By Chinenye Anuforo
While mobile money services have revolutionized financial inclusion in Nigeria, a growing concern is the increasing threat of fintech fraud. This digital crime wave is not only hindering financial progress but also eroding trust in these innovative services.
A recent report from the Financial Institutions Training Centre (FITC) revealed a surge in fraudulent activities targeting point-of-sale (POS) systems and mobile devices. Mobile fraud, in particular, accounted for 33.4 per cent of reported incidents as against 24.6 per cent of POS-related fraud, underscoring the vulnerability of this rapidly growing sector.
The implications of this trend are far-reaching. Nigeria, with a significant unbanked population, relies heavily on mobile money services to access essential financial services.
However, the fear of fraud deters some potential users, hindering efforts to achieve financial inclusion.
A 2021 World Bank report showed that only 45% of Nigerian adults have bank accounts. Another 2021 study revealed that nearly one in two adults don’t use any formal financial services. And more than one in three Nigerian adults are completely financially excluded. To be financially excluded means that such adults do not have or use any financial products or services – whether formal or informal.
The rise of fintech fraud further exacerbates this issue, as it can erode trust in digital financial services.
For instance, Chukwuma Ezeh, a petty trader was a firm believer in the power of technology and had embraced digital banking with enthusiasm. He told Daily Sun that his trust in his digital bank was unwavering, and he felt secure knowing his money was safeguarded by advanced security systems.
One fateful day, his phone rang. The caller ID displayed the name of his bank, and a friendly voice greeted him, introducing himself as a customer service representative. The caller explained that there was an urgent need to update his account information to prevent unauthorized access. Trusting the caller’s sincerity, Chukwuma provided the requested details, including his account number and One-Time Password (OTP).
Within minutes, his life savings vanished. The realization hit him like a thunderbolt. His hard-earned money, the fruits of years of labour, was gone, stolen by cybercriminals who had exploited his trust.
The incident left Chukwuma devastated. He had been a victim of a sophisticated phishing attack, a common tactic used by fraudsters to deceive unsuspecting individuals. The breach of his trust in technology had left him feeling vulnerable and betrayed.
From that day forward, Chukwuma’s perception of Fintech underwent a dramatic shift. He became wary of any digital transaction, fearing that he might fall victim to another cyberattack. He withdrew all his remaining funds from his digital bank account and reverted to traditional banking methods and relying heavily, on cash transactions.
As a result, Chukwuma became financially excluded, cut off from the convenience and efficiency of digital banking. He missed out on the numerous benefits that Fintech offered, such as easy money transfers, bill payments, and investment opportunities.
Chukwuma’s story, unfortunately, is not an isolated incident. Countless Nigerians have fallen prey to similar scams, leaving them disillusioned and fearful of the digital age. This widespread mistrust has had a significant impact on the nation’s financial inclusion efforts.
As more and more people become wary of online transactions, they retreat to traditional banking methods, which are often less accessible and efficient. This trend is particularly concerning for marginalized groups, such as rural populations and low-income individuals, who rely heavily on digital financial services to access essential banking services.
The erosion of trust in Fintech creates a vicious cycle. As fewer people embrace digital solutions, the industry will struggle to innovate and improve security measures. This, in turn, will further fuel skepticism and reinforces the belief that online transactions are inherently risky.
Deputy Governor Financial Systems Stability, Central Bank of Nigeria (CBN), Philip Ikeazor, acknowledged Nigeria is home to over 200 Fintech startups, attracting significant investments and driving financial inclusion across the country.
He said digital banking platforms, mobile wallets, and online payment systems have made financial services more accessible to millions of Nigerians, fostering greater financial inclusion and convenience. However, on the flip side, digitalization also brings challenges that can erode trust if not properly managed. He said, “Issues like cybersecurity threats, data breaches, and digital fraud are persistent concerns that can erode consumer confidence in the system.”
Ikeazor explained that to mitigate these risks and meet the ever-changing nature of this ecosystem, the apex bank has implemented and championed various infrastructural and regulatory interventions which cover stringent cybersecurity guidelines and robust data protection measures, such as the Bank Verification Number (BVN), Industry Dispute Resolution System (IDRS), Open Banking Regulations, Regulatory sandbox, etc.
He said the CBN continuously works with industry stakeholders to ensure that the digital financial ecosystem remains secure and trustworthy.
On his own part, Oluseyi Akindeinde, a cybersecurity expert, urged individuals to be vigilant against the rising threat of Fintech fraud. He highlighted the importance of implementing robust security measures to protect sensitive information and financial assets.
“Phishing attacks and social engineering tactics remain prevalent methods used by cybercriminals to deceive unsuspecting victims,” Oluseyi warned.
“To safeguard themselves, users should prioritize strong cybersecurity practices, such as regularly updating software, using strong and unique passwords, enabling two-factor authentication, and exercising caution with suspicious emails or messages.”
To bolster Nigeria’s cybersecurity infrastructure, Akindeinde, who is also the founder of Hyperspace and chief executive officer of NeuRal AI, emphasized the need for a comprehensive approach like robust legal framework, advanced technology investment, collaboration between government and industry to enhance information sharing amongst others.
The co-founder, VPD Money, Adeleke Mohammed, urged Fintech companies to deploy blockchain technology to prevent cases of fraud in the sector.
He said the only way CBN can achieve the target of financial inclusion is through the Fintech companies.
Mohammed affirmed that the Fintech sector is so important as it has the capacity to bridge this gap, while explaining that with Point-of-Sales, Fintech companies have been 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 service fees,” he stated.
However, Mohammed averred that there have been surge in fraud cases in the Fintech space, while advocating that with blockchain 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 all 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 tasked Fintech companies to propagate and implement a system that can visualize those fraud cases before they happen.
“Before fraud can take place in the Fintech space, it is the Fintech Company that must have unbounded 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 bounding 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. “For instance, if a user 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 fingerprint verification or facial recognition. That way, even when a user loses his phone, nobody can access his fund because it requires his fingerprint to open his account or finalize a transaction,” he advised.
However, as the fintech industry continues to innovate, operators asserted they are staying ahead of the curve by adopting cutting-edge security technologies like Artificial Intelligence (AI) to combat fraud and protect customer information.
Responding to Daily Sun inquiry, PalmPay explained that they operates a secure system, being fully licensed as a Mobile Money Operator by the CBN and insured by the NDIC, which means it operates under strict regulations and safeguards user funds.
“PalmPay employs a closed-loop risk management system to constantly monitor and detect potential fraudulent activity in real-time. This requires users to verify their identity through BVN and NIN, adding another layer of protection against unauthorized access. Users can manage trusted devices within the app to prevent unauthorized access from unknown devices
Our apps also include several security features to help users protect their account, including biometric access, PIN confirmation of transactions and ability to hide their account balance from view”, the company stated in its response.
PalmPay added that as many other mobile money services, the firm has been proactive in strengthening its security protocols to better protect customers from potential cyber fraud with two-Factor Authentication (2FA), data encryption, wallet safety customer education and 24/7 customer support.
Earlier, Chika Nwosu, the managing director of Palmpay, speaking on the sidelines of the firm’s fifth anniversary, acknowledged the challenges the Fintech is facing, especially those related to fraud.
“We have faced different challenges, and we are working on them. Recently, there has been a rise in fraud. However, we have gotten some AI and fraud monitoring tools to combat them,” he said.
To address these challenges, experts recommended fintech companies should invest in advanced security technologies, such as encryption, firewalls, and intrusion detection systems.
They also urged the regulators to develop stricter guidelines for fintech companies, including mandatory security standards and data protection regulations.
“Financial institutions and government agencies should collaborate to provide financial education programs to the public. Government and private sector entities should work together to share intelligence, coordinate responses to cyber threats, and promote best practices”.
To ensure that cybersecurity regulations remain effective in the face of rapid technological advancements, Oluseyi proposed the following strategies: Periodically reviewing and updating regulations to address new threats. Engaging with cybersecurity professionals and technology companies for insights.
The cybersecurity expert also proposed developing flexible regulatory frameworks to accommodate technological changes as well as supporting cybersecurity research and development.
He added that by adopting these recommendations, Nigeria can strengthen its cybersecurity posture and protect its digital assets from malicious attacks.
By taking these steps, Nigeria can mitigate the risks of Fintech fraud and continue to drive financial inclusion for all.
**This report is produced under the DPI Africa Journalism Fellowship Programme of the Media Foundation for West Africa and Co-Develop.