Fraud losses quintuple in 5yrs as mobile scams boom

Fraud losses in Africa’s most populous nation have risen by 496.96 percent over the past five years fueled by the rise of electronic payments.

Bank customers lost N59.33 billion between 2019 and 2023, with losses increasing from N2.96 billion in 2019 to N17.67 billion in 2023. “The amount lost to fraud has increased over the past five years along with the growth of financial transactions in the digital payments sector,” the Nigeria Inter-Bank Settlement System highlighted.

Electronic transactions have jumped 463 percent to N611.06 trillion in 2023 from N108.42 trillion in 2019. This has been attributed to the surge in mobile transfers.

In this period, mobile subscriptions have grown by 21.68 percent, from 184.43 million as of the end of December 2019 to 224.41 million as of 2023.

The NIBSS’s ‘Annual Fraud Landscape’ report, covering January to December 2023, revealed this trend. In 2023, fraudsters successfully scammed over 80,658 bank customers, a 4 percent decrease from the 84,130 victims in 2022.

Scammers primarily targeted individuals aged 40 and above and generally exploited vulnerabilities in mobile banking to carry out most of their attacks. While the total number of reported fraud incidents\ decreased by six percent, the actual losses incurred by victims rose by 23 percent.

Financial institutions submit fraud data to NIBSS via its industry fraud reporting portal. “Out of 163 institutions profiled in 2023, 60 reported. This resulted in an overall compliance rate of 37 percent, with 63 percent being non-compliant,” it said.

Of the total fraud count in 2023, deposit money banks had 92 percent (88,112), and other financial institutions had 8 percent (7509). Mobile channels recorded a five percent rise in attacks compared to 2022, becoming the most vulnerable to fraudsters. Social engineering remained the most persistent and dominant technique employed by these fraud actors.

“The Mobile channel was statistically the most profitable channel for fraudsters in 2023 with a Fraud Interest Index of 34 percent. It is followed by Internet Banking and POS with 33.99 percent and 26.37 percent, respectively,” NIBSS noted.

In 2023, Lagos state recorded the highest number of fraud cases (48 percent of the total) and suffered the most financial losses (49 percent). A breakdown of the fraud count revealed that mobile channels recorded 47,526 cases (with N5.69 billion lost), web 21,887 cases (N2.22 billion lost), Point of Sales 17,560 cases (with N4.42 billion), internet banking 5,381 (N4.09 billion lost), e-commerce 2,449 cases (N144.1 million lost), and ATMs recorded 722 cases (N63.6 million lost).

Fraud loss via Internet banking increased by 325 percent between 2022 and 2023. “This is largely due to a N2.4bn internal fraud on corporate accounts reported by a DMB,” NIBSS noted.

The United States, followed by the United Kingdom and Ireland, is the top foreign country where Nigerian bank customers were defrauded from. However, most attacks were local.

As a preventive measure, the NIBSS emphasised the importance of fraud education, particularly for the vulnerable demographic (40 years and above). It declared that while there might have been a decline in overall fraud count, there is still much to do.

The trend is “urging the financial industry to remain vigilant, enhance security measures, and collaboratively address the tenacious challenges posed by fraud. Some regulations need thorough examination, modification, and reinforcement to reduce the potential for fraud and enhance the chances of successful recuperation,” it said.

Assane Gueye, a professor at Carnegie Mellon University Africa, noted that cybersecurity attacks can slow down financial inclusion.

“We should be more intentional that these technologies will bring more good and not harm,” he said. A recent report from the Financial Institutions Training Centre revealed that the total amount of money lost to fraudulent activities across payment channels was N9.43 billion in 2023.

The centre said banks must strengthen their security protocols and systems to prevent unauthorised access to customer accounts and sensitive information.

“Also, banks should utilise advanced fraud detection systems and technologies that can analyse patterns, identify anomalies, and detect suspicious activities in real time. These systems employ Artificial intelligence and Machine Learning and help identify potential fraud incidents and trigger alerts for further investigation,” FITC added.