Online Banking Adoption and the Surge of Phishing and Online Scams in Nigeria: An Empirical Study

Abstract

As Nigeria’s financial industry experiences rapid growth, driven by the widespread adoption of mobile phones and increased internet penetration, it also confronts a significant and escalating challenge of cybercrime. This study investigates the relationship between online banking adoption and the growth of cybercrime in Nigeria, with particular focus on phishing attacks and online scams. This study utilises panel data covering the period 2020-024. Primary data sources include the Nigeria Inter-Bank Settlement System (NIBSS) fraud reports, Central Bank of Nigeria (CBN) financial inclusion surveys, Nigeria Communications Commission (NCC) telecommunications statistics, and the Economic and Financial Crimes Commission (EFCC) cybercrime incident reports. Secondary data sources include academic studies, industry reports from cybersecurity firms, and international organisations’ assessments of Nigeria’s digital economy. High-profile security breaches could discourage adoption, while the perception of security might encourage it. To address this endogeneity concern, the instrumental variable (IV) estimation is used. The findings revealed a significant positive correlation between digital banking penetration and cybercrime incidents. The analysis reveals that phishing attacks tripled in frequency from 1,667 cases in 2022 to 4,457 cases in 2023, with financial losses increasing from ₦240.6 million to ₦551.2 million. Regression results confirm a strong positive link between digital banking and cybercrime. A 10% increase in adoption is associated with a 3.42% increase in cybercrime. Historical telecom infrastructure strongly predicts digital adoption (F=47.3). IV coefficient = 0.456 (p < 0.01), larger than OLS, indicating possible downward bias in OLS. The findings also suggest that while digital transformation in banking has enhanced financial inclusion, it has inadvertently created new vulnerabilities exploited by cybercriminals. The causal nature of the relationship also suggests that policy interventions should focus on breaking the link between digitalisation and crime opportunities, rather than simply slowing digital adoption. The study contributes to the literature by providing empirical evidence of the cybercrime-digitalisation nexus in emerging economies and offers policy recommendations for sustainable digital financial ecosystem development.