In recent years, Nigeria has made significant strides in promoting financial inclusion, aiming to integrate millions of unbanked and underbanked citizens into the formal financial system.
However, a surge in fraud cases threatens to derail this progress, leaving individuals and small businesses increasingly skeptical of digital financial services.
According to recent data by the Financial Institutions Training Centre (FITC), there has been a spike in reported fraud cases by banks and the amount involved in fraud.
Specifically, for Q3 2024, fraud cases reported by Nigerian banks jumped by 65% from 11,532 in Q2 to 19,007 in Q3.
Similarly, there was also a spike in the amount involved in fraud as the attackers attempted to steal N115.9 billion in the third quarter, marking a 105% surge compared with N56.6 billion recorded in Q2.
Over N53 billion lost to fraud in 9 months
Going by the FITC Fraud and Forgery reports for the first, second, and third quarters of the year, Nigerian banks and their customers have lost an estimated N53.4 billion to fraud in the first nine months of the year.
- While the reports show a minimal loss of N468.4 million in Q1, the fraudsters won big in Q2 carting away N42.8 billion in Q2, while topping it with another N10.1 billion in the third quarter.
- This shows a significant surge in losses compared with the total of N9.4 billion lost to fraudulent activities throughout last year.
- The reports further confirm the escalation of fraud across all platforms, with the rise of digital transactions further amplifying the risks.
Victims of financial fraud recount ordeal
For Lagos-based trader Amaka Eze, the promise of convenience turned into a nightmare. She lost N450,000 in July this year after hackers gained access to her mobile wallet through a phishing scheme.
“I had just started trusting digital payments to avoid carrying cash around. Now, I don’t know if I’ll ever use my phone for transactions again,” she lamented
Similarly, Daniel Ajayi, a small-scale farmer in Ibadan, saw his savings wiped out overnight.
“It took me three years to save that N1.5 million, and just like that, it was gone,” said Ajayi, who could not understand how his money was wiped out of his account despite keeping his ATM card and PIN secure.
Stories like theirs have become all too common, eroding trust in digital financial platforms.
Discouraging financial inclusion
The ripple effect of these fraud incidents is profound. Many Nigerians are now hesitant to open bank accounts or adopt fintech solutions, fearing they could lose their hard-earned money.
- For a country aiming to achieve 95% financial inclusion by the end of 2024, this skepticism poses a major hurdle. Women and rural dwellers, who are critical demographics for inclusion, are especially wary, given their limited exposure to financial literacy programs and fraud protection mechanisms.
- According to the 2023 Access to Finance (A2F) survey report of Enhancing Financial Innovation and Access (EFInA), despite steady advancements since the survey’s inception in 2008, the pace of progress remains a concern, with 59 million Nigerians excluded from formal financial services in 2020, particularly impacting rural communities and women.
- The report further notes that the ownership and use of banking services in Nigeria still skews heavily towards the top of the wealth distribution; in the more developed districts and urban areas; as well as towards males, those with better educational achievements, and the middle-aged contributing further to inequalities across and within these categories.
What the CBN is doing
As part of measures to stem the tide of rising fraud in the financial system, the CBN recently directed all financial institutions in the country to establish fraud desks to help protect against electronic fraud.
The purpose of these desks is to quickly respond to fraud alerts and reduce the number of successful electronic payment frauds.
In addition to that, the apex also set up the National Economic and Financial Crimes Forum (NEFF), a collaborative group led by the CBN that aims to reduce fraud in the Nigerian financial system.
The NEFF’s functions include:
- Taking proactive measures against fraud
- Implementing strategies to reduce fraudulent transactions
- Reporting fraud as soon as it’s identified
- Providing detailed data on fraud incidents
The role of bank customers
Despite the regulatory efforts, the issue of fraud still remains a major challenge in the financial industry and a threat to financial inclusion.
However, a cybersecurity expert and Unity Bank’s Chief Information Security Officer (CISO), Mr. Zechariah Akinpelu, noted that some of the losses to fraud are caused by bank customers’ carelessness.
- According to him, the false sense of security many individuals have regarding their ATM card protection, especially when relying solely on PIN security, could lead to major financial losses.
- While noting that many cardholders believe that if their card is lost or stolen, the attached PIN will prevent unauthorized transactions, he pointed out the danger of “card-not-present” (CNP) transactions, where no PIN is required to complete a purchase on certain merchant websites.
“If someone gets hold of your card details, they can make transactions on your behalf without needing your PIN,” he warned.
Highlighting the global risks, Akinpelu noted that while Nigerian banks have implemented robust security measures, such as PIN and chip technology, the global nature of online shopping exposes Nigerians to vulnerabilities present in other regions.
“In Nigeria, you can feel secure that most merchant sites will require a PIN for transactions. However, we live in a global village. I can order a phone from anywhere and have it delivered to me within a few days,” he said.
The Unity Bank CISO expressed worry that many Nigerian cardholders care less about the numbers on their cards but only their PIN.
“The way people carelessly handle their cards these days is concerning. People think that because they protect their cards with a PIN, even if the card gets lost, they are protected,” he stated.
Ways forward
Aside from the need for more awareness for bank customers to be security conscious with their ATM cards and other bank details, stakeholders in the financial industry said the financial institutions still have a lot to do in restoring the people’s confidence in them.
While expressing concern that the increasing rate of fraud across banks is eroding trust in the financial sector, the Managing Director and CEO of the FITC, Dr, Chizor Malize, suggested the deployment of Artificial Intelligence by all financial institutions to tackle the problem.
According to her, emerging technologies like AI would play a critical role in combating the rise of cyber threats and digital risks, which have been exacerbated by advancements in technology.
“There is an urgent need for leveraging AI to mitigate risks and bolster the stability of the financial system,” she said.
- Mrs. Favour Femi-Oyewole, Group Chief Information Security Officer of Access Bank, also highlighted the need for embedded security in the financial sector due to consumers’ exposure to diverse APIs and multiple digital footprints. She called for broad-based implementation of machine learning to address the growing financial challenges and avert potential risks.
Emphasising the need for collaboration among banks to tackle the menace, Femi-Oyewole said:
“We can compete on models, we can compete on strategies, on objectives and all that. When it comes to cyber security, we are all faced with the same common enemy. So, that means we have to collaborate.”
Similarly, the MD/CEO of Pattison Consulting Limited, Mr. Pattison Boleigha, advocated for the wider adoption of AI tools and software to counter financial fraud.
- According to him, the issue of governance and regulatory oversight are also very key to ensuring that all financial institutions are doing the right things in terms of security.
- To that end, he urged regulators to be trained on these technologies while calling for increased consumer awareness and collaboration between consumers, operators, and regulators to combat fraud effectively.
