Nigerian banking customers have lost a whopping N51 billion savings to fraud, even as cybercriminals are now targeting Fintech bank customers to defraud them, LEADERSHIP can exclusively reveal.
Between 2019 and July 2023, banking customers lost N50.5 billion to banking-related fraud, a situation that soared last year and early this year as a result of the cash crunch in the country following the naira redesign and cash withdrawal limit policies of the Central Bank of Nigeria (CBN).
With over N9 billion lost to fraud in the banking system as of July 2023, there are indications that the figure could rise to over N20 billion by year end as cybercriminals intensified their effort to defraud customers of Fintech banks across the country.
Data sourced from the Nigeria Inter Bank Settlement System (NIBSS) show that, while losses to fraud in the financial industry in the first quarter stood at N51 billion, the figure rose to N9.5 billion by July 2023, thereby bringing the total amount lost to fraud from 2019 to July 2023 to N50. 5 billion.
The renewed move by cybercriminals to defraud Fintech bank customers was because of penetrable security measures adopted by these Fintech banks, since they are meant to be just payment platforms.
However, most market men and women, artisans and some entrepreneurs have misconstrued their function to include deposit money banks, thereby withdrawing larger chunks of their savings in regular banks into these Fintech banks, a development that has seen many burn their fingers in the process.
Fintech banks, by their creation, are meant to be payment platforms, a transactional bank to effect payment for goods and services, because of speed in service delivery. While they are observing this function very well, the porous securitisation of these platforms have allowed criminals to gain access to people’s accounts and withdraw all or most savings. And in most cases, when these cases are reported, it is usually difficult to recover the money because perpetrators always use Point of Sale (PoS) machines or trading platforms for the dubious withdrawal, with the lack of physical offices affecting recovery of such fund.
The Fintech banks affected by this development include OPay, Palmpay and Moniepoint, among others.
The rising rate of fraud had led to rumours in the streets and various social media platforms that some of the fintechs are on the way to closing shop. A trader who craved anonymity said she had spent two days at the Opay office after more than N20,000 vanished from her account.
According to her, the fund was transferred from her account overnight and the fintech bank had not been able to refund or resolve the issue.
A bus conductor at Ikeja area of Lagos, Akeem, told LEADERSHIP that he did not keep more than N5,000 in his fintech account as he had heard of several experiences of people who lost their money to fraud.
The use of fintechs had gained more prevalence after the cash crunch in the early part of this year, as Nigerians needed transactional accounts that was fast and reliable. A businessman in Ikeja, Solomon Iyanda, said he had been using Opay to do business for the past three years and had never encountered any fraud, adding that if there is any transaction error, the firm will correct it.
“I have been hearing a rumour that we should not keep money in there for long. How do we trade or do business if we don’t save in the account? If you want me to transfer about N200,000 to you, how will that be possible if I do not have money in the POS? Some agents have more than a million in their accounts, and to me, their services are okay”.
A store owner, Mr. Seyi, said he used all the POS terminals that are available and this is because “if I want to do a transaction and there is a network problem, I can use another one. I have been using POS for the past two years. I save my money on it because if I withdraw the money today, for instance, and I want to use it for business the following day, I will still have to put money on it, so, I just leave it there and I have not recorded any fraudulent activities.”
Another POS user said she uses Microsystem POS.
“I can tell you I prefer its network to other fintech POS or deposit bank POS because of the problem they create for us. We leave our money there and this is because we use it for business,” he said.
Adamu Sanusi was however cautious of fintechs, saying, “I do not use all these payment apps. How can I leave the deposit money banks and start using a fintech bank? If I have an issue with them, how can I locate them? My friends use them and encounter challenges. I do not want to stress myself, hence, I stick with the bank that I know I can quickly enter their office and complain if there is an issue.”
However, Fintech companies in Nigeria have been urged to deploy block chain technology to prevent cases of fraud in the sector.
This is due to their importance as a gateway to the financial inclusion programme of the Central Bank of Nigeria (CBN).
The co-founder, VPD Money, Adeleke Mohammed, said: “We know that the only way CBN can achieve the target of financial inclusion is through the Fintech companies,” adding that Point-of-Sales Fintech companies are able to reach unserved and underserved communities.
“We saw the power of Fintech especially during the cash crunch in Nigeria. Nigerians were able to do their financial transactions with the help of Fintech companies as their services were seamless, with little or no issues,” he stated.
Mohammed, however, averred that there have been surge in fraud cases in the Fintech space, even as he asserted that with block-chain technology, an advanced database mechanism that allows transparent information sharing within a business network, these cases will be tackled.
“Fintech should deploy blockchain technology, which can prevent fraud to a large extent. For instance, if a user wants to make a payment, the transaction will be recorded as a blockchain and it will be verified by all parties.
“Block chain is like open through system, in that all the parties involved would see that you have done a transaction and that transaction is verified across board. So, if it is not the user that is making that transfer, the transaction won’t go, because it requires the user to give the nod,” Mohammed explained.
He also urged Fintech companies to propagate and implement a system that can anticipate those fraud cases before they happen.
“Before fraud can take place in the Fintech space, it is the Fintech Company that must have on-boarded the fraudsters into its platform, but if they do a thorough Know Your Customer (KYC), it will not be easy for a fraudster to creep into the platform in the first place. A lot of Fintech companies would say they have millions of people using their platforms. This is good, but they need to follow the KYC policy when on-boarding them into their platforms.
“For instance at VPD Money, a Fintech digital bank, we have a robust system where we are able to manage fraud cases before they happen. We have all the details of our customers. We do not compromise the KYC process and anti-money laundering policy of the CBN,” he stated.
Mohammed urged all Fintech companies in Nigeria to have a fraud department that would help to monitor transactions and report any suspicious incidents.
“For instance, if a user’s monthly transaction is N10,000 and all of a sudden, the transaction increases to N20,000, the fraud team should be able to flag that. They should also be able to flag when a lot of funds are withdrawn from a customer’s account within few hours. The fraud team should be able to put a hold to that account, place a call to the user to ascertain if he is the one withdrawing the fund. That way, people won’t lose their money to fraudster.
“The goal of all Fintech company is to ensure that their system is secured. They should try to educate their customers on how to secure their information. They can come up with finger print verification or facial recognition. That way, even when a user loses his phone, nobody can access his fund because it requires his finger print to open his account or finalise a transaction,” he advised.
On his part, the CEO, Remarkable Ideas Limited, Ade Atobatele told LEADERSHIP that until the government enforced KYC at betting platforms in Nigeria, fraud cases will continue.
Atobatele disclosed that most fraudsters, after stealing money from banks, would move and spread the money across various betting wallets.
“This makes it difficult for law enforcement agencies to be able to trace the fund, because most betting platforms do not do KYC,” he revealed.
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