Despite a surge in crypto adoption among Nigerians, most banks in the country remain on the sidelines. But global consultancy firm KPMG believes the wait-and-see approach may soon cost them.
In a newly released report, developed in partnership with blockchain analytics firm Chainalysis, KPMG makes a bold case: Nigerian banks must strategically embrace digital assets and blockchain technology to stay relevant in the future of finance, but they must also manage the risks with equal urgency.
The report offers a good look into Nigeria’s growing crypto ecosystem over the past four years. It reveals a noteworthy rebound in digital asset inflows: Nigerians received $59 billion worth of digital assets in the 12 months ending June 2024, a 25% increase year-over-year and nearly half of Sub-Saharan Africa’s total $125 billion crypto volume.
According to KPMG, 85% of Nigeria’s crypto inflows came in small denominations, suggesting a retail-led adoption focused on remittances, cross-border transactions, and inflation hedging, not just profit.
Despite this consumer-led surge, most Nigerian banks remain hesitant. Years of regulatory uncertainty, largely driven by the Central Bank of Nigeria’s (CBN) hardline stance against digital currencies have left banks wary. In 2022, six commercial banks were fined over N1.3 billion ($3.1 million) for servicing crypto-related accounts, underlining the real risks of regulatory backlash.
Yet, a shift appears to be underway.
President Bola Tinubu’s administration has signaled a more progressive outlook, granting the first official Virtual Asset Service Provider (VASP) licenses to local exchanges Busha and Quidax. The change has stirred cautious optimism in the financial sector.
“The question, therefore, is not about whether or not banks should engage with crypto,” KPMG notes, “but how they should manage their crypto exposure while leveraging the opportunities therein.”
New Tech, New Risks
That caution is warranted. The report warns that traditional financial risk systems are ill-equipped for crypto’s unique challenges: the pseudonymous nature of transactions, the lightning speed of on-chain transfers, and the complexity of navigating varying levels of regulatory oversight among crypto intermediaries.
Legacy systems simply can’t keep up.
But blockchain also offers tools to address these risks, if used wisely. With its inherent transparency and immutability, blockchain allows for real-time monitoring and auditing that is far more robust than what’s possible in traditional banking.
“Nigerian banks that adopt blockchain technology can improve their detection of illicit finance, diversify their services, and establish themselves as leaders in a rapidly digitizing global economy,” the report adds.
Reports this week suggest that the global exchange offered a $5 million down payment last year to settle its tax obligations and secure the release of detained executive Tigran Gambaryan, a U.S. citizen who has since been freed following diplomatic negotiations.
The case is a reminder of the complex legal terrain digital finance must follow.
