Afrigather Regardless of a decline in fraud incidents in Q1 2024, monetary {industry} gamers agree fraud is an existential problem.
Conventional banks and fintechs have traditionally fought fraud by way of inner controls, strengthening safety infrastructure, and having satisfactory data on prospects (KYC processes). Banks additionally share data amongst themselves, serving to them establish and prohibit the accounts of dangerous actors pending investigation. Fintechs have tried to duplicate this data sharing however have failed.
In March 2023, fintechs, led by Flutterwave, started talks to create a fraud database, codenamed Challenge Radar, to share knowledge on people and teams that had tried or made fraudulent transactions. However the fintechs, hawkish about their knowledge and ultracompetitive, didn’t make a lot progress with these talks.
One other {industry} collaboration to struggle PoS fraud, a well-liked channel for dangerous actors continues to be in its early days. Nonetheless, a call mandating cell banking brokers to register with the Company Affairs Fee (CAC) is anticipated to extend transparency.
If monetary establishments are studying to fly with out perching, dangerous actors are studying to shoot with out lacking. The consensus is that an industry-wide response is required.
“It goes again to KYC and buyer due diligence,” stated Adedeji Olowe, founding father of Lendsqr, a lending-as-a-service startup. “There may be actually nothing new anybody is meant to do.”
Part 7(2)(b) of the CBN Customer Due Diligence Regulations 2023 mandates monetary establishments to bodily confirm the residential tackle of shoppers. Till lately, solely conventional banks have adopted this directive. The CBN started mandating fintechs to observe the identical guidelines in Might.
These KYC processes, which at the moment are being tightened and utilized throughout board, are on the coronary heart of a dispute between banks and fintechs. In April, Wema Financial institution removed seven fintech companions from its fee gateway platform over fraudulent actions after reporting ₦685 million ($594,943) in fraud and forgery losses in 2023. Constancy Financial institution additionally briefly blocked some neobanks over fraud issues in 2023, though such heavy-handed measures are possible frowned on by the regulator.
Nonetheless, banks and fintechs should sheathe their swords and collaborate to struggle fraud. One such technique in that struggle is knowledge sharing.
“I feel the ecosystem is ripe for a central repository the place all people can share knowledge. Simply the way in which the banks themselves got here up with BVN earlier than the regulator stepped in. The whole monetary {industry} wants one thing much like sort out fraud,” stated Lanre Ogungbe, co-founder of Identitypass, a Nigerian identification verification firm.
Information sharing has been mentioned since no less than 2018, presumably earlier, with little to indicate for it. The rising complexity of fraud has made it extra essential than ever.
Monetary Establishments (FIs) are a part of the Nigeria Digital Fraud Discussion board (NEFF), a CBN initiative the place they report fraud incidents and supply related data on the character of the fraud, however knowledge sharing isn’t a part of the association.
The argument for a central repository is that banks and fintechs can share knowledge on prospects who set off fraud flags and make that knowledge accessible to all individuals.
One {industry} insider narrated how a former worker of a conventional financial institution sacked for fraud obtained employed by a fintech startup six months later.
“Everybody should come collectively to struggle fraud as a result of it’s actually changing into a pandemic,” stated Babatunde Obrimah, chief working officer of the Fintech Affiliation of Nigeria, an {industry} foyer group.
But, fairly just a few persons are skeptical about any collaboration. “I don’t see collaboration taking place as a result of there’s this aversion to sharing knowledge. If each stakeholder is doing what they’re speculated to do, combating fraud shall be a lot simpler,” Olowe stated.
Obrimah stated the Fintech Affiliation of Nigeria is growing a black e book the place fintechs can drop particulars of financial institution accounts which were concerned in fraud to blacklist transactions from such accounts.
Taking fraud extra significantly may even embrace setting fraud desks and well timed disclosure of fraud incidents, Damilola Adeyi, a fraud professional advised TechCabal.
“A variety of monetary establishments don’t see fraud as an integral a part of their operations. You possibly can’t eradicate fraud however you may mitigate it,” he stated.
In 2015, the CBN mandated all deposit cash banks, cell cash operators, switches, and all fee service suppliers to ascertain a fraud desk to obtain and reply promptly to fraud alerts. However most fintechs are non-compliant as a result of the CBN has didn’t implement the directive, one {industry} insider claimed.
An government at Moniepoint confirmed the corporate has a fraud desk that handles transaction monitoring and behavioral evaluation, fraud detection and reporting, and investigation with legislation enforcement companies.
But, monetary establishments are paranoid about fraud reporting and consider disclosures may value them buyer belief. No less than 63% of the monetary establishments profiled in a current fraud report by the Nigeria Inter-Financial institution Settlement System (NIBSS), the nationwide fee swap, didn’t report fraud instances, a violation of a CBN directive.
There may be equally a have to strengthen the safety methods of monetary establishments. Within the First Bank incident, the fraud went undetected for 2 years, elevating questions in regards to the financial institution’s inner management. A scarcity of an efficient inner management system is the foremost reason for financial institution fraud, according to research. A 2022 KPMG Nigeria examine discovered that solely 30% of native banks have totally carried out KYC and anti-fraud measures.
“The CBN should take its audit extra significantly and do spot checks to see that Info Safety Administration System (ISMS) is being adhered to in all of the banks,” stated one fraud professional who requested to not be named.
