously secured a court order that placed restrictions on the debit operations on the affected accounts, which was executed two months after these unauthorized transactions occurred. This new order expands on the company’s process of recovering the funds from over 6,000 account holders spread across 35 banks and other financial institutions.

As part of the February 1, 2024, court ruling, 35 financial institutions, including commercial banks such as Access Bank, Zenith Bank, PolarisBank, and Providus Bank, plus digital operators like Opay, Moniepoint, Paga, Palmpay, and VFD Bank, are required to disclose the contact information of the respective account holders.

Following the court’s directives, Flutterwave will send email, SMS, and WhatsApp messages to the account holders using the contact information provided.

The success of this court-ordered recovery hinges on the accuracy of the customer information given by the specified banks and financial institutions. This highlights the crucial role of the Know Your Customer (KYC) regulation in financial operations.

In December, the Central Bank of Nigeria (CBN) unveiled stricter Know Your Customer (KYC) regulations, mandating all banks, mobile money operators, and financial institutions to require a Bank Verification Number (BVN) and National Identity Number (NIN) for all accounts or wallets.

However, experts argue that these KYC guidelines still fall short of expectations, as they don’t require customers to notify their banks about any changes in their contact details, such as addresses, emails, or phone numbers.

The Flutterwave incident comes amid a surge in fraud attempts within Nigeria’s financial services sector. Citing insufficient anti-fraud measures and lax customer verification standards, established banks in Nigeria, such as Fidelity Bank, are considering blocking access to their services by neobanks. In fact, Fidelity Bank already implemented a two-week ban on transfers to these digital financial institutions in October 2023.