Why banks’ software upgrade causes disruptions

Commercial banks are upgrading their technology infrastructures to avoid a repeat of the transfer failures that bugged Nigerians during a now-withdrawn Central Bank of Nigeria (CBN)’s cashless policy.

However, many customers are currently bearing the brunt of short-term frustrations in exchange for long-term benefits.

“The upgrades will improve banking capacity and cope with increased online banking demand,” said Adedeji Olowe, founder and chief executive officer of Lendsqr, who once worked at UBA, Access Bank, Fidelity, and FCMB.

Nigeria’s electronic payments rose by 84.37 percent to N572.63 trillion in the first seven months of 2024, highlighting the country’s growing reliance on digital payments and shift away from cash dependence. Following a CBN withdrawal policy, cashless payments increased to N611.06 trillion from N395.38 trillion in 2022.

However, this rapid rise in cashless transactions has exposed gaps in the country’s banking infrastructure. “The lack of adequate digital and financial infrastructure and processes to support a swift transition to a cashless economy… further exacerbated the situation,” the World Bank commented about Nigeria’s cashless transition in 2023.

Read also: Bank’s IT upgrade to take longer than planned

Why the upgrade causes disruptions

According to Femi Adeoti, group managing director of RoutePay, the current banking and digital payment infrastructure is inadequate to cater to the expected growth in the volume of digital/electronic-based transactions.

“While we are right to celebrate an increase as significant as 125 percent, the failures recorded show that we could have achieved more,” he stated in an interview.

These infrastructure upgrades are also critical to strengthening banks’ cybersecurity capabilities. Between 2019 and 2023, Nigerian bank customers lost N59.33 billion to fraud, with over 80,658 customers scammed in 2023 alone—a slight decrease from 84,130 in 2022.

Banks are ramping up investments in their core banking infrastructure to close these gaps, especially as the country aims to become cashless by 2025. Five banks intend to invest N248.21 billion in technology upgrades over the coming months.

“A core part of the GTCOPLC Group’s customer experience strategy is strengthening its digital platform to support the delivery of a consistent and seamless banking experience for customers… the GTCOPLC Group invests resources for reducing the number of failures and minimising the potential damage to the businesses of the Operating Entities,” stated Guaranty Trust Bank (GTB) in its recapitalisation offer prospectus.

Read also: GTBank completes transition to core banking software Finacle

GTB also revealed that upgrading its core banking applications, hardware, and network architecture would cost N70 billion. Despite the upgrades being in customers’ interests, industry experts say banks have not been transparent about the timelines for their IT migrations.

For example, Zenith Bank’s migration of its core banking platform from Phoenix to Flexcube took longer than the 24-hour timeline it provided. Similarly, Sterling Bank’s migration to SEABaaS, a custom-built core banking platform, also faced delays. Currently, GTB customers are experiencing disruptions despite the bank announcing the completion of its migration to the Finacle core banking system.

“GTB’s entire system is still down. We can’t make online payments yet,” a customer told BusinessDay.

“Migrating to a new core banking system is complex,” said a fintech CEO.

“It involves infrastructure, software, customer channels, historical data, training, certification, and commissioning.”

However, a senior executive close to Finacle said, “Replacing a core banking application is like changing the engine of a Boeing 747 mid-flight.”

In the 2000s, First Bank took six months to migrate from Bankmaster to Finacle. A tier-one bank worker echoed, “Migrations take a lot of time. Our last major upgrade took a while as well.”

According to Adedeji Okowe, founder of Lendsqr, “These upgrades are routine for banks globally. Large businesses must periodically upgrade their core systems.”

These improvements are essential as the banking sector gears up for growth amidst capital raises. In March, the CBN announced new capital requirements, mandating international banks to increase their capital base to N500 billion, national banks to N200 billion, and regional banks to N50 billion.

In 2005, banks were mandated to increase their capital base to N25 billion. This led to many mergers and technology upgrades. For example, the merger between United Bank for Africa, Standard Trust Bank, and Continental Trust Bank into the UBA group led UBA to change its banking software to Finacle from Flexcube.

“Banks are preparing for the future,” Olowe added. “With new capital, they are ready for hyper-scale growth, supported by better platforms.”

However, some industry experts suggest it is suspect that many banks are upgrading their IT infrastructures around the same time. “It is unusual for banks to upgrade their software simultaneously. They would term this a coordinated market action if this were the US,” one analyst said.