The surge in digital transactions in Nigeria has revealed critical weaknesses in the infrastructure supporting the country’s banking system. In February 2023 alone, the Nigeria Inter-Bank Settlement System (NIBSS) reported a 70% rise in online transactions compared to January, fueled largely by the cash scarcity resulting from the Central Bank of Nigeria’s (CBN) redesign policy. Despite their significant investments in technology, traditional banks struggled to keep up with demand, while fintech platforms like OPay thrived.
Reliability Gaps in Traditional Banking Infrastructure
During the cash crisis, customers across various banks reported challenges accessing their funds and completing transactions. For instance, a GTBank customer recounted days of persistent downtimes, while another user reported significant delays in transaction processing at Access Bank. These failures were largely tied to the outdated hybrid infrastructure used by many Nigerian banks.Most traditional banks operate on a combination of on-premises servers and cloud-based services. Core banking services, which manage sensitive customer and account data, remain heavily reliant on on-premises infrastructure. In contrast, digital banking services, such as mobile apps, are typically hosted on the cloud. While fintech platforms like OPay rely entirely on cloud-based systems to scale their operations, banks’ inability to fully migrate their systems leaves them vulnerable to overloads during transaction surges.A cloud engineer familiar with the banking sector highlighted that traditional infrastructure lacks the elasticity of cloud systems. Cloud platforms offer “auto-scaling,” which automatically adjusts resources based on demand, ensuring smooth performance during spikes in usage. Conversely, scaling on-premises systems is both costly and time-consuming.
Why Banks Are Hesitant to Fully Embrace the Cloud
Several challenges hinder banks from fully adopting cloud technology. One key factor is regulatory uncertainty. The Central Bank of Nigeria (CBN) has yet to provide clear guidance that supports the wholesale migration of banking systems to cloud platforms. In its Information Technology Standards Blueprint, released in 2014, the CBN recommended a cautious approach to cloud adoption, citing security risks associated with moving sensitive financial data to public cloud environments.Another major concern is network latency, which refers to the delay in transferring data across networks. A cloud engineer at a Nigerian bank noted that although services like Amazon Web Services (AWS) offer cloud hosting in South Africa, servers in the UK often deliver better response times for Nigerian users. Since fast transaction processing is critical in banking, the lack of robust, local cloud infrastructure adds to banks’ hesitation.However, progress is being made to address these concerns. AWS, for example, recently launched Local Zones in Lagos, which are designed to improve latency and help businesses meet local data residency requirements. This move could make cloud adoption more attractive for banks in the long term.
The Fintech Advantage
Fintech companies, unlike traditional banks, were able to leverage their cloud-first infrastructure to scale quickly during the cash crisis. OPay, for instance, saw its wallet user base grow from 19 million to 30 million in the first quarter of 2023 alone. Their ability to deploy resources rapidly and handle increased transaction loads highlights the strategic advantage of cloud-based infrastructure.
According to Dotun Adekunle, OPay’s former Chief Technology Officer, the company’s cloud-native architecture enabled it to maintain reliability while traditional banks faltered. This contrast underscores how digital-first platforms are better positioned to respond to the evolving demands of Nigeria’s banking customers.
What Lies Ahead for Nigerian Banking Infrastructure?
The reliability issues faced by traditional banks during the cash crisis have amplified calls for a more robust infrastructure strategy. While the cloud offers significant benefits—such as scalability, cost-effectiveness, and resilience—banks will need to overcome regulatory hurdles and address security concerns before embracing full-scale migration.Moreover, the expansion of local data centers, like the AWS Local Zone in Lagos, could help alleviate latency issues and encourage banks to shift more services to the cloud. Until then, fintech companies will continue to capitalize on their agility and cloud-first approaches, offering more reliable services to Nigerian consumers in an increasingly digital economy.In the long term, addressing these infrastructure gaps will be essential to ensuring that Nigerian banks can meet the growing demand for reliable and efficient electronic banking services.
