In February, the Nigerian Inter-Bank Settlement System (NIBSS) released the third quarter Industry Fraud Report, which found that Nigerian banks lost N3.5 billion between July and September 2020 to fraud-related activities. This represents a 534-percent increase from the same period in 2019.
It also means that more Nigerian bank customers lost more money to online bank criminals in the quarter than in previous years.
The highest number of fraudulent cases (35.5% of the total) was committed on the web channel – transactions that are done using a web browser – making it the channel with the most number of cases. It is followed by fraud over mobile devices. Transactions done over phones were responsible for a loss of N410 million at 11.7 percent of the entire loss value.
Experts say the rise in electronic fraud activities is because more customers now use electronic channels for their transactions due to intensified awareness from the banks (targeted to draw customers to digital platforms), the convenience of using e-channels, the effect of COVID-19, which promotes virtualization of many processes including banking, and others.
“Banks have done a good job; so more people are using e-channels for transactions. COVID-19 also made this adoption accelerate significantly. Unfortunately, not everyone is very sophisticated or even careful,” Adedeji Olowe, CEO of Trium and a trustee of Open Banking Nigeria, told BusinessDay.
Since 2014, when it introduced the cashless policy, the Central Bank of Nigeria (CBN) has intensified efforts with the release of new guidelines that encourage operators in financial services to push out more electronic-based products and services.
While e-payment channels and mobile devices grew and advanced, user education of the products and services has not grown at an equal proportion.
In order not to fall prey to this menace, Babs Ogundeyi, CEO of Kuda Bank, a digital banking company, advised the best way for customers to protect themselves was never to share their credentials with anyone.
“Don’t fall for phishing sites and most importantly, don’t participate in any get rich quick scheme. If it is too good to be true then it is most likely not true,” Ogundeyi said.
According to Johnson Ajani, product manager, cards and digital products, Fidelity Bank, told BusinessDay that fraudsters leverage this vulnerability to perpetrate fraud.
“Example, a large percentage of people who use debit cards still use their date of birth as their card PIN. Many people’s first name is still their internet banking password, some customers even use numbers as simple as 1234 as PIN or password to their accounts,” Ajani said.
To be sure, electronic or internet banking fraud is a fraud or theft committed using online technology to illegally remove money from a bank account and/or transfer money to an account in a different bank. It is a form of identity theft and is usually made possible through techniques such as phishing.
Phishing often purports to present a legitimate web business and asks the “customer” to give personal information in order to receive fictitious products. Alternatively, phishing may involve a criminal sending out an email purporting to be a bank or credit company asking for information as part of an “urgent” request. Phishers then steal the identity directly or sell it to another party for illegal purposes.
Globally, e-bank fraud has been a growing menace costing banks and businesses a whopping $42 billion within a 24-month period, according to a study by PricewaterhouseCoopers (PwC). But fraud losses are really complex. Some costs that can be tallied include direct financial losses or costs due to fines, penalties, responses, and remediation.
However, costs such as brand damage, loss of market position, employee morale, and lost future opportunities are difficult to compute in numbers.
PwC also noted that major frauds perpetrated by insiders are potentially far more damaging than externally perpetrated crime, and not just because the financial loss is likely to be higher, as 43 percent of reported incidents resulting in losses of $100 million or more were committed by insiders.
On the other hand, fraud committed by customers tops not only the list of external perpetrators (at 26%) for the most disruptive fraud but also the list of all crimes experienced.
“Fraudsters are getting busier and exploring the greed in most customers to bait to perpetrate frauds. Despite different communications and awareness to customers that the bank will never request for their password and Pin, many customers fall to cheap promises of winning some large sum of money and give out their bank details,” Ajani said.
Customers also fall victim due to the economic pressures in the country. According to Ajani, while this is not a justification, many people are unable to cope with the inflation rate in the economy and find themselves accepting to perpetrate fraud at the slightest invitation.
Many people are unable to cope with the inflation rate in the economy and find themselves accepting to perpetrate fraud at the slightest invitation.
Most Nigerian banks have increased the rate at which they disseminate information on bank security. Access Bank and Stanbic IBTC, for instance, now send security messages to customers via email on a monthly basis.