PERCEPTIONS, REALITIES, AND CONTEXTS IN HIGH-RISK TRANSACTIONS IN NIGERIA

Generally, financial services providers in multiple jurisdictions use the term high-risk transactions. Oftentimes, perceptions and realities of high-risk transactions depend on the context. High-risk transactions have different meanings for regulators, banks, payment processors, merchants, and consumers.

High-risk transactions are more structured in mature markets like the UK, US, and Canada. High-risk transactions are compliance obligations under anti-money laundering, fraud, or consumer protection frameworks.

In Nigeria, perceptions of what qualifies as a high-risk transaction depend primarily on consumer experience, traditional banking approach, and the realities of an evolving payments system.

Moreover, fintech and global businesses entering West Africa through Nigeria must understand how high-risk transactions are perceived, which is critical for market entry strategy, customer acquisition, and institutional partnerships.

So, what are High-Risk Transactions?

Globally, high-risk transactions are those payments that are more susceptible to fraud, chargebacks, financial crime, or regulatory scrutiny, including:

1. Transactions involving specific merchants (gambling, adult content, pharmaceuticals, crypto, forex trading).
2. Transactions with cross-border dimensions, especially from or to a poorly regulated jurisdiction.
3. Transactions with unusual volumes or patterns inconsistent with a customer’s transaction behaviour.

Nigeria’s regulatory understanding of high-risk transactions broadly aligns with the preceding three factors. However, Nigeria’s high-risk stakeholders’ perceptions and realities sharply diverge from the global practice.

Nigerian Consumer Perceptions of High-Risk Transactions

For an average Nigerian consumer, a high-risk transaction is less about technical classifications and more about trust and lived experience.

Over the years, we have observed the following three patterns:

1. Fraud Sensitivity: Nigerians have endured repeated fraudulent experiences such as card fraud, online fraud, Ponzi schemes, and unauthorised debits. Consequently, consumers classify transactions involving unfamiliar platforms, forex-linked services, or unusually high returns as high-risk transactions. This consumer-driven perception extends beyond what regulators or banks may think.
2. Chargeback and Poor Dispute Resolution: Consumers label any transactions that they will not instantly receive a fund reversal in unsuccessful payments as risky. Payments to international merchants, crypto-related wallets, or online betting platforms are considered high-risk transactions.
3. Reputation of the Merchant: Nigerian consumers are aspirational and reputation-sensitive. A well-known merchant brand or platform enjoys more trust, while a lesser-known one, even if more value-driven, is often deemed high risk. Word-of-mouth referrals, online reviews, and visible partnerships enjoy better return on investment.

Nigerian Banks, Financial Institutions, and High-Risk Transactions

Mainstream Nigerian banks are more conservative than their counterparts in Kenyan, Egyptian, or South African markets. Nigerian financial institutions’ perception of high-risk transactions is affected by the following.

Regulatory Pressure and Legacy Culture – Nigeria’s Central Bank (CBN) constantly scrutinises Nigerian financial institutions against anti-money laundering, terrorism financing, and fraud. Banks’ apprehensive attitude towards the CBN’s regulatory oversight causes a risk-averse posture. Many banks prefer to avoid entire categories of transactions (forex brokers, betting platforms, or unlicensed crypto) – and more legitimately, digital payments for pornographic content, prostitution, and prohibited drugs.

Operational Risk and Chargebacks – Transactions that involve high chargeback ratios or uncertain dispute resolution processes are considered high risk. The logic is commercial: it is costly to police disputes and customer refunds.

Reputation Risk – Nigerian banks are hyper-sensitive to their public image. A bank’s association with merchants in sectors that may draw public or political scrutiny, such as adult content, is rightly avoided. Oftentimes, high-risk transactions mean not only financial risk but also a bank’s reputational exposure.

How Fintech is Expanding the Payment Frontiers – Nigerian fintech service providers adopt a more nuanced approach. They rely on technology to assess risk dynamically (KYC, transaction monitoring, fraud scoring). They are more willing to support merchant categories that banks shy away from. However, because fintech companies operate within bank-dominated payment architectures, they ultimately inherit banks’ cautious posture.

Realistically, a paradox looms: fintechs are willing to expand access, but traditional financial institutions dictate what is a high-risk transaction.

The Global versus Nigerian Gap

In the UK, the US, and Canada, high-risk categories are defined and better regulated. In Nigeria, regulators and operators lean toward blanket avoidance. For example:

1. A UK payment processor may allow forex trading merchants under strict AML checks.
2. A Nigerian bank may decline outright, regardless of compliance.

Nigerian institutions are more conservative than those in Kenya or South Africa because of a history of fraud exposure and stricter CBN oversight.

The Strategic Implication for Entrants

For a fintech or global business seeking to enter Nigeria’s high-risk transaction space, the challenge is not merely regulatory compliance but navigating perceptions. Success requires:

1. Building Trust with Consumers
   1. Use clear, transparent communication.
   2. Offer dispute resolution assurances.
   3. Partner with reputable local brands to boost credibility.
2. De-risking Partnerships with Banks
   1. Present robust compliance and monitoring systems.
   2. Show how you align with CBN guidelines.
   3. Demonstrate reputational care in merchant onboarding.
3. Educating the Market
   1. Help stakeholders understand that high risk does not mean unmanageable.
   2. Share global best practices on balancing access with security.

Conclusion

In Nigeria, regulatory categorisations and cultural perceptions shape high-risk transactions. Consumers see risk through the lens of fraud and trust; banks see it through compliance and reputation; fintechs try to bridge both.

For fintech companies entering Nigeria’s high-risk transaction space, the real work is not just about compliance checklists but about managing perceptions.

In doing so, they can create opportunities in categories banks avoid, while building consumer trust and institutional confidence.

At SRJ Legal, we focus on fintech, online banking law, and licence application. We complement our fintech and online banking practice with education law and commercial litigation (dispute). At the same time, we provide corporate counsel services to businesses and families.