How a Fraud Crackdown is Rewriting Nigeria’s Banking Economics

Nigeria’s banking industry is bracing for a seismic shift as the CBN’s new 16-day fraud-refund rule forces every institution to confront, price, and absorb the actual cost of electronic fraud, writes Festus Akanbi

The Central Bank of Nigeria (CBN) has quietly redrawn the rules of engagement in the country’s long and expensive battle against electronic fraud. By inserting a hard 16-working-day refund deadline for victims of Authorised Push Payment (APP) fraud into a draft guideline released on November 26, 2025, the regulator has transformed what many institutions once treated as a reputational issue into a quantifiable, time-bound liability. With that single clause, fraud losses have moved from the periphery of risk management to the centre of banking economics.

Fraud Losses

The urgency behind the policy is written in the numbers. Fraud losses reported by the 60 institutions that still file returns surged by 603 per cent in the first quarter of the year to N3.29 billion, the steepest rise ever captured by the Financial Institutions Training Centre, and in that period, reported cases climbed to 12,347, meaning that every working hour, 23 customers were tricked into making transfers they later regretted. Industry insiders believe the accurate quarterly figure is easily double, close to N6 billion, once the quiet majority of banks that no longer report are factored in. That is enough to wipe out the annual profit of at least two mid-tier lenders.

The new framework leaves little room for ambiguity. Every naira lost through a compromised account must now be restored within 16 working days, failing which the institution considered negligent absorbs the full loss: principal, interest, investigation costs, customer appeasement, and reputational fallout. Once a customer files a complaint, verbally, electronically, or in writing, the receiving bank has only 24 hours to acknowledge and 30 minutes thereafter to notify every institution in the transaction chain. All involved banks have 14 working days to determine liability and 48 hours to debit the guilty party and refund the victim. If the money has been withdrawn, the bank with the weakest KYC controls or the slowest response time shoulders the loss. In a sector that posted a 19.8 per cent average return on equity last year, an unexpected N50 million fraud debit landing in a single quarter is enough to unsettle any chief risk officer.

Another potent clause is the CBN’s enhanced power to direct the Nigeria Inter-Bank Settlement System (NIBSS) to place immediate liens on accounts suspected of receiving fraudulent funds. Given that NIBSS settles an average of N12.7 trillion daily, the threat of being frozen out of the clearing house focuses institutional attention more sharply than years of circulars ever did. Several banks are already adjusting commercial terms. Market whispers indicate at least two have slapped 5 per cent haircuts on the settlement balances of their fintech partners, quietly passing the cost to merchants through higher interchange fees.

Prompt Report

The guideline also codifies refund eligibility with unusual clarity. Customers who report within 72 hours, provide transaction details, and fully cooperate with investigators will be reimbursed, provided they did not ignore glaring red flags, such as mismatched beneficiary names or instructions to transfer funds to newly opened accounts. Negligence has been narrowly defined. A customer who stores their PIN in a diary later photographed by a fraudster still qualifies for a refund. But anyone who willingly transfers money to an Instagram “friend” promising a 30 per cent return in seven days will not. Where fault cannot be cleanly assigned, losses are shared pro rata among all banks in the chain, a formula that could squeeze smaller lenders with limited capital buffers.

Some of the country’s systemically essential lenders are already modelling the implications. Treasury desks expect the industry to eventually design a private loss-sharing pool, akin to deposit insurance, to avoid violent earnings swings. Others predict that the new rules will accelerate consolidation, as institutions with weak compliance engines struggle to absorb losses without breaching regulatory ratios.

Transformative Operational Obligations

The operational obligations are equally transformative. Every licensed institution must now operate a human-staffed, 24-hour fraud hotline; deploy analytics capable of detecting behavioural anomalies, such as an inactive customer suddenly moving N2 million into a new fintech wallet; and file standardised incident reports to the CBN within five working days. Failure to comply shifts full liability for the loss to the non-compliant institution.

These requirements have triggered a surge in regulatory-technology spending. Local firms such as SecureX and Flutterwave’s Risk Intelligence Services report a tripling of enquiries since the guidelines leaked. Global vendors, including SAS and FICO, have begun repricing Nigerian contracts in dollars. According to the CIO of one top-five bank, upgrading legacy systems to meet the new standard will cost between N1.8 billion and N2.4 billion per institution. Boards must approve the funding before the 2026 budget cycle closes in February.

Yet the macroeconomic payoff could be significant. EFInA data shows that 37 per cent of Nigerian households keep liquid savings outside the formal sector, mainly due to fears that digital funds “disappear.” If only 10 per cent of the 38 million adults who still save at home open basic accounts because of the new rules, banks could capture roughly N450 billion in new deposits. At a 60 per cent loan-to-deposit ratio, this could support N270 billion in new lending at a prime lending rate of 17 per cent, translating to around N48 billion in additional annual interest income. A trust-driven expansion in deposits and credit may therefore overshadow the industry’s estimated annual cost of fraud refunds of N15 billion.

International experience reinforces the logic. The United Kingdom’s Contingent Reimbursement Model, launched in 2019, compelled banks to share APP-fraud losses with customers when both parties acted responsibly. Within two years, the share of losses reimbursed by banks rose from 19 per cent to 56 per cent. Fraud incidents fell 11 per cent as criminals shifted attacks to less protected markets. Notably, the UK recorded a 7 per cent rise in Faster Payments uptake among first-time digital users above 55, the demographic most suspicious of online banking. Nigerian bankers who studied the model expect an even sharper behavioural shift here, given higher mobile penetration and the relative novelty of fraud insurance.

Currency traders also see upside. Nigeria’s remittances have stagnated at around $1.2 billion per month, partly because diaspora senders fear that beneficiaries may face future refund obligations. Renaissance Capital projects that improved confidence could lift monthly inflows by $200 million, ease pressure on the naira, and narrow the parallel-market premium by about N20. The estimate may be optimistic, but it showcases how consumer-protection rules can ripple into currency stabilisation.

A less-discussed but potentially powerful clause mandates banks to allocate 0.1 per cent of after-tax profit to financial literacy, roughly N5 billion annually across the industry. Early examples reveal substantial impact. Access Bank’s Safe-T WhatsApp drama series, launched in August, cut fraud complaints among enrolled customers by 34 per cent within six weeks, preventing an estimated N1.2 billion in losses. Scaled industry-wide, a N5 billion investment could avert up to N60 billion in fraud losses. Behavioural change, it seems, may be the most cost-effective line of defence.

Though still a draft open for comment, few expect the 16-day refund rule to be softened. The Senate Committee on Banking has already hinted at legislating the timeline if the CBN hesitates. Analysts have begun adding around 80 basis points to cost-of-risk assumptions for the four largest banks, trimming 2026 earnings forecasts by roughly 6 per cent. Bond markets remain calm: more substantial capital buffers reduce risk on subordinated debt, tightening yields on tier-two notes by about fifteen basis points last week.

What the CBN is attempting is straightforward in regulatory philosophy: convert a costly externality into a priced liability, then let market discipline push institutions into better behaviour. Whether banks respond with billion-naira investments in fraud-detection engines or with a quiet rationing of digital exposure will determine whether Nigeria finally weakens the grip of cash. What is certain is that the sixteen-day clock has begun, and any institution that misses the deadline will pay not with apologies, but with the cold arithmetic of its profit-and-loss statement.