Impact of digitalisation of banking operations on fraud practices in the Nigerian banking sector

Abstract

This study investigates the impact of digitalisation of banking operations on fraud practices in the Nigerian banking sector. Specifically, it assesses how digital channels—Internet banking, mobile banking, Automated Teller Machines (ATM), Point of Sale (POS), and Unstructured Supplementary Service Data (USSD)—influence the incidence and severity of fraud across commercial banks. The research adopts a quantitative ex-post facto design, utilising secondary data from thirteen quoted Nigerian banks over ten years (2014–2023), sourced from the Nigerian Exchange Group (NGX) and related institutional reports. Analytical techniques include one-step difference Generalised Method of Moments (GMM) to address endogeneity and dynamic panel effects, and Dumitrescu–Hurlin panel Granger non-causality tests to examine directional relationships between digitalisation and fraud. The results indicate that mobile banking, ATMs, and POS usage significantly increase fraud-related losses, while Internet banking and USSD are associated with lower fraud incidence, likely due to enhanced authentication and encryption protocols. Granger causality tests reveal that adoption of digital channels—particularly mobile banking, POS, ATM, and USSD—predicts fraud occurrences, whereas past fraud does not significantly drive digital adoption. The study concludes that digitalisation has heterogeneous effects on fraud in Nigerian banks, with some channels exacerbating risks and others mitigating them. The findings underscore the importance of channel-specific security measures and proactive regulatory oversight to balance innovation with risk management. To mitigate fraud, banks should implement tailored controls for vulnerable channels, enhance monitoring and regulatory compliance, conduct continuous forensic audits, and provide targeted customer education. These measures will help ensure that the benefits of digital banking are realised while safeguarding the integrity and stability of the financial system.