Nigeria’s banking sector is under intense pressure after suffering an alarming loss of N59.33 billion to electronic fraud over the past five years, including a staggering N17.67 billion lost in 2023 alone. This dramatic increase of 496.96 per cent compared to the losses recorded in 2019 has raised serious concerns among financial institutions and regulators. In response, banks are prioritising urgent upgrades to their systems, which, while essential for combating fraud, are causing significant disruptions to customer service.
As the country’s financial ecosystem undergoes rapid digital transformation, the imperative for these upgrades is underscored by the soaring volumes of digital transactions alongside the escalating incidents of electronic fraud. Reports from the Nigeria Inter-Bank Settlement System (NIBSS) revealed that mobile money operators processed an astonishing N46.91 trillion in 2023, reflecting an impressive 88 per cent growth in Q1 2024 alone. This shift toward cashless transactions, largely driven by the Central Bank of Nigeria’s (CBN) cashless policy, has placed unprecedented demands on banks’ digital infrastructure.
However, this rapid growth has exposed significant gaps in existing systems. Many banks find their outdated infrastructure unable to handle the increasing transaction volumes, rendering them vulnerable to service failures and cyberattacks. Femi Adeoti, CEO of RoutePay, commented, “While the significant growth in digital transactions is promising, the persistent infrastructure shortcomings show that we could have achieved more with timely upgrades.”
In response to the evolving threat landscape, commercial banks in Nigeria have begun investing billions into upgrading their IT infrastructure. Reports indicate that five major Nigerian banks collectively invested N178.77 billion in IT enhancements during the first half of 2024 alone, marking a staggering 203 per cent increase from the previous year. Access Bank led these investments with an allocation of N111.24 billion towards IT improvements, followed by Guaranty Trust Holding Company (GTHC) with N36.60 billion and Zenith Bank with N23.10 billion. These upgrades aim to bolster cybersecurity measures, enhance service efficiency, and accommodate the exponential rise in digital banking activities.
This significant investment is not solely about increasing transactional capacity but also crucially aimed at mitigating the growing risks associated with e-fraud. Leading banks, including Zenith Bank, GTBank, and Sterling Bank, are undergoing major system migrations to advanced platforms such as Flexcube and SEABaaS. These migrations are intended to enhance user experience, improve data security, and provide faster processing times while reducing transaction errors.
However, the scale and complexity of these upgrades have led to inevitable short-term service disruptions. Notable banks, including Sterling Bank, GTBank, and Zenith Bank, have recently experienced service delays and transaction failures during their transitions to new systems. These interruptions, though temporary, have left customers frustrated, grappling with issues ranging from failed payments to blocked digital channels.
Seun Adetutu, a fintech CEO, likened the challenge of replacing a core banking application to “changing the engine of a Boeing 747 mid-flight.” The intricate integration of new software with existing data, customer channels, and transactional protocols often proves more time-consuming and resource-intensive than banks initially anticipate. Despite having scheduled timelines for these migrations, service stability often remains elusive immediately following an upgrade, as seen with the recent experiences of Zenith Bank and GTBank.
To mitigate the impact of these disruptions, banks are proactively educating customers about upcoming upgrades through early notifications. However, even with advance warnings, customers are still subjected to temporary service interruptions, posing a dilemma for banks as they strive to balance operational enhancements with customer experience. Despite these frustrations, such upgrades remain essential to safeguarding customer assets from increasingly sophisticated fraud schemes.
In light of the staggering losses experienced by customers due to electronic fraud—affecting over 80,000 individuals annually—banks are adopting layered security protocols, advanced fraud detection tools, and stronger authentication measures. As they enhance digital resilience, banks are also ramping up customer education initiatives aimed at promoting secure banking practices, thereby fostering a more fraud-conscious customer base.
With the CBN mandating capital increases for Nigerian banks, the sector is gearing up for hyper-scale growth supported by more resilient IT infrastructure. “The aim is to boost customer trust and digital reliability while strengthening Nigeria’s position in a globally digitised economy,” commented Samuel Ade, a development economist at Lagos State University. Industry analysts like Paul Jakpor predict that the collective investments by banks in their core digital frameworks will cultivate a banking sector that is not only more efficient but also primed to meet future demands.
According to data compiled by SBM Intelligence, the number of fraud incidents rose by 112.74 per cent compared to 2019 figures, with 95,620 cases recorded in 2023, exceeding the 44,947 cases noted in 2019, but reflecting a 22.84 per cent decline from the 123,918 cases reported in 2021.
Despite the reduction in the number of cases, financial losses have risen consistently over the past five years. Losses in 2019 amounted to only N2.96 billion but surged by 292.23 per cent to N11.61 billion in 2020. In 2021, losses totaled N12.77 billion, followed by N14.32 billion in 2022, and reached N17.67 billion in 2023. Notably, N9.38 billion of the losses in 2023 were attributed to social engineering, a tactic where fraudsters deceive individuals into revealing personal data that can be exploited to access their bank accounts.
The hacking of financial institutions’ websites and servers has also emerged as a significant concern, leading to losses of N2.44 billion in 2023, a stark increase from the N6.2 million lost through that channel in 2022. The rising incidence of cash usage has further exacerbated the situation, as losses due to robbery surged from N437.4 million in 2022 to N1.61 billion in 2023, indicative of broader insecurity trends within the country, which have direct implications for the banking sector and its customers.
The data showed that the value lost to fraud through PIN compromise rose to N1.30 billion in 2023, up from N852.3 million the previous year. Conversely, losses attributed to internal collusion decreased from N1.52 billion to N1.03 billion, suggesting improved internal controls and compliance measures within banks to mitigate this type of fraud.
The rise in fraudulent activities is also linked to emerging tactics employed by criminals. The value lost to fake assistance skyrocketed from N133 million in 2022 to N1.01 billion in 2023, as individuals fall prey to scams promising help with financial transactions or loan approvals, ultimately resulting in identity theft. Furthermore, losses from phishing attacks doubled from N240.6 million in 2022 to N551.2 million, highlighting the urgent need for consumer education regarding digital security practices.
The lack of two-factor authentication (2FA) also emerged as a significant vulnerability, leading to losses of N192.3 million in 2023, an increase from the N137.8 million lost through that channel in 2022. Additionally, the data revealed that SMShing, a form of phishing conducted via SMS, resulted in losses of N30.7 million in 2023, compared to N1.01 million lost the previous year.
SBM Intelligence noted that while fraud is common in the financial sector worldwide, it is particularly endemic in Nigeria. “Although the number of incidents has reduced from a 2021 high, the amount of money lost to fraud has increased significantly. This may indicate that the perpetrators have become more adept at their schemes and have figured out ways to move large sums of money undetected.”
While the recent wave of upgrades may seem unusual, stakeholders said this synchronised shift reflects an industry-wide strategy to fortify digital infrastructures in response to both customer demands and heightened security risks. The surge in investments signals that banks are not merely reacting to fraud or technical demands but are proactively positioning themselves for sustained digital expansion, regulatory compliance, and long-term customer satisfaction.
