The Unchecked Fraud in the Nigerian Banking Industry
(All References are in the first comment)
In 1906, a novel titled The Jungle was written (1). In it, Upton Sinclair exposed the lack of quality control in the American meatpacking industry. The Jungle depicted the price the American customer paid for being so trusting of the modern market, with images of dirty floors, dead rats, acid, and chemicals to remove the stench and colour of rotten meat. President Roosevelt, who had loathed modern journalism to the point of pejoratively referring to them as muckrakers, looked beyond the source and took a candid look at the content of the message. Roosevelt appointed two men to conduct the undercover inquiry, as Sinclair suggested in his book. Within months Roosevelt had the report of his investigators’ findings at the meatpackers.
The report was far worse than anything contained in The Jungle. Newspapers across the country described the conditions in the meatpacking industry as horrifying. Within weeks, Congress passed the Federal Meat Inspection Act. After the passage of the Federal Meat Inspection Act, the Pure Food and Drug Act quickly followed, which would eventually lead to the establishment of the Food and Drug Administration (FDA) (2). If you go to America and realized they do not operate a debilitating dehumanizing open market system like ours where abbatoir meats are sold in the open, then you have the Roosevelt government to thank. After the report was released, the federal government, at the packer’s expense, had inspectors at every major meatpacking facility in America.
THE STATE OF AN INDUSTRY
In an article I wrote a while back, I mentioned that the Nigerian banking industry is one of the shining lights of our democracy (3). While there is corruption in the industry, you cannot compare it with what we have available in the steel industry which the government has refused to privatize. Nothing works in that industry. For example, the state-owned Ajaokuta steel mill has collected $8 billion in public funds without generating a single beam since its development began 40 years ago. Because of years of corruption and mismanagement, Ajaokuta now has over 10,000 retirees on its books (4). Everything about that firm brings shame to the country.
The banking industry in Nigeria is a different case study. The privatization in 1986 opened it up for Nigerians to have accounts even if it was highly fragmented (5). But it was not until the consolidation of the banks in 2005 that it was able to become formidable. According to Charles Soludo, then governor of the central bank, the industry was so weak that no Nigerian bank was among the top 1,000 banks in the world, and if you needed an investment of $500 million, you had to go through the 89 banks that existed at the time. (6). By the end of that exercise, however, the 89 banks have been reduced to 25. Three years after, 14 Nigerian banks made it to the top 1,000 banks in the world, and two of them made the top 300 banks in the world. Innovation soared. A pointer to that was that at the time Nigerians began to make instant (phone) transfers from their bank accounts to those in other banks, Nigeria was about the only country in the world where that was possible (7).
MURPHY’S FIFTH LAW
Murphy’s fifth law states that if anything simply cannot go wrong, it will anyway (8). One would think that with the kind of progress made in the industry, some of the complaints being levelled against the banks by retail customers would not have reared their heads. Or what do you make of the ongoing arbitrary charges by banks?
Some time ago, a survey was taken by NOI polls, Nigeria’s leading opinion polling and research organisation that works in technical partnership with the Gallup Organisation. When NOI Polls sought the opinions of banking customers on customer relations and service delivery of Nigerian banks, the majority of banking Nigerians (61%) agree that Nigerian banks are exploiting their customers through hidden charges (9).
These excess bank charges have been going on for a long time. In 2001, the Bankers Committee, a self-regulatory organ in the banking industry, comprising the managing directors of all commercial or deposit money banks (DMBs), with the Governor of the Central Bank of Nigeria (CBN) as the Chairman, deemed it expedient to set up the Subcommittee on Ethics and Professionalism (SEP) to, among other things receive, investigate and resolve complaints from banks’ customers against their banks (10). Regrettably, complaints, particularly about bank overcharging, did not abate; in fact, they multiplied many times over. In 2016, the CBN reported that a total of 1,157 complaints were received in the first half of the year. In 2017, it jumped up to 1,473 complaints (11). In the first half of 2021, 23,526 complaints were received from customers. In case you didn’t notice, that’s a 1933% increase in 5 years. While total claims from January to June 2016 amounted to ₦6.75 billion, the Central Bank of Nigeria disclosed last year that it recovered ₦89.2 billion excess and illegal charges slammed on customers by banks (12). That’s an 1121% increase in 5 years!
In 2020, all the top banks in Nigeria had a large chunk of their revenue come from account maintenance charges. Zenith made ₦21.9 billion in account maintenance charges alone that year. It was ₦19.6 billion in 2019. The 2020 figure of account maintenance charges was more than they made in credit-related revenue (13). If you add the foreign withdrawal charges to it, Zenith bank, the most profitable bank in Nigeria made its most revenue from bank charges.
In a blog posted by Feyi Fawenhinmi last year, he mentioned that a very senior bank executive told him that whenever he had some time to kill, he would go through his old bank statements and recalculate the COT charges manually. Without fail, he would always get back a couple of hundreds of thousands of naira in charges once he complained to the bank and showed them his calculation (14).
This is a horrible business model. Unfortunately, this is a problem that looks like it’s not going away. To my chagrin, I read in April 2021 that the Speaker of the House of Representatives, Femi Gbajabiamila, condemned the practice of hidden charges by some commercial banks (15). What Nigerians need is not condemnation. What is needed is legislative action to stem this fraud. Not a day passes on social media that there are no complaints about the rip-offs happening to the accounts of depositors. Someone on my friend list who is based abroad once lamented that he kept some funds in his bank account some years ago before leaving the country only to find out years later that bank charges have eaten so deeply into the account he had not touched that he now has a negative account balance.
That friend has not complained to the CBN. Tons of Nigerians are not speaking up on these too. Many people aren’t filing complaints against the slew of other bank overcharges because of the scale of the sums involved, as well as the difficulty and cost of pursuing them. The vast majority of these are tiny sums, ranging from ₦50 for stamp tax to ₦4 telephone alert messages and ATM transaction-related costs that banks collect many times without explanation. Banks do this because they know that few customers attempt to sacrifice other vital things to chase after these insignificant sums. The cost of transportation to the bank will exceed the amount to be pursued for a refund. It will, indeed, be a ‘kobo wise and Naira foolish’ endeavour. As a result, banks take advantage of their customers knowingly and purposefully.
NIGERIAN TRADITIONAL BANKS ARE NOTORIOUS
The Innovation for Poverty Action (IPA), an American non-profit research and policy organization, published a report about transparency in Nigeria’s digital financial services in December 2021 (16). They looked at the websites of 29 financial service providers in Nigeria in order to find out the actual transaction fees for bank transfers, but only two of them had detailed price information. And this was after two staff members spent up to an hour each searching each provider’s website. One vendor compiled a fee list for all of their items into a single, difficult-to-find PDF. Fees for mobile banking are tucked away in the corner of page 9 of this PDF.
They tried hard to connect with customer service to get the transaction fees and were surprised that it took them calls of up to 13 minutes to speak with the customer service agents. It took longer to get them on web and social media chats. Of course, they assumed the calls would be toll-free only to find out that they spent ₦115 each for the calls, more than most of the fees they were calling to enquire about.
Even after going through this procedure, they found the official price information they received to be untrustworthy. Customer service provided them with contradictory information on 38% of occasions. They couldn’t get pricing information from any of the channels they tried 12% of the time. Even when customers received consistent information from customer service, only 59% of the time, the costs they were given matched the actual price paid. When they compared real-world transaction costs to price ceilings imposed by the Nigerian Central Bank, they discovered that the fees levied were in excess of the apex regulator’s price caps.
When I interviewed a former GMD of one of Nigeria’s best-known banks about this, he mentioned that the industry is due for disruption. I don’t know if disruption can come quickly when players have no fear of the consequences of their bad actions. It is worrying.
WHAT SHOULD YOU DO?
Unlike Roosevelt, I would be lying if I expect anything in terms of regulatory changes to happen as a result of this piece. People with more clout have written extensively about this with the CBN shrugging it off. Dr Ogubunka, the President of Bank Customers Association of Nigeria (BCAN), wrote about this in 2016 (17). In 2017, Proshare, a business and markets intelligence platform, wrote an 18-page report on this (18). Like others before and after them, nothing has been done.
But as is my custom, I will share with you what I have decided and put into place. Save for one bank account I have with a traditional bank which was left because I am unable to have the inflow source switch to another account, I have decided to move all of my accounts to other places.
For my everyday transactions, I use V Bank. A digital-only bank, it is owned by VFD Microfinance bank, one of the leading microfinance banks in Nigeria. Users can request for loans, physical/virtual debit cards and also earn a high return on a fixed savings account. The most attractive thing about V bank is that they charge nothing for transfers. I am a digital nomad and I love the fact that I didn’t need to visit any physical building before I get registrations, complaints and any other transactions done. In fact, I registered in 15 minutes and got all restrictions removed in 2 hours. Again, it has zero transaction charges, provides ATM in 15 days and even has a cardless withdrawal feature. Their online banking platform is faster than all of the traditional banks I am used to. And their customer service is the best I have seen in the Nigerian space. Very responsive on chat. I miss nothing. You may use this referral code if you open an account with them: CPYQ6.
For my ‘holding’ account, I have chosen Kuda. Kuda used to be what I used V Bank for until I realized that they would not process my ATM card. They also have limited free bank-to-bank transfers — 25, unlike V bank that offers unlimited. Unlike V bank which gives a Verve card that doesn’t work in international transactions, Kuda gives a free Visa ATM. Yes, free. But like I said, there is no timeline to when you will get it. I have heard several complaints about Kuda on their poor customer services but I still consider them better than the traditional banks, by far. You may use this referral code if you open an account with them: BRUNODAT.
For those who distrust the new digital banks, I have a recommendation. Even though the funds you have in the digital banks are insured by the Nigeria Deposit Insurance Corporation (NDIC), I have an account with Standard Chartered. I decided on them because all the reviews I have heard about them online have all been positive. Standard Chartered Bank customers in Nigeria don’t have to worry about being charged ₦65 when they withdraw from non-Standard Chartered Bank automated teller machines (ATMs). And the ₦52 charged for interbank transfers? They don’t charge that too. Their customer service is also excellent. It probably helps that they are not a Nigerian bank as the agents are the most courteous. V Bank has the best chat customer service, Standard Chartered has the best voice customer service. Oh, I opened my Standard Standard Bank in 30 minutes online. Standard Chartered is a fantastic bank.
I hope that these banks don’t slide into the rot that the Nigerian banking industry has become.
And while I am not positive that this article will reach the appropriate quarters and the right things will be done, I seriously want to be proven wrong. Yet if the regulators would not do anything about this fraud perhaps the market can do its magic — competition through massive migration of unsatisfied customers from traditional banking institutions.