Several Nigerian commercial banks have recently switched their core banking applications due to costs and customization needs.
The challenges faced during the transition, such as disruptions in banking services for millions of customers, have been noted. However, the financial implications of these changes have not been widely discussed.
For instance, Guaranty Trust Bank completed its switch to the Finacle core banking platform, incurring significant costs estimated at up to ₦25 billion ($15.3 million) annually in license fees. It is estimated that Nigerian commercial banks collectively spend at least $10 million each year on their core banking applications, with the top five banks potentially reaching $50 million annually.
These costs represent around 1% of the FUGAZ banks’ half-year 2024 revenues, which totaled ₦8.52 trillion. With a vast customer base and numerous banking channels to manage, investing in technology is imperative for these banks.
Major Nigerian banks have allocated substantial budgets for technology upgrades. For example, GTCO plans to invest ₦98.5 billion, Access Holdings intends to spend ₦68.62 billion, and Zenith Bank Plc will allocate ₦57 billion for technology infrastructure enhancements.
These technology investments cover various aspects such as core banking applications, CRM software, cloud storage, digital banking channels, risk management systems, ATM networks, and more.
While larger banks can absorb these costs, smaller tier-2 banks are focused on cost management and revenue generation strategies.
For instance, Sterling Bank, a tier-2 bank, opted to switch to a new custom-built core banking application called SEABaaS to reduce costs and potentially generate revenue by offering the solution to other banks.
The process of changing core banking applications is complex and involves extensive planning, internal approvals, and meticulous data migration to ensure seamless operations. It can take months to complete, impacting customer service during the transition.
Although banks are unable to disclose detailed information about these changes, maintaining customer trust throughout the process is crucial.