Research Intelligence: Recent banking system update in Nigeria: Harrowing experience of Nigerians amidst extant anguish.

Nigeria’s banking sector has long been a critical part of the nation’s economy, driving financial inclusion, business growth, and access to capital. Over the years, the sector has undergone significant reforms aimed at modernising operations, enhancing digital transactions, and aligning with global banking standards. Recent initiatives, such as the push for a cashless economy, withdrawal limits, and forex restrictions, have been part of broader efforts by the Central Bank of Nigeria (CBN) to stabilise the naira, curb inflation, and reduce dependency on cash. These policies, while well-intentioned, have had mixed outcomes, particularly for everyday Nigerians. In recent times, the changing dynamic of the banking operation coupled with upticks in fraud-related incidents have prompted the apex monetary authority to direct all banks to upgrade their cybersecurity architecture.

 “In recent times, the changing dynamic of the banking operation coupled with upticks in fraud-related incidents have prompted the apex monetary authority to direct all banks to upgrade their cybersecurity architecture.”

On Friday, October 11, 2024, one of the household banks informed all customers: “We would like to inform you that all our branches nationwide will close to customers early on Friday, October 11, 2024, as we begin a transition to a new and robust suite of Finacle Core Banking Application Systems”—the notice reads in part. Another, in the week thereafter, warned customers that they might experience temporary transaction delays due to Nigeria’s Inter-Bank Settlement System (NIBSS) and some banks’ downtime.

In another email from Optimus by Afrinvest, reads partly, “We would like to inform you about some temporary delays in processing withdrawals. This is due to an issue with NIBSS (Nigeria Inter-Bank Settlement System), as well as downtimes from certain banks, including GTCO, Zenith, Sterling, Stanbic, and Standard Chartered. If your Optimus by Afrinvest account is linked to any of these banks, you might experience delays in receiving funds in your bank account or depositing funds in your wallet.

“We sincerely apologise for any inconvenience this may cause. Rest assured, we are actively monitoring the situation and will update you as soon as everything is back on track.”

Other investment outlets, known as i-firms, that invest in bonds, stocks, and other instruments also informed customers of the likely disruption of services attributed to the planned upgrade by partner banks. In recent weeks, several banks have announced the completion of their technology upgrades, while others are still navigating the migration process. However, these upgrades have caused significant disruptions, leaving many customers unable to access essential banking services. This has raised concerns about the banks’ overall readiness for such large-scale transitions and their ability to maintain service continuity during the upgrade process.

Delving into the real-life struggles faced by consumers and small businesses will highlight the unintended consequences of these reforms and explore potential solutions to alleviate the distress experienced by many. This allows us to provide a balanced perspective on how banking reforms can succeed without exacerbating the economic challenges faced by ordinary citizens.

Read also: Can Nigerian banks continue to outpace economic challenges?

Overview of recent banking updates

Historically, many Nigerian banks have relied on foreign companies to manage their IT infrastructure, incurring high maintenance costs in foreign currencies. However, a shift is emerging as some institutions, such as Sterling Bank, are transitioning toward locally developed solutions. This move is seen as a step towards reducing dependence on foreign technology and managing costs more efficiently while improving customer experience.

The latest rounds in the banking system have been driven by changes in monetary policy, new Central Bank regulations, and financial reforms aimed at stabilising the economy, especially against the backdrop of humongous fraud practices that have perpetuated the global banking system, with Nigerian episodes particularly worrying. Before the recent system upgrade aimed at enhancing customer experience, many Nigerian banks relied heavily on foreign companies to manage their IT infrastructure, incurring substantial costs for maintenance in foreign currencies. An existing report found that the fraud in the Nigerian banking system in Q1 2024 is more than that of 2023 combined. To this end, institutions like Sterling Bank started the transition in September by adopting locally developed solutions. The bank, a tier-2 lender with a market capitalisation of N115.16bn, transitioned from the Switzerland-based Temenos T24 system to SeaBaaS, a locally developed platform by Peerless. The bank initiated the upgrade in August and completed it in September, temporarily disrupting services for over 3 million customers during the transition.

GTBank, a tier-1 bank, recently switched from ICS Financial Services to India’s Finacle system by EdgeVerve Systems, notifying customers of potential service disruptions on October 13. In contrast, Access Bank postponed its planned upgrade from October 12 to avoid inconveniencing customers further.

Zenith Bank experienced similar setbacks, with customers facing login issues for three days after their October 1 system update. FirstBank’s upgrade caused even more significant disruptions, leaving customers without access to digital services for six days.

Key developments include digital banking transformations, which are reshaping traditional banking operations and pushing institutions to adopt more technology-driven solutions to enhance efficiency and customer experience.

Additionally, the introduction of cashless policies, withdrawal limits, and stricter forex regulations has significantly impacted how Nigerians access and manage their finances. These policies are designed to curb inflation, reduce currency volatility, and encourage electronic transactions, though they have also led to challenges for individuals and businesses adjusting to the new financial landscape.

Nigerians’ Harrowing Experience

The 2012 Royal Bank of Scotland (RBS) system upgrade failure readily came to mind, which stranded 6 million customers and resulted in a £56 million fine, serving as a global reminder of the potential pitfalls. The recent service disruptions in Nigerian banks stem from system upgrades essential for enhancing customer experience, improving digital banking services, boosting operational efficiency, and complying with the Central Bank of Nigeria’s guidelines for robust core banking systems. It is also to strengthen the banking system’s cybersecurity infrastructure to mitigate against hacks and attacks.

Although these upgrades are designed to improve services, they carry risks such as downtime, technical glitches, security concerns, and customer frustration. Today, Nigeria faces mounting economic challenges, including high inflation, currency devaluation, and soaring unemployment. These problems have been compounded by the ongoing banking system reforms, which many citizens feel have worsened their financial woes. The inability to effect payment, prolonged delays in salary payment, and myriad reports of “missing” transactions were regular undesirable optics daily. Mundane activities, like paying for transport, food, and utilities, have become a harrowing experience for many, reminiscent of the cash crunch earlier in the year when ATMs ran dry and transaction failures surged.

Many Nigerians report long queues at ATMs, failed transactions, and difficulties in accessing their funds, aggravating the economic hardship they already face. Public frustration is growing, with widespread outcry on social media, as many feel overwhelmed by the banking issues exacerbating their financial struggles.

As Nigerian banks continue with their upgrades, customers should prepare for temporary disruptions, stay informed through bank communications, and consider alternative banking channels like mobile apps or physical branches. While inconvenient, these upgrades are part of the banks’ efforts to deliver better services in the long run.

Read also: Top Nigerian banks successfully raise capital ahead of deadline says SEC

BDI commentary

To improve Nigeria’s banking system, banks must focus on upgrading infrastructure for more reliable services and security while minimising disruptions during system upgrades. Effective communication with customers and better cybersecurity measures will enhance trust and efficiency.

A balanced approach is needed to expand digital banking, especially in rural areas. This requires better internet access, mobile banking solutions, and financial education to ensure broad inclusion.

Further reforms should address public concerns by easing withdrawal limits, ensuring smoother cash flow, and working with the CBN to reduce transaction failures, ultimately supporting economic recovery and boosting confidence in the system.