System upgrades, service disruptions and Nigerian banks’ heavy investment in IT

The Nigerian banking sector has witnessed a remarkable transformation in recent years, driven by the increasing adoption of digital payment methods and the need for enhanced information technology (IT) infrastructure.

In 2024, commercial banks invested massively in IT, with several billions of naira going into that department alone. Justifiably, the IT department is the heartbeat of the banking sector.

In the past three months, some commercial banks have carried out system upgrades as they move to improve their services and prepare for a challenging future. However, the impact of these IT upgrades on Nigerian banks has been multifaceted, affecting various aspects of banking operations and customer experience.

In August, Sterling Bank began an upgrade that lasted until September. The bank not only carried out an upgrade but also moved from the Switzerland-based Temenos T24 system to an Indigenous solution provider, SeaBaaS, developed by Peerless.

During the transition, Sterling Bank’s customers suffered service disruption with many unable to carry out any transaction on their digital banking channels.

On September 28, Zenith Bank announced that it would be “undertaking routine maintenance of our information technology infrastructure”, adding that the routine maintenance would commence on September 29 and end on October 1, from 12:01 AM to 5:00 AM.

However, customers continue to lament their inability to carry out transactions after the specified notice period. On October 3^rd, while apologizing for service disruption, Zenith Bank said it had made significant progress in its IT infrastructure upgrade. And on October 23, the bank alerted its customers through SMS that it had successfully concluded the system upgrade.

Guaranty Trust Bank, a tier-1 bank, transitioned from ICS Financial Services to India’s Finacle core banking system by EdgeVerve Systems. The bank warned its customers of potential service disruptions on October 13. Despite assuring its customers that services were back to normal, many were left frustrated as they continued to face issues, particularly with the bank’s apps.

Customers complained about their inability to transfer funds to other banks, and those using GTBank ATMs reported problems with POS transactions. Many customers’ accounts were debited in cases of incomplete transactions, with their money left hanging in the balance for several days.

Despite assuring customers that it is working to resolve the issue, the problem persisted, and this forced internet service providers, Swift Networks, and Spectranet on October 22 to warn their customers not to make payments through any of GT Bank’s payment portal (Including Bank Transfers, USSD Code (*737*), online banking, mobile banking) until further notice.

For Access Bank, it postponed its system upgrade initially scheduled for October 12, to avoid further inconveniences.

While these short-term inconveniences are frustrating, they are expected to yield long-term benefits, such as increased transaction capacity, reduced transaction times, and enhanced security against fraud. Moreover, the shift towards digital banking aligns with the global trend of reducing reliance on cash transactions.

Investments in IT infrastructure

According to the National Bureau of Statistics (NBS), the banking sector contributed 16.36% to Nigeria’s real GDP in Q2 2024, growing from 2.98% in Q1. This growth is largely attributed to the significant investments made by commercial banks in upgrading their IT systems.

In the first half of 2024, five major Nigerian banks collectively invested N178.77 billion in enhancing their IT infrastructure. This represents a 203% increase from N58.8 billion during the same period last year.

The banks that made significant investments in IT upgrades include Access Bank, which made a staggering N111.24 billion investment in IT. This represents a 264.55% increase from N30.47 billion in H1 2023.

Guaranty Trust Holding Company (GTHC) invested N36.60 billion in IT infrastructure, a 115.12% increase from N17.02 billion in H1 2023.

Zenith Bank put in N23.10 billion, which represents a 166.54% increase from N8.67 billion in H1 2023.

The fourth is the United Bank for Africa (UBA) which invested N6.70 billion, a 248.20% increase from N1.93 billion in H1 2023.

Wema Bank completed the list with an N1.13 billion investment, representing a 59.03% increase from N708 million in H1 2023.

Tough competition

The drive by commercial banks for major system upgrades did not come as a surprise. Fintechs have disrupted the financial ecosystem and pushing competitive boundaries. It is now a case of you either ‘sit up or you ship out’.

The Nigeria Inter-Bank Settlement Systems (NIBSS) reported that licensed mobile money operators like Opay and Palmpay processed a staggering N46.91 trillion in transactions in 2023. This represents a significant shift towards digital payment methods, which continued into 2024 with an 88.09% growth in the first quarter, bringing total transactions to N237 trillion.

The significant investment in IT infrastructure by major Nigerian banks is a response to the growing demand for online banking services and the need to enhance cybersecurity measures in the face of increasing digital fraud incidents. The upgrades are aimed at improving the efficiency and reliability of banking services.

The IT upgrades in Nigerian banks are a strategic response to the evolving demands of the banking ecosystem. It is a welcome development that will drive growth, efficiency, and customer satisfaction. As it continues to evolve, it is essential for banks to prioritize investments in digital capabilities, cybersecurity, and customer experience. The benefits of IT upgrades will be felt across the economy, contributing to Nigeria’s growth and development.

Israel Ojoko, a journalist and data analyst, can be reached via [email protected]