Banks are seen as the safest place to secure funds, an assurance that digital advancements have only reinforced. However, recent experiences in Nigeria have shown otherwise, as banks’ efforts to upgrade their digital systems have led to unexpected and frustrating disruptions for customers. These software upgrades, meant to enhance efficiency, have instead triggered various issues—from vanished funds to failed transactions—leaving customers in financial limbo. Stories abound of people receiving notifications for deposits that don’t reflect in the account, making transfers that recipients never receive, or facing wrongful debits. Some are left waiting indefinitely for their banking apps to reload or reconnect. Imagine the stress of trying to pay an urgent bill, only to have your transaction fail.
“These software upgrades, meant to enhance efficiency, have instead triggered various issues—from vanished funds to failed transactions—leaving customers in financial limbo.”
This issue isn’t exclusive to Nigeria. In 2018, TSB Bank in the UK experienced a similar crisis when it moved to a new IT platform, leaving thousands without access to their accounts and unable to conduct transactions. Other banks, such as the Commonwealth Bank of Australia and RBC in Canada, have also encountered such challenges during digital upgrades.
Why are Nigerian banks migrating?
Behind the upgrades, several factors are at play. Some Nigerian banks are moving to more secure and fraud-resistant systems to counter rising cybersecurity threats, while others are switching to more cost-effective platforms due to economic factors like naira devaluation. Many are integrating with third-party systems for added capabilities and security, seeking flexible, scalable solutions to meet customer needs.
Unfortunately, communication about these changes hasn’t been consistent. Some banks notify their clients in advance, allowing them to plan around scheduled downtimes. But for many others, customers only realise upgrades are underway when their transactions fail mid-process. A lack of timely communication has led to financial setbacks, with many unable to access funds when they need them most.
Legal and contractual rights amid digital failures
In traditional banking, contracts were straightforward, with banks’ obligations to customers clearly defined. However, as digital banking has grown, customers’ rights have become less clear, often muddled by complex online terms and conditions. This raises critical questions: when digital disruptions prevent customers from accessing their funds, where can they turn for resolution? The fact that the operations of the banks are now somewhat digital does not limit the bank’s obligations to its customers. The bank has a duty to process customers’ instructions accurately and on time. When this duty is not met, the bank could be responsible for losses that customers suffer. These losses might include direct losses; for example, if someone tried to pay for something important, but the payment failed, causing the transaction to fall through, the bank might be liable for that missed payment. Consequential losses could also arise from the bank’s actions in the sense that sometimes, the disruption of banks’ operations can lead to other losses, like lost business opportunities. Although these losses can be harder to claim, the bank may still be held responsible if those losses were foreseeable consequences of the mistakes.
There are several reasons the bank could be held responsible to its customers. One is contractual duty. Banks have a contract with each customer, which includes an obligation to follow their instructions properly. If this contract is broken due to errors in processing, the bank may owe compensation. Secondly, negligence: if the bank didn’t take exercise care during the upgrade, causing issues for customers, it might be responsible under the principle of negligence, which applies when an organisation fails to act carefully and responsibly. Financial losses fall into these special categories. Regulatory standards are another reason. Central banks and other financial authorities usually require banks to ensure they can deliver services reliably. If the bank failed to meet these standards, it might face fines or other penalties. For instance, in a recent directive, the CBN announced a fine of N100,000 per day for any unresolved customer complaint—such as failed ATM transactions—not settled within 72 hours. CBN consumer protection laws also require banks to provide services safely and fairly. If customers suffered losses because the bank didn’t meet these standards, they could have a right to compensation.
However, it has been held that for financial losses not consequential on physical losses, the bank cannot be made liable for an indefinite amount to an indefinite number of people. Courts have established that banks and financial institutions should not be liable for an unlimited amount to an unlimited number of people. This concept, often referred to as “indeterminate liability,” helps prevent unfair or unreasonable financial burdens on banks, especially for purely financial losses not tied to physical harm. The idea is that the bank’s liability should be contained to reasonably foreseeable and limited financial claims, rather than extensive or indefinite losses. Therefore, the bank’s duty typically only extends to losses that it could reasonably predict would occur for a particular customer in light of the specific transaction or relationship.
Moving forward: Balancing digital transformation with consumer protection
Although banks claim these upgrades are necessary to bolster their digital infrastructure, it’s clear they cannot ignore customers’ access in the process. There must be accountability, ensuring customers retain traditional banking rights even amid technological transformations. Regulatory policies must advance to support a seamless integration between traditional and digital banking obligations.
To ensure customers’ funds are always accessible, a regulatory framework that harmonises digital and traditional banking rights is essential. CBN’s increased fines for service delays are a step in the right direction, but the larger question remains: How can regulators keep pace with digital advancements in banking? Ensuring that digital services protect customers’ access is crucial for maintaining trust, as customers’ confidence in Nigeria’s banking system relies on a balanced approach to innovation and consumer protection.
Nigerian banks and regulators can look to other countries for proven strategies. Following its 2018 IT migration crisis, the UK’s TSB Bank strengthened its response by implementing a phased upgrade approach, allowing for gradual system integration and testing with a smaller set of users before a full-scale rollout. This minimises the risk of widespread outages. Adopting a similar incremental approach could help Nigerian banks avoid massive disruptions when implementing major updates.
Additionally, the banks can establish specialised customer support teams dedicated to addressing complaints arising specifically from IT issues, which allows them to address customer concerns quickly and with expertise. Nigerian banks could adopt this by creating dedicated support units trained specifically to manage issues related to digital upgrades, ensuring customer concerns are addressed in real time.
Proactive communication is also essential. Banks should notify customers well in advance about planned upgrades and possible disruptions, using multiple communication channels such as SMS, emails, and app notifications. Furthermore, offering alternative access options during scheduled downtimes, such as limited in-branch services or a dedicated hotline, could help customers maintain essential banking functions without interruption.
The banks should take steps to address customer complaints, refund mistaken debits, and work to compensate those impacted by delayed payments. This approach can help avoid further action from customers or regulators. For customers, if you experienced a loss due to the bank’s errors, it is reasonable to ask the bank for compensation and to fix any mistaken debits or credits.
From a regulatory standpoint, the Central Bank of Nigeria (CBN) could strengthen its guidelines on digital banking operations, mandating detailed customer communication plans and requiring that banks conduct system integrity checks and small-scale tests before launching full upgrades. The CBN might also consider setting up a public monitoring system where customers can report disruptions in real time, allowing the CBN to respond swiftly and holding banks accountable for consistent performance.
In the end, safeguarding customers in a digital age requires thoughtful planning, transparent communication, and a commitment to uphold the core values of banking.
Osaro Eghobamien, SAN, Managing Partner, Perchstone & Graeys and Tare Olorogun, Partner, Perchstone & Graeys
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