Nigeria’s Fintech Sector Faces Security Risks Amid Rapid Growth, Experts Call for Stronger Regulations

By DAYO ADESULU

Nigeria’s fintech sector is experiencing remarkable growth, driven by increased smartphone usage, digital banking, and evolving regulations. However, security vulnerabilities, regulatory gaps, and cyber threats pose significant risks, prompting experts to call for stronger oversight to protect the industry and national security.

Nigeria’s Fintech Sector: Booming but Vulnerable

The fintech industry in Nigeria has grown exponentially in recent years, with the number of startups increasing from 144 in 2021 to over 217 in 2024. Alternative lending markets are projected to grow by 34.8% annually, reaching $230.9 million in 2024. Additionally, mobile money and digital payments have improved financial inclusion, entrepreneurship, and innovation.

However, despite these successes, fintech platforms have become targets for cybercriminals, money launderers, and kidnappers. A recent report by Nextier SPD Policy Weekly, authored by fintech experts Dr. Chibuike Njoku and Dr. Ndu Nwokolo, highlights the pressing need for comprehensive regulation to mitigate these risks.

Cyber Threats Plaguing Nigeria’s Fintech Industry

Cyberattacks and financial fraud have escalated within Nigeria’s fintech sector. A 2023 INTERPOL report ranked Nigeria among the top African nations facing cyber threats, with over 5,366 detections of malicious software. Key incidents include:

• Cyber Fraud: In early 2023, three Nigerian financial institutions suffered cyberattacks, leading to losses exceeding ₦5 billion.
• Phishing Scams: A 2023 survey found that 61% of Nigerian online banking users encountered phishing attempts.
• Fraudulent Transactions: Financial institutions in Nigeria recorded ₦52.26 billion in fraud-related losses in 2024 alone.

Experts warn that without stricter security measures, Nigeria’s digital banking sector could face long-term financial instability and loss of investor confidence.

Cryptocurrency and Money Laundering: A Growing Concern

Despite the Central Bank of Nigeria’s (CBN) ban on banks transacting with crypto-related businesses, digital assets remain highly popular. Reports indicate that 33.4 million Nigerians invested in cryptocurrencies within six months, making Nigeria one of the largest crypto markets in Africa.

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However, the surge in cryptocurrency usage has complicated financial monitoring, leading to increased concerns over illicit financial flows. In February 2025, the Federal Inland Revenue Service (FIRS) sued Binance for $79.5 billion in damages and $2 billion in back taxes, citing tax evasion and economic harm. This case underscores the need for regulatory clarity in the cryptocurrency space.

Kidnapping and Fintech Exploitation

Criminal networks have exploited digital banking innovations, particularly Point-of-Sale (POS) machines, for illicit financial activities. The National Bureau of Statistics (NBS) reported that within 12 months, ₦2.2 trillion in kidnapping ransoms were paid, with many transactions conducted via POS machines.

Criminals take advantage of fintech loopholes to wipe victims’ accounts within minutes, despite the existence of Bank Verification Number (BVN) and National Identification Number (NIN) linkages. Strengthening Know Your Customer (KYC) protocols and enforcing anti-money laundering regulations are critical in addressing these security loopholes.

Regulatory Gaps and Weak Oversight

Nigeria’s digital banking sector is currently regulated by multiple agencies, including the CBN, Securities and Exchange Commission (SEC), Nigerian Communications Commission (NCC), and Federal Inland Revenue Service (FIRS). However, this fragmented regulatory framework creates enforcement challenges and compliance ambiguities.

Weak anti-money laundering (AML) and counter-terrorism financing (CTF) frameworks allow illicit financial transactions to thrive. As a result, Nigeria’s foreign investment inflows remain significantly low, recording just $468 million in 2022, compared to Egypt’s $11.4 billion.

Experts’ Recommendations for Strengthening Fintech Security

To safeguard Nigeria’s fintech sector while ensuring continued growth, Nextier experts recommend the following:

1. Establish a Unified Regulatory Framework

• The CBN, SEC, and Nigerian Financial Intelligence Unit (NFIU) should collaborate on a single, enforceable fintech policy.
• Implement a regulatory sandbox to test emerging financial technologies before full deployment.

2. Enhance Cybersecurity Measures

• Mandate multi-factor authentication, encryption technologies, and real-time fraud detection systems.
• Establish a Financial Cybersecurity Fusion Centre to monitor and respond to fintech-related cyber threats.

3. Strengthen Financial Regulations

• Enforce stricter KYC and AML policies to combat money laundering and illicit financial flows.
• Utilize artificial intelligence and blockchain technology for improved transaction monitoring.
• Regulate digital lending to prevent predatory practices, including excessive interest rates and unauthorized data collection.

4. Promote Industry Collaboration and Data Protection

• Facilitate partnerships between fintech firms, banks, and cybersecurity companies to share threat intelligence.
• Strengthen Nigeria’s Data Protection Act to align with international standards such as the General Data Protection Regulation (GDPR).

5. Improve Public Awareness and Security Measures

• Launch national cybersecurity awareness campaigns to educate users on fraud prevention and safe digital transactions.
• Tighten border controls to curb illicit financial flows that fund criminal activities.
• Enhance financial tracking and enforcement mechanisms to prevent anonymous transactions linked to organized crime.

Conclusion: Balancing Innovation and Security in Nigeria’s Fintech Sector

Nigeria’s fintech sector presents vast opportunities for economic growth and financial inclusion. However, the industry is also vulnerable to cyber threats, illicit financial activities, and weak regulatory enforcement.

Ignoring these risks could lead to financial instability, loss of investor trust, and economic disruptions. Therefore, urgent policy actions are needed to establish stronger regulations, bolster cybersecurity frameworks, and foster collaboration between government agencies, financial institutions, and technology firms.

The Federal Government must act swiftly to strike a balance between fostering fintech innovation and ensuring national security. A resilient, well-regulated, and secure fintech ecosystem will not only boost Nigeria’s digital economy but also solidify its position as a leading financial hub in Africa.

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Dayo Adesulu, online editor, SEO expert