Why Are Nigerian Banks Spending ₦82 Billion Annually on Core Banking Software?

As Nigerian banks continue to invest in core banking upgrades and other technological infrastructure, five of the country’s major commercial banks—First Bank, UBA, Guaranty Trust Bank (GTBank), Access bank and Zenith Bank—have embarked on the complex process of upgrading their core banking software.
This transition is expected to incur an annual cost of approximately ₦82 billion.
This significant investment underscores the critical need for these banks to adapt to an increasingly digital financial landscape, where customer expectations for seamless service and innovative banking solutions are on the rise.
However, this necessary transition has not come without its challenges; the switch has led to extensive disruptions in customer services, leaving millions of customers unable to access vital banking operations.
As these banks navigate this overhaul, they face the dual challenge of managing substantial operational costs while minimizing customer dissatisfaction. The process, although technologically necessary, has resulted in extended downtimes and restricted access to banking services, leading to frustration among millions of customers.
Beyond the immediate customer service issues lies a deeper, more significant discussion: what’s the financial toll of these upgrades, and why are Nigerian banks making these changes now?

What is Core Banking Software?

Core banking software refers to the technology that handles all of a bank’s essential operations. These include functions such as account management, transaction processing, loan servicing, and more. It acts as the backbone of a bank’s operations, supporting various banking channels, from mobile apps and ATMs to branches and online platforms.
Essentially, it’s the system that ensures you can transfer money, pay bills, or apply for a loan seamlessly.
For decades, Nigerian banks have relied on various forms of core banking software, with many institutions opting for established systems such as T24 by Temenos, Oracle’s Flexcube, and Infosys’ Finacle.
These systems are costly to maintain but provide essential customizations that meet each bank’s unique needs.

Why Are Banks Changing Their Core Banking Platforms?

Nigerian banks are making this costly switch to new core banking applications primarily due to the need for improved customization, scalability, and cost efficiency. The rising complexity of digital financial services, combined with increasing customer expectations, means that older systems often struggle to cope with current demands. Banks are also keen to streamline their operations and reduce dependency on expensive foreign software providers.
For instance, Guaranty Trust Bank (GTBank) completed its switch to Infosys’ Finacle in October 2024, a move that could cost the bank up to ₦25 billion ($15.3 million) annually in license fees. This figure underscores the scale of the investment Nigerian banks are making in upgrading their technology infrastructure.
Moreover, the total costs for the biggest Nigerian banks – known as the FUGAZ group (First Bank, UBA, GTBank, Access Bank, and Zenith Bank) – are expected to reach around ₦82 billion ($50 million) annually on core banking applications alone. These costs represent 1% of their half-year 2024 revenues, which amounted to ₦8.52 trillion.

The Challenges of a Core Banking Transition

The switch to new core banking platforms is a highly complex and risky operation. Planning for such a transition can take several months and requires extensive internal approvals. For instance, Sterling Bank’s decision to switch from T24 was first discussed in 2022, and it took at least seven months for the new system to be built.
The process involves not just technical considerations but navigating the bank’s internal bureaucracy. Each department – from risk management to customer service – must sign off on the switch, and it often involves long hours of work for the technology teams tasked with migrating billions of data points, including customer information and transaction histories, to the new platform.
Before going live, the new core banking system must undergo extensive testing in various environments to ensure it works as intended. The potential for failure is high, and banks usually implement a rollback strategy to revert to the old system if things go wrong during the transition.

The Impact on Customers

For millions of Nigerian bank customers, the immediate consequence of these core banking changes has been prolonged downtimes and limited access to services. The banks have issued public apologies, but the interruptions have eroded trust among some customers.
As of today, October 23, 2024, some customers have still been unable to make transactions, even though GTBank had notified customers that the upgrade would occur from Friday, October 11, to Monday, October 14, 2024.
While these transitions are necessary to improve long-term service efficiency and security, banks are struggling to manage customer expectations in the short term. Many customers have been left without access to critical banking services, such as online transfers and ATM withdrawals, for days at a time.
In a world where banking convenience is paramount, these disruptions can drive customers to seek alternative financial solutions, such as fintech platforms or mobile banking apps.
For banks, maintaining customer loyalty during such periods is a challenge, particularly as customers demand more transparency and faster resolutions.
The core banking software changes are just one part of a broader digital transformation strategy. With increased competition from fintech companies and the growing demands of a digitally savvy customer base, banks must innovate to stay relevant.
This means embracing new technologies, such as artificial intelligence and blockchain, while also maintaining robust cybersecurity frameworks.

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