CEM REPORT, FINANCE| Nigeria, Africa’s most populous nation, is experiencing a double-edged sword: a boom in electronic payments coupled with a sharp rise in financial fraud. Fueled by the rapid adoption of electronic payments, financial losses due to fraud have surged by a staggering 496.96% between 2019 and 2023.
According to the Nigeria Inter-Bank Settlement System (NIBSS), bank customers lost a staggering N59.33 billion ($130.2 million USD) between 2019 and 2023. This alarming trend highlights the need for strong cybersecurity measures and increased awareness among bank customers.
This alarming trend coincides with a significant rise in electronic transactions, which jumped a whopping 463% to N611.06 trillion ($1.34 trillion USD) in 2023 from N108.42 trillion ($238.5 billion USD) in 2019. The surge in mobile money transfers is a key driver of this growth.
“The amount lost to fraud has increased over the past five years along with the growth of financial transactions in the digital payments sector,” NIBSS said in its “Annual Fraud Landscape” report for 2023.
Fraudsters Victims and Channels: Mobile Banking Suffers
The convenience of mobile banking has come at a cost. Scammers are increasingly targeting this channel, exploiting vulnerabilities to carry out their attacks. While the total number of reported fraud incidents decreased slightly by 6% in 2023 compared to 2022, the actual financial losses incurred by victims rose by a concerning 23%.
The NIBSS report reveals that mobile channels saw a 5% increase in attacks in 2023, making them the most vulnerable point of entry for fraudsters. Interestingly, despite the decrease in overall reported incidents, compliance with fraud reporting by financial institutions remains a challenge.
The report reveals a concerning trend: scammers primarily target individuals aged 40 and above. This demographic might be less familiar with the intricacies of mobile banking security, making them more susceptible to social engineering tactics.
Social engineering remains the most dominant tactic employed by fraudsters. This involves manipulating victims through psychological tricks to reveal personal information or take actions that compromise their financial security.
Breakdown of Fraud by Channel
The report provides a detailed breakdown of fraud by channel in 2023:
Mobile: 47,526 cases (N5.69 billion lost)
Web: 21,887 cases (N2.22 billion lost)
Point of Sale (POS): 17,560 cases (N4.42 billion lost)
Internet Banking: 5,381 cases (N4.09 billion lost)
E-commerce: 2,449 cases (N144.1 million lost)
ATMs: 722 cases (N63.6 million lost)
It’s worth noting that fraud losses via internet banking saw a significant increase of 325% in 2023 compared to 2022. This spike, according to NIBSS, is primarily due to a single N2.4 billion internal fraud incident involving corporate accounts reported by a Deposit Money Bank (DMB).
Non-Compliance with Reporting Creates Challenges
The NIBSS report also sheds light on a critical compliance issue. Financial institutions are required to submit fraud data via the industry fraud reporting portal. However, the report notes that “out of 163 institutions profiled in 2023, only 60 reported. This resulted in an overall compliance rate of 37 percent, with a concerning 63 percent being non-compliant.”
This lack of complete data makes it difficult to get a fully comprehensive picture of the fraud landscape in Nigeria. Improved industry-wide compliance with reporting is crucial to better understand the evolving tactics of fraudsters and develop effective countermeasures.
Read Also: Nigerians Loose Trust in Banks, Hoard Cash at Alarming Rates
Geography of Fraud
While the majority of attacks originated from within Nigeria, the report also identified the United States, followed by the United Kingdom and Ireland, as the top foreign countries where Nigerian bank customers were defrauded.
NIBSS Recommendations
The NIBSS report emphasizes the importance of a multi-pronged approach to combatting fraud. Here are some key recommendations;:
Fraud Education: Public awareness campaigns, particularly targeting vulnerable demographics like those aged 40 and above, are crucial.
Enhanced Security Measures: Banks need to strengthen their security protocols and systems to prevent unauthorized access to customer accounts.
Advanced Fraud Detection Technologies: Utilizing AI and machine learning can help identify suspicious activities and prevent potential fraud incidents.
Improved Compliance: Financial institutions must comply with fraud reporting requirements to create a more comprehensive picture of the threat landscape.
Regulatory Changes: Examining and revising existing regulations to address new methods of fraud is crucial.
The fight against financial fraud requires collaboration between banks, regulators
If You Ask Me
Recent data from the Central Bank of Nigeria (CBN) reveals that Nigerians are holding onto cash at an alarming rate. By March 2024, a staggering 94% of the country’s currency in circulation, ₦3.63 trillion out of ₦3.87 trillion, resided outside the banking system.
While this may seem unrelated, perhaps, Nigerians don’t trust the system, this could explain the cash hoarding and who can blame them. Fraudsters are on the rise and the institution we should trust to keep our valued cash safe “might” have trouble of their own.
Financial players will need to develop a multi-faceted approach to tackle the menace of fraudsters and restore confidence to the system.
