How bank charges fuel exploitation of customers, by traders

As digital transactions continue to grow in Nigeria, traders across the country are leveraging bank charges to inflate the prices of goods and services. MOYOSORE SALAMI writes on the unintended consequences of these charges and what could be done to address the issue.

The Federal Government’s introduction of stamp duty on electronic transactions in 2020, designed to formalise the economy and raise tax revenue, has not been without controversy.

The policy imposes a small fee of between N50 and N100 on transfers over N1, 000. At first glance, this may appear to be a minor charge, but combined with other banking fees such as transfer fees and service charges, it has led to a significant increase in the cost of doing business, particularly for small traders. While these charges were intended to streamline payments and increase government’s revenue, they have, in practice, put the burden squarely on the shoulders of both consumers and small traders in the country.

The stamp duty policy was meant to encourage Nigerians to make digital payments and help formalise the informal sector. However, with many traders depending on digital transactions for convenience, the policy has placed an unexpected financial strain on them. In turn, some traders have begun charging customers additional fees to offset these costs, leading to a ripple effect on the prices of goods and services across the country. These fees often exceed the actual charges imposed by banks, resulting in consumers paying twice for the same service.

This practice is pervasive in physical markets, where traders demand higher prices from customers who prefer making bank transfers to cash payments. In doing so, the traders claim that the additional fees are necessary to cover transaction costs deducted by banks, while in reality both traders and consumers are subjected to multiple charges.

Sharing her experience with The Guardian, a customer, Tayo Olanipekun, said that she had purchased two packs of table water for N3, 000 but she was shocked when the vendor asked for an additional N100, citing the need to cover “bank charges” since she wanted to pay through bank transfer.

“I went to buy water, and when I made the transfer, the vendor said I should add N100 to cover the bank charges. It doesn’t make sense to me because I’ve already paid for the goods. Why should I be penalised twice? It’s frustrating because it happens often now,” she narrated.

However, a trader, Bisi Aina, explained: “It is not just the stamp duty; it is the bank charges for receiving and withdrawing the money. They are all taking away from my profit. If I don’t ask the customer to pay a little extra, I’m left with very little for my work.

“I am selling goods, and after receiving payment via transfer, the bank takes N50 or more from me. Then when I want to withdraw the money, I get charged again. If I do not charge the customer a little extra, I lose out.”

The fact that many traders are able to impose these hidden charges is compounded by the opacity of the bank fee structures. While most banks advertise low fees, the total cost of transactions could be difficult for consumers to track, with hidden charges or unclear pricing leading to confusion.

The Profit Motive: Banks And Traders Benefit, Consumers Lose The scale of bank profits in Nigeria only adds to the suspicion surrounding these practices. Nigerian banks have posted record profits in recent years, with the top banks reporting a combined profit of over ₦4.2 trillion in 2024 alone. These banks have all seen significant increases in their annual profits, driven by rising transaction volumes in the digital space.

Data from the Nigeria Inter-Bank Settlement System (NIBSS) showed that digital payment transactions hit an all-time high in 2023, as it rose by 55 per cent to N600 trillion, reflecting the country’s growing reliance on digital financial services. While this surge in digital transactions has bolstered the profits of Nigerian banks, it has also increased the burden on consumers who are now paying more for goods and services when they opt not to use cash.

What Financial Experts Say
Economists and financial experts, however, believe that the argument by traders that they have no choice but to charge extra fees in order to remain profitable is merely a smokescreen.

Speaking on the impact of multiple bank charges on the economy, an economist, Kingsley Ndimele, called for urgent reforms in the banking sector to address what he described as exploitative and excessive charges imposed on Nigerians.

He highlighted the economic strain on individuals and small businesses, emphasising the need for streamlined fees and stronger regulatory oversight. Ndimele criticised the growing trend of hidden charges and deductions, noting that these practices disproportionately affect small-scale traders and informal businesses that have been compelled to adopt cashless payment systems. While he acknowledged the benefits of financial inclusion through digital transformation, he pointed out that banks are taking advantage of the transition to impose additional charges.

“The profit margins of these informal businesses are already small. Now they are being forced to go cashless, which is good for financial inclusion, but banks are exploiting this growth in customer numbers to impose extra charges. This is unacceptable and needs to be regulated,” he said.

Ndimele referenced a 2012 report from the Central Bank of Nigeria (CBN), which recorded ₦89.2 billion in excess legal charges by banks, suggesting that such practices continue to thrive unchecked. He further noted that the practice of charging fees without providing commensurate value to customers erodes trust in the banking system.

“It is now in Nigeria that you see a difference between your available balance and your total balance, with more money being deducted without proper justification. Nigerians deposit money to save and earn interest, but instead they face relentless deductions,” he lamented.

According to him, these charges contribute to cost-push inflation, as traders pass the additional costs on to consumers to protect their already narrow profit margins, warning that such practices could lead to an increase in dormant accounts as Nigerians lose confidence in traditional banking institutions.

Ndimele also raised concerns about the lack of consumer protection, calling on regulators such as the Consumer Protection Council and the Public Complaints Commission to take action.

“If regulators are not doing their jobs, then consumers have every right to hold the banks accountable. If care is not taken, Nigerians might resort to protesting at banks,” he added. He also called on the Central Bank of Nigeria (CBN) to impose stricter sanctions on banks that exploit customers, urging the banking sector to adopt ethical practices.

“If you are making a profit at the expense of your customers, then there’s a problem. This kind of negative externality is unsustainable,” he stated. A financial expert, Timi Okuselu, also described the growing trend of traders transferring banking and financial transaction charges to customers as exploitative and harmful to the economy.

He explained that these charges, including account maintenance fees, Value Added Tax (VAT), and additional levies on transfers or payments are standard deductions implemented by banks due to government fiscal policies. Okuselu explained that charges such as stamp duty, ATM fees, SMS fees, and USSD usage charges have existed for some time.

“However, in the past, traders absorbed these costs without passing them to customers. With the increase in tax rates, the rising Monetary Policy Rate (MPR), and the introduction of new charges under the current administration, some traders have begun transferring these costs to consumers, which contributes to higher market prices and inflationary pressures,” he noted. He emphasised that banks are merely following policies set by the CBN and the government, which collects taxes and levies through the banking system.

According to him, banks also face operational costs, such as paying salaries and maintaining branches, which necessitate the introduction of various charges.

Okuselu noted that traders who impose excessive fees for digital transactions or inflate the cost of goods and services are greedy and exploitative. He added: “If a trader is charging customers to cover these fees, it is absolutely wrong. These are normal charges that even the customers themselves already pay. By adding these burdens to the cost of goods, traders are being unfair and driving up market prices unnecessarily.

“Agent Banking POS machines are issued to individuals, often in unbanked areas, who use them for banking transactions as a side hustle. These traders usually have agreements with banks and may add charges to make a profit. This is not exploitation, as the charges are often negotiable.

“On the other hand, Merchant POS systems are used for paying for goods and services in supermarkets or filling stations. Some traders pass on minimal charges to customers, but when it becomes excessive, it is greed and an attempt to make abnormal profits.”

Okuselu attributed the financial pressures on businesses and individuals to government policies, including increased tax rates and charges on telecommunications companies for the use of USSD banking codes.

“These additional costs are ultimately borne by both banks and consumers. Before now, we had stamp duty, ATM charges, and VAT, but traders didn’t pass these costs to customers. The tax rates were manageable, and people could afford goods. Today, however, with the government’s increased tax rates and the rising Monetary Policy Rate (MPR), new charges have been introduced, such as SMS fees for using USSD codes. These charges affect everyone, not just traders.

“Banks are only implementing government fiscal policies directed by the CBN. The government collects stamp duty, VAT, and other fees through the banking system. The banks themselves have no choice; they need to survive, pay salaries, and maintain operations.

“Traders should bear in mind that customers are already dealing with these same charges. It’s unfair to impose extra costs on them. For POS businesses, the charges are understandable because they handle cash, pay staff, and face competition in a saturated market. But traders increasing prices arbitrarily is unacceptable,” he noted.

Okuselu called on the government to reduce taxes and create an enabling environment for businesses to thrive. While urging traders to refrain from pushing these burdens to customers, he emphasised the need for fairness and collective responsibility to mitigate the impact of rising costs on the economy.

“This government has increased the minimum wage, but at the same time, taxes have gone up, creating financial strain. The government believes in taxing people; it worked in Lagos and now they are applying it at the federal level. They have asked Nigerians to endure the pain, promising that things will improve later.

“We need to be kind to each other. It’s not fair to blame the banks or traders for everything. Nigerians supported this government, and we must endure its policies together. However, the government should reduce taxes to create an enabling environment for businesses to thrive. When traders transfer these burdens to consumers, it only worsens the situation. Let’s strive to be fairer in our dealings and support each other through these challenges,” Okuselu advised.