Increasing online fraud threatens the survival of Nigerian banks

Experts have said that the operations of commercial banks and their survival could be seriously affected if the worsening online fraudulent activities against financial institutions are not addressed.

They lamented that even though many commercial banks have increased their spending on technology, including cybersecurity, they are still losing billions of naira to fraudsters, especially through their payment channels.

For example, no fewer than six commercial banks have increased their expenditure by N176.09 to N196.89 billion percent in the first half of 2024 compared to the same period in 2023 to prevent online fraud.

Despite this move, fraud within the banking halls has increased by 589.01 percent during this period.

A recent report by the Financial Institutions Training Center (FITC) revealed that banks suffered a total loss of N43.12 billion due to fraud in the first half of 2024, up from N6.26 billion in the first half of 2023.

The report showed an 8,993.04 percent increase in fraud-related losses, from N468.49 million in the first quarter of 2024 to N42.6 billion in the second quarter of 2024.

During the reporting period, FITC received 80 reports on fraud and forgery cases from 28 deposit money institutions.

Six banks including Access Holdings Plc, the parent company of Access Bank, Guaranty Trust Holding Company (GTCO), the owner of GTBank, Zenith Bank, Stanbic IBTC Holdings Plc, Wema Bank and First City Monument Bank have increased their expenditure on IT by the amount of N196 billion.

While Access Bank led the way in IT and e-business expenditure, with an expenditure of N111.24 billion – an increase of 265.13 percent from N30.47 billion in the first half of 2023, technology expenditure of GTCO by 115.09 percent from N17.02 billion to N36.60 billion. Zenith Bank’s IT expenditure increased by 166.29 percent to N23.09 billion from N8.67 billion the year before. Stanbic IBTC expenditure increased by 110.95 percent from N7.52 billion to N15.86 billion. FCMB increased its expenditure by 29.39 percent to N8.97 billion, and Wema Bank’s technology expenses increased by 59.41 percent to N1.13 billion.

Meanwhile, despite this enormous expenditure, fraud cases continue to increase.

FITC has reported 23,004 fraud cases in the first half of 2024 alone.

It announced that the most common types of fraud include computer/web fraud, mobile fraud and POS-related fraud, following trends from 2023 and the first quarter of 2024.

The analysis showed an increase in fraud losses across all payment channels, except mobile fraud, which saw a decrease.

INTERPOL’s May 2024 report also highlighted the growing threat of online fraud across Africa.

Expert firms such as FITC have said that investments in technology alone would not tackle the menace as miscellaneous also account for a large portion of fraud.

One expert, Adedeji Olowe, founder and CEO of Lendsqr, said banks already have the tools to tackle fraud, but these tools are not being used.

Similarly, Resilience Technologies’ Pwapo noted that overlapping roles within the banking industry create perfect conditions for some types of fraud to thrive, adding that all of these must be addressed to save financial institutions from further losses.