Digital disasters: Is your money safe?

Banks are seen as the safest place to secure funds, an assurance that digital developments have further strengthened. However, recent experiences in Nigeria have shown otherwise; Banks’ efforts to upgrade their digital systems have led to unexpected and frustrating disruptions for customers. These software upgrades, intended to improve efficiency, have triggered problems ranging from lost funds to failed transactions, leaving customers in financial limbo. There are numerous stories of people receiving notifications for deposits that were not credited, making transfers that recipients never received, or facing unfair debts. Some are waiting indefinitely for their banking apps to reload or reconnect. Imagine the stress of trying to pay an urgent bill and having your transaction fail.

“These software upgrades aimed at improving efficiency triggered problems ranging from lost funds to failed transactions, leaving customers in financial limbo.”

This problem is not specific to Nigeria. In 2018, when TSB Bank in England moved to a new IT platform, it experienced a similar crisis, and thousands of people were unable to access their accounts and were unable to make transactions. Other banks, such as Commonwealth Bank of Australia and RBC in Canada, have also faced such challenges during digital upgrades.

Why are Nigerian banks migrating?

Various factors play a role behind the upgrades. While some Nigerian banks are shifting to more secure and fraud-resistant systems to counter growing cybersecurity threats, others are turning to more cost-effective platforms due to economic factors such as naira devaluation. Many are integrating with third-party systems for additional features and security and are looking for flexible, scalable solutions to meet customer needs.

Unfortunately, communication regarding these changes was not consistent. Some banks notify their customers in advance, allowing them to plan for planned downtime. But for many others, customers only realize upgrades are in progress if their transaction fails midway through the process. Lack of timely communication led to financial setbacks; many people were unable to access funds when they needed them most.

Legal and contractual rights in case of digital malfunctions

In traditional banking, contracts were simple and banks’ obligations to customers were clearly defined. But as digital banking has grown, customer rights have become less clear and often complicated by complex online terms and conditions. This raises critical questions: When digital disruptions prevent customers from accessing their funds, where can they turn for solutions? The fact that banks’ operations are now somewhat digital does not limit the bank’s obligations to its customers. The bank is obliged to process customers’ instructions correctly and in a timely manner. If this obligation is not fulfilled, the bank may be responsible for any losses incurred by customers. These losses may include direct losses; For example, if someone tried to pay for something important but the payment failed, causing the transaction to fail, the bank may be responsible for this missed payment. Consequential losses may also arise from the bank’s actions, meaning that sometimes disruption of bank operations may lead to other losses such as loss of business opportunities. Although these losses are more difficult to claim, the bank can still be held liable if these losses are foreseeable results of errors.

There are various reasons why the bank should be held accountable to its customers. One of these is contractual duty. Banks have a contract with each customer that includes an obligation to properly comply with their instructions. In case of violation of this agreement due to errors during the transaction, the bank may be liable for compensation. Secondly, negligence: If the bank did not exercise due care during the upgrade and caused problems for customers, it may be liable under the principle of negligence, which applies when an organization fails to act carefully and responsibly. Financial losses fall into these special categories. Regulatory standards are another reason. Central banks and other financial authorities often require banks to ensure that they can provide their services reliably. If the bank fails to meet these standards, it may face fines or other penalties. For example, in a recent directive, the CBN announced that it will impose a daily fine of N100,000 for any unresolved customer complaint (such as failed ATM transactions) that is not resolved within 72 hours. CBN consumer protection laws also require banks to provide services safely and fairly. Customers may be entitled to compensation if they suffer losses due to the bank’s failure to meet these standards.

However, it has been ruled that the bank cannot be held liable indefinitely to an indefinite number of people for financial losses that are not caused by physical losses. Courts have found that banks and financial institutions should not be liable for unlimited amounts to an unlimited number of people. This concept, often called “vague liability”, helps prevent unfair or unreasonable financial burdens being placed on banks, especially for purely financial losses not due to physical damage. The idea is that the bank’s liability should be limited to reasonably foreseeable and limited financial claims, rather than extensive or uncertain losses. Therefore, the bank’s duty generally covers only losses that it can reasonably predict will occur for a particular customer in light of the particular transaction or relationship.

Moving forward: Balancing digital transformation with consumer protection

Although banks claim that these upgrades are necessary to strengthen their digital infrastructure, it is clear that they cannot ignore customer access in the process. There must be accountability to ensure that customers maintain their traditional banking rights even in the midst of technological transformations. Regulatory policies need to advance to support seamless integration between traditional and digital banking obligations.

A regulatory framework that harmonizes digital and traditional banking rights is essential to ensure customer funds are accessible at all times. The CBN’s increased fines for service delays are a step in the right direction, but the bigger question remains: How can regulators keep up with digital advances in banking? As customers’ trust in Nigeria’s banking system is based on a balanced approach to innovation and consumer protection, ensuring that digital services maintain customer access is vital to maintaining trust.

Nigerian banks and regulators can look to other countries for proven strategies. Following the 2018 IT migration crisis, TSB Bank in the UK strengthened its response by implementing a phased upgrade approach; This approach allowed for gradual system integration and testing with a smaller group of users before a full-scale rollout. This minimizes the risk of widespread outages. Adopting a similar incremental approach could help Nigerian banks avoid major disruptions when implementing major updates.

Additionally, banks can establish specialized customer support teams specifically dedicated to handling complaints arising from IT issues, allowing them to resolve customer concerns quickly and with expertise. Nigerian banks can embrace this by creating dedicated support units specifically trained to manage issues related to digital upgrades, ensuring customer concerns are addressed in real-time.

Proactive communication is also important. Banks should inform customers in advance about planned upgrades and possible outages using multiple communication channels such as SMS, email and app notifications. Additionally, offering alternative access options during planned outages, such as limited in-branch services or a dedicated helpline, can help customers maintain core banking functions without interruption.

Banks must take steps to address customer complaints, refund erroneous debts and compensate those affected by delayed payments. This approach can help prevent further action from customers or regulators. For customers, if you have suffered a loss due to the bank’s mistakes, it makes sense to seek compensation from the bank and correct the erroneous debits or receivables.

From a regulatory perspective, the Central Bank of Nigeria (CBN) can strengthen its guidelines on digital banking operations by mandating detailed customer communication plans and requiring banks to conduct system integrity checks and small-scale testing before rolling out full upgrades. The CBN may also consider establishing a public monitoring system where customers can report disruptions in real time, allowing the CBN to respond quickly and holding banks accountable for consistent performance.

Ultimately, protecting customers in the digital age requires careful planning, transparent communication and a commitment to upholding banking’s core values.

Osaro Eghobamien, SAN, Managing Partner, Perchstone & Graeys and Tare Olorogun, Partner, Perchstone & Graeys