Market News

BY Anthony Fakiyesi

In recent weeks, the banking sector in Nigeria has been grappling with series of technical glitches, primarily resulting from system migrations and upgrades. Major banks, such as Zenith Bank, Sterling Bank, and GTBank, have experienced disruptions, frustrating millions of customers and raising questions about the security and efficiency of these transitions. Some reports suggest that these glitches might be connected to the rising threat of cyberattacks, pushing banks to adopt more robust systems. On the other hand, fintech companies like OPay, PalmPay, and others are enjoying seamless operations, creating a stark contrast between traditional banking institutions and modern financial technology firms. The causes of these disruptions, it’s consequences and solutions calls for analysis.

The technical disruptions plaguing some banks can be traced back to widespread system upgrades that were carried out. Most banks are shifting from legacy core banking systems to newer, more secure, and cost-effective platforms. For instance, Zenith Bank recently migrated from Phoenix by Finastra, a UK-based software, to Oracle’s Flexcube, an Indian banking software. Similarly, GTBank has shifted to Finacle, another Indian software, while Sterling Bank transitioned from T24 to SEABaaS, a locally developed solution.

These migrations are part of a broader push for improved security and efficiency. With increasing incidents of cyberattacks, banks are seeking stronger systems that can better safeguard customer data and protect against potential threats. In addition, the cost of maintaining foreign-developed software in an economy facing foreign exchange challenges has prompted banks to seek cheaper alternatives.

However, these upgrades come with growing pains. The migration process involves moving vast amounts of customer data and integrating it across various platforms, including ATMs, mobile apps, and internet banking. This process, which can take weeks or even months, has led to service disruptions for customers who rely on these channels for day-to-day transactions.

Another driving force behind these system upgrades is the growing risk of cyberattacks targeting financial institutions. In recent years, there has been a marked increase in cyber threats aimed at banks, with criminals shifting from physical robberies to digital heists. Nigerian banks are no exception to this trend. The cost of a breach can be enormous, not just financially but also in terms of customer trust and reputational damage.

While the primary issue appears to be related to system upgrades, there are growing concerns about potential cyber-attacks exploiting these vulnerabilities. The recent attempted hack on GTBank’s website has heightened these fears. Cybercrime statistics in recent year shows that Nigeria lost $706 million to cybercrime in 2022. Banks alone lost N8 billion to cybercrime in the same year. It is also estimated that the country is losing $500 million annually to cybercriminal activities. The Economic and Financial Crimes Commission (EFCC) had to freeze over 300 bank accounts to protect the naira from further cyberattacks this year.

In response, many banks are transitioning to systems that provide enhanced cybersecurity features, offering better encryption, fraud detection, and threat monitoring. However, the current glitches have fuelled rumours that some disruptions may be directly related to ongoing cyberattacks, although there has been no official confirmation of such incidents. Securing customer’s money and data is important given the prevailing circumstances.

One of the biggest advantages of migrating to new systems is enhanced security. Older systems are often more vulnerable to cyberattacks, while newer platforms come with built-in defenses against modern threats like ransomware and data breaches.

Also, by shifting to more cost-effective software, banks can reduce their foreign exchange expenditures on software licenses and support. Local solutions, like SEABaaS, offer a more affordable alternative, potentially reducing operational costs for banks.

Another reason is scalability and flexibility of the upgrades. Newer systems allow banks to scale their operations more effectively as customer bases grow. With more Nigerians adopting digital banking, modern platforms can handle increased transaction volumes without overwhelming the system.

Another is better customer experience. Once the migration is complete and the system stabilizes, customers should benefit from faster, more reliable services. This includes improvements in mobile banking, internet banking, and other digital channels.

However, these won’t come with few downside. The primary downside of these migrations is the service disruption caused to customers. Many users have reported being unable to access their accounts or complete transactions during critical periods. These disruptions can damage a bank’s reputation, especially when compared to the seamless services offered by fintech companies.

Another is long stabilisation periods. System migrations are not quick fixes. It can take several weeks or even months for banks to fully stabilize their operations. During this period, users may continue to experience intermittent service issues, compounding their frustration.

Also, potential security risks during transition. The long-term goal is to enhance security, but migration process itself can expose banks to cyberattacks, as systems are more vulnerable during the transition phase. Any weaknesses in the old system might be exploited before the new one is fully operational.

While traditional banks are dealing with technical glitches, fintech companies such as OPay, PalmPay, Moniepoint, and Carbon are flourishing. These fintech firms are able to offer faster, more reliable services, often without the same level of disruption seen in the banking sector and are experiencing surge in usage and customer trust. Data released by the Nigeria Inter-Bank Settlement Systems (NIBSS) shows that mobile money transactions surged by 348.11% to N41.54 trillion between January and July 2024. Here’s why.

Fintech companies are known for their agility in adopting new technologies and improving customer experience. They are built on modern infrastructure from the ground up, which allows them to innovate rapidly without the burden of legacy systems. This makes it easier for them to maintain seamless transactions even as they scale their operations.

For example, OPay has quickly become one of Nigeria’s leading mobile payment platforms, offering services ranging from money transfers to bill payments with minimal downtime. PalmPay similarly provides a wide range of digital services with a focus on user-friendly interfaces and a hassle-free experience. These companies have avoided the pitfalls of the ongoing glitches in the banking sector by staying ahead of the curve in terms of technology adoption.

Another reason fintech companies have gained such popularity is their customer-centric approach. Fintechs prioritise customer experience, often providing 24/7 customer support, fast response times, and simple, easy-to-use platforms.

This is in contrast to some of the communication failures seen in traditional banks during their recent disruptions.

Additionally, fintech companies often roll out new features incrementally, ensuring that the transition is smooth for customers. Traditional banks, on the other hand, are trying to make large-scale changes all at once, which is more likely to cause service disruptions.

Lastly, Fintechs typically have lower operational costs compared to traditional banks, which allows them to offer more competitive rates and fees. These savings are often passed on to the customers, making fintech platforms attractive for people who are looking for affordable banking alternatives.

However, fintech companies are not immune to cyber threats. A leading fintech company recently faced allegations of a $4 million hack, though they denied any loss of customer funds.

As the Nigerian financial landscape evolves, the gap between traditional banks and fintech companies continues to widen. The ongoing glitches in the banking sector are a temporary pain point that will likely subside once the system migrations are fully completed. However, these disruptions have highlighted the agility and customer focus of fintech companies, positioning them as viable alternatives for Nigerians looking for more reliable financial services.

The challenge for traditional banks will be to regain customer trust and demonstrate that these migrations were worth the temporary inconvenience. In the long run, banks that successfully integrate these new systems will be able to offer more secure, scalable, and efficient services. However, they will need to focus on improving communication with their customers, offering more transparency about disruptions, and addressing any potential security vulnerabilities during the transition period.

For now, fintech companies will continue to thrive by offering seamless, innovative, and customer-focused solutions. But as the competition intensifies, both sectors will need to evolve, ensuring that the future of banking in Nigeria is both secure and convenient for all users.

The glitches in Nigeria’s banking sector reveal both the opportunities and challenges of modernizing financial systems. While the upgrades are necessary to improve security and cost efficiency, they have come at a cost to customer experience. Fintech companies, by contrast, have emerged as leaders in providing seamless transactions, highlighting the need for traditional banks to adapt quickly. As both sectors continue to evolve, the ultimate beneficiaries will be Nigerian consumers, who will have access to more robust and diverse financial services.

Fakiyesi – a Network Administrator and Cybersecurity Expert wrote from Bournemouth University, UK.

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