A combination of cashless policy, mobile phone penetration and internet affordability has led to an increase in Fintech companies in Nigeria, ranging from savings, insurance to crowdfunding platforms. According to a Nairametrics report published in 2020, Nigeria’s Fintech landscape consists of 210-250 companies with revenues expected to reach $543m in 2022 up from $153.1m in 2017. While these platforms have helped to improve access to financial services, there has been some unintended consequences chief of which is ‘electronic’ fraud.
Fraud incidences are however not new in the banking industry. According to an NDIC report, approximately 38,000 fraud and forgery cases totaling N39b were reported by Deposit money banks (DMBs) in 2018 alone, representing a 44% increase from the previous year, 96% of which occurred in the top 10 DMBs. Internet and technology-based sources had the highest frequency and accounted for 59.2% of fraud cases. With the increase in fraud incidences, one cannot but wonder who is to blame: customers, financial institutions or regulators? What are the shared responsibilities of each of these parties? What’s the appropriate response when fraud occurs? How do we measure ‘proper’ response: customer refund? better systems? detection?
First, prevention is always better than cure like the popular saying goes. Data protection, avoiding phishing emails, enhanced security features, continuous customer education on scamming methods, controls at a corporate level etc. are some preventive strategies to safeguard financial assets. However, since fraud follows opportunities and attack weaknesses, fraudsters have been known to adapt their tactics by using technological advancements to exploit vulnerabilities. The Twitter incidence of Cryptocurrency transfers, by compromising verified accounts, is a good example of workarounds by fraudsters. If we’re being honest, fraud is here to stay.
When money grow wings, as it often does, prompt detection and escalation may improve the chances of recovering some or all of it. One must quickly reiterate that escalation itself may not mean much, depending on the nature of the fraud. In any case, all involved parties, down to the fraudsters, try to protect their downside. On the one hand customers demand immediate refund of their loss, while financial institutions try to find a balance between their fiduciary responsibility and ascertaining the cause of the incidence which typically range from customer negligence, system compromise, staff error, internal/external collusion, the list goes on. In cases of negligence, refunds are almost impossible, and may perhaps have been built into T&Cs. Regulation, for good reason, also often hinder prompt resolution. For example, banks are usually not allowed to initiate withdrawals from customer accounts without a customer’s consent, or a court order. It follows therefore, that even when investigation reveal where fraudulent proceeds have been moved, getting a correspondent bank to place a lien and/or transfer those funds might be difficult.
If you hear of a major fraud incidence at your favorite restaurant, you’d probably go for a meal the next day, however if you read about an ‘isolated’ fraud incidence on your savings platform, you’d be more than likely to rethink your continued relationship with the financial institution. In an industry where there’s a fiduciary relationship between players, building and maintaining trust through appropriate stakeholder management is critical to ensuring long-term success.
Ultimately, fraud is global, ‘proper’ response, however, is a different ball game.