In October 2023, a glitch hit one of Nigeria’s leading fintech companies, Flutterwave, causing a massive financial loss of ₦21 billion (about $26 million at the time). However, new findings reveal that an error made by the Nigeria Inter-Bank Settlement System (NIBSS) played a significant role in worsening the situation.
Flutterwave’s issue started when a transaction worth ₦21 billion passed through the NIBSS Instant Payment (NIP) system, even though the fintech’s daily transaction limit was supposed to be capped at ₦7 billion. The big question was: Why did NIBSS allow the transaction to go through?
The answer lies in an oversight by NIBSS. According to an investigative report, someone at NIBSS increased Flutterwave’s transaction limit from ₦7 billion to ₦21 billion and failed to reset it for three months. This error allowed larger transactions to occur, leading to the significant loss for Flutterwave.
How Does the Payment System Work?
In simple terms, financial institutions process payments by keeping track of debits (money going out) and credits (money coming in). However, the actual movement of money between banks happens later, in a process called settlement. This is where NIBSS plays a role, as it helps ensure that money transfers between banks happen smoothly and within set limits.
For most big banks in Nigeria, like Access Bank and Guaranty Trust Bank, there are no transaction limits because they have guaranteed collateral with the Central Bank of Nigeria (CBN). This means they’re directly connected to the CBN. However, fintech companies like Flutterwave rely on other banks for their settlements, and those banks set transaction limits to manage risk.
Flutterwave’s settlement bank is Wema Bank, and back in June 2022, Wema Bank asked NIBSS to lower Flutterwave’s transaction limit to ₦7 billion from ₦10 billion. Despite this request, the limit was later increased to ₦21 billion, allowing the excessive transactions to occur.
Internal investigations at NIBSS revealed that Flutterwave’s transaction limit increased when it was moved from what is called a “static” limit to a “dynamic” limit. A static limit means the transaction cap remains fixed on both weekdays and weekends. In contrast, a dynamic limit can change on weekends and public holidays, but it requires manual updates to work properly.
Unfortunately, Flutterwave’s institution code wasn’t reverted to the original weekday limits, leading to three months of uncontrolled transaction volumes, which ultimately resulted in the ₦21 billion loss.
Flutterwave has faced other financial issues in recent times. Earlier in 2024, it was revealed that the company lost $24 million to unauthorized Point-of-Sale (POS) transactions. Flutterwave took legal action to recover the funds and temporarily suspended the accounts of the merchants involved.
The company explained that these unauthorized POS transactions were linked to a glitch it noticed in October 2023, the same month the ₦21 billion loss occurred. This event follows a string of breaches since 2023, including a $3.7 million fraud case in March of that year and another $7.3 million loss in 2024.
With NIBSS at the center of one of these major errors, questions have been raised about its role in managing Nigeria’s financial system. While there are rumors that NIBSS could become the central switch for all financial transactions in the country, its involvement in this incident and its overall security processes have come under scrutiny. Considering the frequency of glitches and fraud cases, some experts wonder if giving NIBSS more control is a wise decision.
As of now, both Flutterwave and NIBSS have remained silent on the specifics of the issue, leaving many questions unanswered.
This incident highlights the importance of maintaining strict controls in financial systems, especially as fintech companies like Flutterwave continue to grow and handle larger volumes of transactions. The oversight by NIBSS shows how small errors can have huge financial consequences, and it serves as a reminder of the need for stronger operational checks within the financial sector.
