Why banks’ IT systems will continue to crumble despite over N81.91bn in investment
The Information Technology (IT) infrastructure of banks will continue to crumble despite the over N81.91 billion investment because of an increase in e-banking transactions and operators’ inability to expand their platforms to accommodate the spike that was predicted two years ago.
Triggered by the Covid-19 experience, Nigeria, in 2021 ranked sixth in global e-banking transactions following an unprecedented 1.8 billion transactions, well ahead of 1.2 billion in the United States of America.
The COVID-19 lockdown in 2020, which opened the door for more widespread usage of electronic banking, is responsible for this accomplishment. Most people had little choice but to conduct electronic financial transactions from the comfort of their homes due to the pandemic’s severe effects, which halted business operations and kept them confined to their homes.
However by 2022, Nigeria’s electronic transactions doubled and hit 3.5 billion transactions, which was equivalent to a N200 trillion turnover, thereby putting pressure on banks’ IT infrastructure.
Ken Ife, Lead Consultant to the ECOWAS Commission on Private Sector Development, Co-Chair of the EU-AFRICA Business Task Force Summit Group (Trade Working Group) Brussels, noted that Nigerian banks were warned about the impact of full blown cashless environment two years ago but only few expanded their infrastructure.
“I told them that we projected over 500 per cent increase in electronic transactions by 2025. At that time Nigeria was No. 6 in the global electronic transactions at 1.8 billion transactions per year ahead of Brazil (1.6bn) and the US (1.2bn)”.
“Last year, it doubled to 3.5 billion transactions per year involving a turnover of N200 trillion. The Naira redesign obviously created a spike,” Ife, who is also the Senior Policy Adviser to the President, of Africa Business Round Table/ NEPAD Business Group recalled in a response to InsideBusinessNG’s inquiries.
By the second month of 2023 however, IT platforms started to give way, as deluge of transactions forced by the redesign of the Naira by the Central Bank of Nigeria (CBN) shows their weakness. One after the other, banks’ IT platforms collapsed, casting doubt on the preparedness of deposit money banks, the Central Bank of Nigeria (CBN), and other stakeholders to operate in a cashless society.
“They saw it coming and were warned two years earlier, but the IT infrastructure that the individual bank boasts of could not stand the pressure of the deluge of e-banking transactions from mid- January.
The collapse of banks IT platforms brought untold hardship to Nigerians who also have to cope with cash crunch at counters in the banking halls. The development has thus called to question, several awards on banks’ shelves that trickled in from the impact of the adoption of IT on their operations.
He continued: “I also warned banks about the CBN investment in digital payment infrastructure such as USSD, Licensing of Telcos, and their lukewarm uptake of e-Naira. I warned them that if their strategy includes increasing ATMs, they will have fewer ATMs; if they are thinking of employing more staff, they would have fewer staff; if they are hoping to open more branches, they will have fewer branches.”
NIBSS Data Reveal 45.41% Increase In Electronic Banking Transactions
The data from the Nigeria Inter-Bank Settlement System (NIBSS) which monitors cashless transactions through the Nigeria Instant Payment System (NIPS) and Point of Sales terminals revealed increased adoption and use of electronic banking platforms since CBN’s initial deadline for phasing out old naira notes elapsed on January 31, 2023.
In January 2023 alone, Point of Sales (PoS) transactions rose by 40.69 percent to N807.16 billion compared to N573.72 billion transactions recorded in the corresponding period of January 2022, according to data from the NIBSS. Although attributable to cash scarcity arising from CBN’s naira redesign and new cash withdrawal limit, the total cashless transactions in Nigeria rose by 45.41 percent year on year to N39.58 trillion in January 2023 while the total NIP transactions for the period rose by 45.52 percent year-on-year from N26.65 trillion in January 2022 to N38.77 trillion as of January 2023.
Banks’ Electronic Banking Platforms Collapse Despite IT Investment Growth
Banks had their electronic channels up and running efficiently after ambitious investments for upgrades in technology platforms.
Throughout 2020 and 2021, banks recorded a 15 per cent growth rate, five times higher than the rest of the economy and running pari passu with the ICT sector. In the third quarter of 2022, banks were returning an 18.3 percent growth rate.
The banking sector’s phenomenal growth was a direct outcome of benefits from CBN’s massive investment in payment infrastructure.
“When the COVID disruption happened, and there was a shutdown, people were comfortable trading and doing transactions at home because they had their mobile money, POS, and agency banking to the point that Nigeria in 2021 is number six in the world in electronic transactions,” ahead of America, which was 1.2 billion but behind India, China and South Korea, the London Chief Economic Strategist, ECOWAS Commission, Ken Ife said.
For Access Corporation, the Holding Company of Access Bank, a series of mergers and acquisitions which the Tier one lender embarked upon after the acquisition of defunct Intercontinental Bank and Diamond Bank compelled the lender to constantly upgrade its network of alternative banking channels, and thus was able to absorb the pressure of increased electronic transactions.
Besides, a conscious effort to improve its electronic banking channels could be seen in its massive spending on technology. In the first six months of 2022, Access Bank recorded the highest expenditure on communication and IT. It spent N26.83 billion while Sterling Bank had the least expensive of N961 million only in the same period.
Even though Zenith Bank spent N19.94 billion on information technology and related items ahead of Guaranty Trust Holding Company’s N9.33 billion on technology-related expenses, GTCO clearly made a difference. First Bank Nigeria Holding Plc reported N7.58 billion in expenses on IT and related items but no significant improvement in its electronic banking channels to justify the expenses.
The United Bank for Africa spent N4.73 billion on communication, IT support, and related expenses. Wema Bank spent N1.19 billion on technology and alternative channels, as well as transport and communications. Fidelity Bank spent N1.01 billion on telephones and computers, while Stanbic IBTC Holdings Plc spent N6.78 billion on information technology and communication. Union Bank of Nigeria spent N3.56 billion on software, yet the software collapsed under the weight of electronic transactions deluge.