Banking fraud in Nigeria has ballooned in the past five years, mirroring the rapid expansion of digital financial transactions. A recent Nigeria Inter-Bank Settlement System (NIBSS) report found that financial institutions lost 52.26bn naira (US$32m) to fraud in 2024, compared with 11.6bn naira in 2020.
According to Jonathan Cary, a partner at law firm RPC, rapid expansion in the fintech sector in Nigeria in a relatively short period of time has meant that ‘many banks and payment providers in Nigeria do not yet have the systems and controls in place to monitor and detect potentially fraudulent activity’.
‘A large proportion of Nigerians are unfamiliar with online payment and the risk involved’
What’s more, currency reforms and physical cash shortages have pushed many Nigerians towards digital banking. ‘Not only has the number of customers increased but a large proportion are those who are unfamiliar with online payment and the risk involved,’ Cary adds.
Exploiting weakness
As the adoption of mobile banking, fintech apps and digital wallets in the country accelerates, fraudsters are exploiting ‘systemic issues, such as weak internal controls, poor customer awareness and gaps in regulation’, says Pattison Boleigha, managing director of Pattison Consulting. A former group conduct and compliance officer at Access Bank, he believes regulators ‘need to increase regulatory oversight to enforce collective action’.
Nigeria is currently on the Financial Action Task Force grey list, so its anti-money laundering and counter-terrorism financing regimes are subject to an elevated level of monitoring. The government’s focus is on exiting the list.
‘Fraud has not always been addressed with the same intensity as other financial crimes’
‘In Nigeria, while significant strides have been made in some areas of financial crime compliance, the regulatory frameworks specific to fraud risk management are still evolving,’ says Olagoke Salawu, head of financial crime compliance at a Nigerian bank. ‘Historically, fraud has not always been addressed with the same intensity as other financial crimes such as money laundering and terrorism financing.’
That, though, is changing. The Central Bank of Nigeria has recently instructed NIBSS to start debiting the accounts of commercial banks that receive fraudulent transaction proceeds and are unable to prove they did their due diligence. ‘That is putting a lot of focus on fraud right now and pressure on financial institutions,’ Salawu says.
International criminals
While the number of reported fraud incidents in Nigeria fell by 31% (from 101,624 to 70,111) between 2020 and 2024, the total financial losses surged by 350% in that period. The trend of fewer but more damaging attacks suggests that fraud is becoming ‘more organised’ and perpetrated by ‘syndicated organisations with a cross-border dimension’ coming to Nigeria to take advantage of vulnerabilities within the financial sector, according to Boleigha.
He has a point. Of 792 individuals arrested for alleged involvement in cryptocurrency investment fraud and romance scams in a December 2024 raid by Nigeria’s anti-corruption agency, the Economic and Financial Crimes Commission, 192 were foreign nationals, 148 of them Chinese.
‘Banks must turn away customers who do not meet the threshold requirements’
Many of the issues stem from fraudsters being able to open and operate accounts with financial institutions and transfer funds to gift cards using fake and stolen identities.
‘It is therefore imperative that financial institutions in Nigeria have in place robust client onboarding procedures and strict client due diligence requirements,’ Cary says. ‘They must be willing to turn away customers who do not meet the threshold requirements.’
Detection
Financial institutions in Nigeria ‘are not standing still’, Boleigha says. ‘Many are taking proactive steps to detect fraud’ by investing in ‘digital surveillance and transaction monitoring’ and deploying ‘AI fraud detection systems to flag suspicious behaviour patterns’.
Salawu says that institutional approaches to fraud risk could benefit from even greater proactiveness. ‘We see a lot of focus on detection; however, we need to place more emphasis on fraud prevention architecture.’
Fraud is a low-risk, high-reward activity
The problem is compounded by a lack of collaboration between institutions. With no requirement or mechanism to alert or coordinate with other institutions following instances of fraud, fraud is a low-risk, high-reward activity, Salawu says. ‘It creates opportunities for fraud actors to persistently target and potentially exploit multiple institutions through the same vulnerabilities and techniques.’
Insider threat
Institutions are, of course, only as strong as their weakest link. And that is typically bank employees, says Babatunde Obrimah, chief operating officer of the FinTech Association of Nigeria. ‘The challenge is not so much one of technology but the insider threat. Institutions are compromised by people who connive with fraudsters.’
Cary says insider fraud is ‘particularly challenging, as whatever systems and controls a bank may have in place, these are at risk of being undermined and circumvented by insiders. There has to be an element of carrot and stick in this regard; better training, pay and working conditions can help. However, enhanced fraud detection measures, strengthened compliance culture and the increased risk of prosecution may be more effective in preventing employees from succumbing to temptation.’
Preventive role
It all presents a growing opportunity for professional accountants to take on a more strategic advisory role with their clients.
Forensic accountants play a key role in tracing the flow of illegal proceeds and are often the first to uncover fraud during financial investigations. But their role is also preventive, helping to identify vulnerabilities in their financial systems, implement internal controls and establish risk management frameworks.
‘Banks need to develop targeted strategies to combat each fraud threat’
‘Banks should conduct a risk assessment to determine the types of fraud that are most common,’ says Andrew Durant, senior managing director at FTI Consulting – for example, those regions, branches, lending teams, officers or customer groups typically associated with fraud. ‘With this information they can then develop targeted strategies to combat each threat.
‘The best way to prevent fraud is through strong know your customer processes, thorough due diligence on borrowers and guarantors, a good whistleblowing process that encourages staff and others to report suspicious activity, and regular audits of customer accounts to identify how monies are being utilised.’
