Explainer: Why Banks Want Customers to Provide Indemnity for Online Transfers Above N1m

By Adedapo Adesanya

In a new directive, the Central Bank of Nigeria (CBN) has asked commercial banks and Payment Service Providers (PSPs) to request from their customers an indemnity for online transfers to the tune of N1 million and above for individuals and N10 million and more for corporate customers.

An indemnity is a contract absolving someone from any financial loss incurred. It means if a customer making online transfers above the cap suffers a financial loss in the course of the transaction, the bank will not be held responsible as the loss would be solely incurred by the customer and would not be compensated.

The latest directive was contained in a circular signed by the Director of Payments System Management Department at the CBN, Mr Musa Jimoh. The notice directed deposit money banks (DMBs) to accept indemnity from customers for “highly secured online funds transfer” above N1 million for individuals, while the sum was capped at N10 million for corporate, subject to a maximum of N25 million (individual) and N250 million (corporate).

Furthermore, it directed lenders to provide their customers with the option of electronic or paper indemnity based on the customer’s preference.

It also directed commercial banks to implement electronic indemnity with stricter controls requiring biometric verification of identity.

In addition, it directed banks to adhere to multi-factor authentication (MFA) for highly secured online funds transfers.

The lender also directed banks to inform and educate their customers on the use of indemnity to increase transaction limits where applicable.

“Implement electronic indemnity with stricter controls requiring biometric verification of identity.

“Adhere to multiple factor authentication for highly secured online funds transfer.

“Inform and educate customers on the use of indemnity to increase transaction limits where possible,” the circular further stated.

In recent times, there have been reports of customers experiencing fraudulent activities from online transactions and the banks being called out. In some cases, the lenders have had to compensate their customers for the financial losses.