NDIC urges Nigerian financial institutions to deploy AI for fraud detection
By Seun Ibiyemi
The Managing Director and Chief Executive Officer of the Nigeria Deposit Insurance Corporation (NDIC), Mr. Bello Hassan, has called for the integration of Artificial Intelligence (AI) technologies to strengthen fraud detection systems in Nigerian financial institutions.
Speaking at the Risk Management Roundtable organized by the Financial Institutions Training Centre (FITC), Mr. Hassan emphasised the growing inadequacy of traditional fraud detection methods that rely on manual verification and human analysis. He noted that while these methods had been effective in the past, they are increasingly unable to cope with the growing complexity and volume of fraudulent activities in the financial sector.
Describing AI technologies such as Machine Learning (ML), Natural Language Processing (NLP), and Anomaly Detection as game-changing tools, Mr. Hassan explained how they could significantly enhance the efficiency and accuracy of fraud prevention efforts. He highlighted the ability of AI to process vast amounts of data in real-time, identify unusual patterns, and detect emerging threats long before they could cause significant harm.
“AI can process vast amounts of data in real-time, identify unusual patterns, and detect emerging threats long before they cause significant harm,” Mr. Hassan said.
He illustrated how AI could flag irregular transactions—such as large withdrawals from new geographic locations—and either freeze accounts or alert relevant stakeholders immediately. Additionally, AI’s ability to analyse extensive datasets and consider multiple factors allows it to reduce false positives, enabling financial institutions to focus on legitimate threats.
Mr. Hassan also pointed out that AI’s capacity to track cross-border transactions and analyse user behavior, such as typing patterns and device usage, provides a robust defense against identity theft and account takeovers. By constantly monitoring for unusual activities, AI systems can create an additional layer of protection for financial institutions and their clients.
However, Mr. Hassan also addressed the regulatory aspects of AI adoption, stressing the need for standards that ensure ethical and transparent use of these technologies. He underscored the importance of balancing innovation with public trust, noting that financial regulators and supervisors must ensure that AI technologies reinforce financial stability without compromising data privacy or consumer rights.
“Financial regulators and supervisors must ensure public trust by guaranteeing that AI technologies reinforce stability without infringing on data privacy or consumer rights,” he emphasized. Mr. Hassan commended the Federal Ministry of Communications, Innovation, and Digital Economy for drafting Nigeria’s first National Artificial Intelligence Strategy (NAIS), which aims to harness AI’s transformative potential in a sustainable and ethical manner.
Globally, organizations like the Financial Stability Board (FSB) and the Basel Committee on Banking Supervision (BCBS) are also working on developing guidelines for AI adoption within financial services, which Mr. Hassan believes will be crucial for ensuring consistency and ethical application across different markets.
Another key area where Mr. Hassan sees AI making a significant impact is in enhancing the capabilities of regulators. He explained that AI could help regulators detect suspicious transactions and anticipate emerging threats using predictive analytics. By identifying vulnerabilities before they are exploited, regulators can take proactive measures to safeguard the financial system. Additionally, AI could streamline regulatory processes, enabling more efficient resource allocation and prioritization of high-risk transactions.
While acknowledging the potential benefits of AI, Mr. Hassan cautioned against the challenges associated with its implementation. He highlighted concerns related to compliance with data protection regulations, such as the Nigeria Data Protection Regulation (NDPR), as well as the need to ensure the security of AI systems against cyber-attacks.
The NDIC MD also stressed the importance of eliminating bias in AI models to maintain fairness and trust in the technology. “Transparency in AI decision-making is essential,” he remarked.
“Regulators must establish frameworks to monitor AI systems and ensure they operate ethically and in line with legal standards.”
Mr. Hassan urged all stakeholders in the financial industry to embrace AI while prioritising the development of robust regulatory frameworks to guide its use. He emphasised that collaboration across the industry will be key in addressing the growing threat of fraud and ensuring the secure deployment of AI technologies.
This call for AI integration comes against the backdrop of rising fraud cases in Nigeria’s financial sector. According to the latest fraud and forgery report for Q3 2024, released by the FITC, there has been a significant spike in reported fraud cases. The number of fraud incidents reported by Nigerian banks increased by 65%, from 11,532 in Q2 to 19,007 in Q3. Similarly, the amount involved in fraud attempts surged by 105%, from N56.6 billion in Q2 to N115.9 billion in Q3.
However, the report also showed a positive outcome, as the actual financial losses to fraudsters were significantly reduced. In Q3 2024, only N10.1 billion was lost to fraud, representing a 75.4% decline compared to the N42.8 billion recorded in the previous quarter.
The NDIC MD’s remarks highlight the urgent need for advanced technological solutions like AI to tackle the growing challenge of fraud in the Nigerian financial system, while ensuring compliance with ethical standards and regulatory frameworks.
