NDIC advocates AI adoption as Nigeria’s banking sector faces rising threats

Joy Agwunobi

As Nigeria’s financial institutions grapple with an unprecedented surge in fraud cases, calls for the integration of advanced technologies have taken center stage. Bello Hassan, the managing director and CEO of the Nigeria Deposit Insurance Corporation (NDIC), has emphasised the urgent need for Artificial Intelligence (AI) technologies to revolutionise fraud detection in the nation’s banking system.

Speaking at the Risk Management Roundtable organized by the Financial Institutions Training Centre (FITC), Hassan underscored the limitations of traditional fraud detection methods, which often rely on manual verification and human analysis.

In his address, he stressed that these outdated approaches are no longer sufficient to counter the sophisticated tactics employed by modern fraudsters.

“AI can process vast amounts of data in real-time, identify unusual patterns, and detect emerging threats long before they cause significant harm,” Hassan stated.

He described cutting-edge AI technologies such as Machine Learning (ML), Natural Language Processing (NLP), and Anomaly Detection as pivotal tools that can enhance fraud prevention efforts by improving detection accuracy and reducing operational inefficiencies.

Hassan detailed how AI could transform fraud detection processes in Nigerian banks. From identifying irregular transactions such as large withdrawals from unfamiliar geographic locations to analysing user behavior patterns, including typing styles and device usage, AI offers robust capabilities to protect financial institutions. By flagging anomalies early, AI systems can automatically freeze suspicious accounts or send alerts to stakeholders, reducing the likelihood of significant financial losses.

Moreover, AI’s ability to analyse vast datasets while considering multiple factors allows for a drastic reduction in false positives. This, Hassan noted, frees up resources for financial institutions to focus on genuine threats. He also highlighted AI’s potential to track cross-border transactions, a critical feature in combating identity theft and account takeovers.

Beyond fraud detection, Hassan emphasised the importance of regulatory frameworks to ensure AI’s ethical and transparent use. He noted that financial regulators and supervisors must establish standards that build public trust while balancing innovation with consumer protection.

“Transparency in AI decision-making is essential,” he said. “Regulators must establish frameworks to monitor AI systems and ensure they operate ethically and in line with legal standards.”

Hassan commended the Federal Ministry of Communications, Innovation, and Digital Economy for drafting Nigeria’s first National Artificial Intelligence Strategy (NAIS). This policy, he explained, aims to unlock AI’s transformative potential in a manner that aligns with global best practices. Internationally, bodies such as the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) are also developing guidelines to support AI adoption in financial services.

Hassan’s advocacy for AI comes against the backdrop of alarming fraud statistics in Nigeria’s banking sector. According to FITC’s Q3 2024 fraud and forgery report, the number of fraud cases reported by banks surged by 65 percent, rising from 11,532 in Q2 to 19,007 in Q3. Similarly, the amount involved in fraud skyrocketed by 105 percent, increasing from ₦56.6 billion in Q2 to ₦115.9 billion in Q3.

Despite this sharp increase in attempts, the report revealed a silver lining. Actual losses to fraudsters dropped significantly by 75.4 percent, with ₦10.1 billion lost in Q3 compared to ₦42.8 billion in Q2. Experts attribute this decline to improved fraud detection measures and the deployment of advanced security technologies.

While highlighting the immense potential of AI, Hassan also addressed its challenges. He pointed to compliance with data protection regulations, such as the Nigeria Data Protection Regulation (NDPR), as a key area of concern. Additionally, ensuring the security of AI systems against cyber-attacks and eliminating bias in AI algorithms are critical to maintaining fairness and public trust.

“Financial institutions must prioritise the development of unbiased AI models to ensure fair decision-making and equitable outcomes,” Hassan explained. He also emphasised the need for continuous monitoring of AI systems to ensure they remain transparent and adhere to ethical standards.

Hassan further called  for stronger collaboration among financial industry stakeholders. He urged banks, regulators, and technology providers to work together in adopting AI-driven solutions to combat fraud and strengthen the financial system.