Banks’ tech spend more than doubles on epayment boom, inflation

Nigeria’s biggest banks increased their spending on Information and Technology (IT) by 159.22 per cent in the first quarter of 2024, driven by the growing adoption of electronic payments in the country.

Seven banks surveyed by BusinessDay increased their IT spending to N73.09 billion, compared to N28.19 billion in the corresponding period of 2023. This surge in IT spending aligns with the rise in electronic transactions, which grew to N237 trillion in Q1 2024 from N126 trillion in Q1 2023.

Rising inflation, with the April reading at a 28-year high of 33.69 per cent, also played a part in the surge in IT spending.

The lenders also saw their income from electronic transactions increase by 66.05 per cent, reaching N118.39 billion from N71.30 billion.

Access Holdings Plc, the parent company of Access Bank, led the IT spending with N22.35 billion. Guaranty Trust Holding Company (GTCO), owner of GTBank, followed with IT expenses of N14.32 billion, while Zenith Bank spent N13.14 billion.

Other banks’ IT expenditures were as follows: United Bank for Africa Plc (UBA) spent N8.57 billion, First City Monument Bank (FCMB) N4.11 billion, Fidelity Bank Plc N10.22 billion, and Wema Bank N389.90 million.

UBA reported the highest electronic banking income with N44.36 billion, followed by Access with N33.39 billion, Zenith with N19.97 billion, GTCO with N14.32 billion, FCMB with N5.09 billion, Wema with N3.02 billion, and Fidelity with N1.32 billion.

The increase in banks’ IT spending in recent years has been driven by the rise in cashless transactions, partly boosted by the Central Bank of Nigeria’s (CBN) botched naira redesign policy and withdrawal limits introduced in December 2022.

In addition to the e-payment boom, banks are making significant IT investments to optimise their operations, enhance customer experience, and bolster security measures. These investments include software solutions to improve operational efficiency, customer experience, and security.

According to Gartner, Inc., the banking and investment services sector’s IT spending was about $652.1 billion in 2023, an 8.1 per cent increase from 2022. Spending on software recorded the largest growth, with a 13.5 per cent increase.

Reports indicate that banks’ IT spending has consistently grown year-on-year since 2013, with a 33 per cent increase in Europe and a 48 per cent increase in the US in 2022.

JPMorgan Chase, a global bank, invests $12 billion annually in technology to support its team of 50,000 technologists to improve its banking operations.

“We are an unexpected disruptor in banking and in the technology industry,” said Larry Feinsmith, Managing Director and Head of Global Tech Strategy, Innovation and Partnerships at JPMorgan Chase. “Because technology changes so quickly, we are not only developing technology for today, but we are also anticipating the technology needs of our consumers 5-10 years down the road.”

In a recent interview, Uzoma Dozie, the last group managing director of the defunct Diamond Bank, noted that technology has transformed banking, but banks have not fully capitalised on its potential due to a lack of enabling infrastructure. “We have invested more but haven’t scaled it from a product and a penetration perspective…,” he said.

Banks are also investing heavily in fraud prevention. The rise in e-payments has led to an increase in electronic fraud, which has led to a N59 billion loss since 2019. According to experts, AI infrastructure for pattern learning costs a lot.

“Fraud tools we have in the markets today have the machine learning capability and analytics,” said Susan Fasipe, head of retail payments at Interswitch.

Efemena Ogie, head of partnerships at Moniepoint, emphasised the country’s significant investments in self-protecting the e-payment landscape.

Financial institutions are expected to continue increasing their IT spending, particularly on artificial intelligence tools, to secure and improve the country’s $1 trillion electronic transactions.

Banks’ tech spending aligns with the country’s aim to go cashless. In a ‘Payments Vision 2025’ document, the CBN predicted that the use of cash should have lessened by 2025. The apex bank expects a cashless and efficient electronic payment system infrastructure by 2025.

“As we implement the PSV 2025 agenda, the CBN will continue to ensure that the Nigerian payments system is widely utilised domestically, supports government’s financial inclusion objectives, and meets international standards while contributing to overall national economic growth and development of Nigeria,” the CBN said.